Markets Daily
During a shortened US session following Thanksgiving Day, the US dollar fell amid slightly improved risk sentiment and bond yields rose. AUD printed new highs since August around 0.6590. Today’s data calendar is light. ECB’s Lagarde is due to speak.
Friday
Japan October CPI was a touch below expectations though still well above the BoJ’s 2% target. Overall CPI rose 3.3%yr, ex-fresh food 2.9%yr, ex-fresh food and energy 4.0%yr. Japanese markets reopened from their holiday with a 0.6% Topix gain but China and Hong Kong equities resumed declines. The ASX 200 eked out a 0.2% gain while AUD/USD was just 10 pips higher at 0.6565 in predictably quiet trade.
Currencies/Macro
The US dollar was either weaker or flat against G10 currencies Friday. EUR/USD rose from 1.0905 to 1.0940. GBP/USD rose from 1.2535 to 1.2610. USD/JPY was about flat, around 149.50. AUD/USD rose to 0.6591 – highest since 10 August. NZD/USD rose from 0.6050 to 0.6090 – highest since August. AUD/NZD fell about 15 pips to 1.0825.
The flash November S&P Global US manufacturing PMI at 49.4 was softer than consensus (49.9) and below the prior reading of 50.0, while the services PMI was solid at 50.8 (est. 50.3, prior 50.6), leaving the composite unchanged at 50.7 (est. 50.4). A decline in the employment component (the first decline since June 2020) offset stronger new orders.
The November German IFO business climate survey was solid at 87.3 (est. 87.5, prior 86.9), with current conditions at 89.4 (est. 89.5, prior 84.8) and expectations at 85.2 (est. 85.8, prior 84.8). The report suggested that the worst for the German economy was had passed, while acknowledging risks regarding Budget deficit confusion post the supreme court ruling on debt issuance.
Germany GDP growth was unchanged in Q3 at -0.1%q/q, although the annual pace slipped to -0.4% from -0.3% and consumption fell (both private and public).
Canadian retail sales in September were firmer than expected at +0.6%m/m (est. flat), +0.2% ex-autos.
Interest rates
The US 2yr treasury yield was 4.90% into the Thanksgiving holiday, reopening around 4.93% on Friday, closing at 4.95%, while the 10yr yield rose from 4.40% to 4.47%. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting on 14 December, with a 50% chance of a rate cut in May 2024.
Australian 3yr government bond yields (futures) ranged between 4.19% and 4.23%, while the 10yr yield ranged between 4.55% and 4.58%. Markets are pricing no change at the next meeting on 5 December, but a 50% chance of one in February 2024. New Zealand rates markets are pricing the OCR, currently at 5.50%, to be unchanged on 29 November, and in February, with a 50% chance of a rate cut by July 2024.
Unsurprisingly, primary credit markets remained quiet the day after Thanksgiving, though ANZ Bank have mandated for a GBP Benchmark 3yr covered SONIA FRN. Itraxx Europe widened 0.5bps to 68.3bps, CDX IG widened 0.6 bps to 63.2bps; Honeywell and Target had the best performing contracts while DXC Technology and Johnson & Johnson were a drag on the index. Cash bonds tightened 0.7bps to 142.3, the best performing sectors were subordinated financials and communications, while utilities and industrials were the worst performing.
Commodities
Crude markets fell Friday in light post-holiday trade as OPEC was said to be “tweaking” the 2024 targets for Angola and Nigeria, while Hamas agreed to a hostage release. The January WTI contract fell $1.56 to $75.54 while the January Brent contract fell 84c to $80.58. The WTI prompt calendar spread remained in “bearish” contango with the January-February spread at -23c versus a peak of $2.38 in late September. At the last OPEC+ meeting in June, both Angola and Nigeria were pressed to accept a sharp reduction in production quotas for 2024 at 1.28bmpd and 1.38mbpd respectively. However, Nigeria pumped 1.416 last month according to OPEC data. UAE also has the right to increase production modestly in January 2024, emphasising how difficult it will be for OPEC+ to deepen cuts. Both RBC and hedge fund energy guru Pierre Andurand argued that deeper cuts will be required by OPEC+ to lift markets. OilChem said that Chinese refiners are planning to ship 4% less fuel in December due to lower export margins.
Metals were very mixed with copper up a modest 0.4% at $8,440 and aluminium was largely unchanged at $2,225. However, tin fell 2.4% to $23,884 while nickel plunged another 3% to $16,125 to be down 46%ytd. Tin has only traded below $24,000 on five periods back to March of this year while that’s a fresh 2 ½ low for nickel. Protestors were reported to have attacked workers leaving the Cobre Panama copper mine early on Sunday, according to a union leader. Panama’s Supreme Court is considering cases against the mine and First Quantum confirmed it had suspended copper production in Panama due to the protests and a blockade. Global aluminium demand will rise by between 20% and 30% over the next seven years according to a Saudi minister at the Arabal conference. Since the launch of Vision 2030, Saudi Arabia has aimed to establish itself as a key global hub for metal production. Bloomberg reported that battery giants were “starting to put their money on new sodium-based technology”. In the past week Sweden’s Northvolt AB said it made a breakthrough with the technology while BYD signed a deal to build a $1.4bn sodium-ion battery plant. CATL also said in April that sodium-based batteries will be used in some vehicles this year.
Iron ore markets showed some signs of heeding warnings from China’s NDRC with the December SGX contract down 95c to $131.65 though the 62% Mysteel index is up 85c to $134.85. In a statement last week, the NDRC warned companies not to “fabricate and disseminate price increase information” nor “to hoard or to speculate and manipulate the futures market”. China will report its November PMIs Thursday and Friday.
Day ahead
China: November’s industrial profits growth is expected to be weak due to high costs, forecast -9%ytd y/y.
ECB President Lagarde speaks to European Parliament.
US new home sales in October are anticipated to be under pressure from low inventory and high interest rates (market f/c: -4.8%m/m). The November Dallas Fed manufacturing index is expected to remain little changed, with continued weakness likely to show in manufacturing activity (market f/c net balance: -16.0).
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