Sunset Market Commentary

Markets

Very few market-moving data in the US and EMU today. US markets are counting down to tomorrow’s US payrolls. This report, together with the US November CPI data (to be released on Dec 11), will provide concluding data evidence for the Dec 18 Fed policy meeting. US markets still only discount about 75% of a 25 bps cut, which we still see as the most likely scenario. Even so, US yields in technical trading add between 3.2 (2-y) and 1.5 bps (30-y) even as jobless claims printed slightly higher (worse) than expected (224k from 215k). German yields also add between 6.5 bps (5-y) and 2.0 bps (30-y). The rise gained some momentum on headlines from French RN Marine Le Pen as she said in an interview with Bloomberg that a budget was still possible if Macron and/or the next PM eases the stance on the debt path. This also triggered further intraday euro gains, with EUR/USD currently changing hands near 1.057. First short-term resistance is coming in at 1.0597/1.0610. EMU equities gain modestly (EuroStoxx50 + 0.5%). The S&P 500 is holding at record levels (little changed after open).

Sterling today is holding strong against the dollar (Cable 1.274) but meets resistance against the euro after recent rally (EUR/GBP 0.8785). The Monthly Decision Maker Panel survey of the Bank of England shows that UK CFO’s estimate year ahead own price inflation to be 3.7%, 0.2% higher compared to the previous survey. Expected year ahead wage growth was seen at 4.0% holding near its recent average. However, on a new question regarding the firms’ response to the increase in the employer National Insurance contribution announced in the budget, 54% of firms expects to raise prices and a similar group sees lower employment. 59% sees lower profit margins and 38% say they expects to pay lower wages than they otherwise would have done. This probably isn’t what the government wants to see, but also doesn’t make help the BoE to step up the pace of easing.

CE currencies (especially the forint and to a lesser extent the zloty) earlier this month face quite an uphill battle, but this week finally enjoyed some breathing space. This is partially due to the global market context, but domestic regional factors are also in play. On the global scene, the European risk-off eased at least temporarily. US interest rates are capped for now as the Fed will likely continue a process of gradual (25 bps) easing on Dec 18. A pause in the dollar rally also removed some pressure from regional currencies. At the same time, the Hungarian (MNB), Czech (CNB) and Polish central bank are in/heading to a pauze in their easing cycle. This for sure won’t be enough to shield local FX in a context of heightened risk-off, but helps in the current lower volatility intermezzo. At EUR/PLN 4.262, the zloty is closing in on the strongest levels against the euro since end September. At the press conference after yesterday’s NBP decision, governor Glapinski indicated that the debate on a rate cut might be delayed to October 2025, as Polish CPI might spike again in late 2025. The Czech koruna yesterday develop a similar pattern and today holds is gains (EUR/CZK 25.14). CNB governor Michl rather unambiguously closed the door for a December rate cut as wages continue to rise faster than expected. The forint end last week touched weakest levels since December 2022 (EUR/HUF 415 area) but currently also tries a (short-term?) reversal (EUR/HUF 411.9 currently).

News & Views

Swedish inflation accelerated slightly less than expected in November, by 0.3% M/M (from 0.2%) for the headline reading and by 0.5% M/M (from 0.4%) for the CPIF-gauge (using a fixed rate) preferred by the Swedish Riksbank. In annual terms, overall CPI stabilized at 1.6% with the CPIF measure rising from 1.5% to 1.9%, the highest level since May but remaining below the Swedish Riksbank 2% inflation target ever since. More detailed information and definitive figures will be available on December 12. Yesterday, a private survey by Prospera on behalf of the Riksbank showed consumer inflation expectations 1y, 2y and 5y ahead broadly unchanged compared with September: CPIF 1.7%-1.9%-2% from 1.7%-1.8%-2%. Inflation numbers won’t derail the central bank from implementing another rate cut at their final policy meeting of the year, albeit a smaller (25 bps) one than in November. The Swedish krone today rebounds off first technical resistance at EUR/SEK 11.49.

OPEC+ pushed back an increase in oil production planned for January by three months until the end of March. The full amount will be returned over a period of 18 months instead of the previously indicated 12 months. It’s the same gradual rollback of 2.2mn b/day of voluntary curbs which had already been delayed twice. Oil prices traded volatile but are unchanged in the end (Brent crude $72.5/b) given that the delay was broadly expected.