Wayne Cole provides an update on the European and global markets for the day ahead.
Asia was dominated by market reaction to the choice of fund manager Scott Bessent as the new US Treasury Secretary, with the main sentiment being relief that it was a mainstream candidate rather than an unknown.
Bessent’s speaking like a fiscal hawk was enough to push 10-year Treasury yields down 6 basis points, although it remains to be seen whether he will be able to reduce deficits while continuing cuts. expired taxes.
In various media appearances, he has talked about reducing the budget deficit to 3 percent of GDP and tackling America’s debt mountain, ostensibly by cutting spending and boosting economic growth.
Skeptics will point out that the United States has been growing strongly for some time and the deficit has only grown, while the amount of discretionary spending to be cut is insignificant compared to essential spending such as insurance -disease and defense.
Mr Bessent came out in favor of tariffs, suggesting they should be “phased in” targets, while the tariff levels mentioned, such as 60% on Chinese goods, were “phased in” targets. maximalists” which could be watered down.
He also spoke in favor of a strong dollar, appearing to oppose the attitude of President-elect Donald Trump, who has already resorted to devaluation to reduce trade deficits.
So although the dollar has fallen today, along with bond yields, the long-term bullish argument appears intact.
The dollar was supported by the divergence in economic performance between the United States and Europe, a point highlighted by last week’s PMIs.
Markets are fully pricing in a quarter point cut from the ECB next month, and implying a near 58% chance that it will carry out a full 50 basis point easing on December 12. Bets on the Fed have reversed, with the probability of a December rate cut falling to 52%, down from more than 70% a month ago.
The market has only priced in 65 basis points of Fed easing by the end of 2025, compared to 154 basis points for the ECB.
This week, the tone of the minutes of the latest Fed meeting, as well as October inflation figures in the United States and Europe, will help refine the forecasts.
U.S. core consumer price inflation is expected to rise a notch to 2.8%, but partly because of rising financial management costs that reflect the rise of Wall Street, rather than demand in the economy.
European inflation is also expected to rise due to base effects, with last year’s CPI decline not factored into the calculation.
Note that no Fed speakers are scheduled this week, likely due to the US Thanksgiving holiday, but plenty of ECB and BoE representatives are on the menu.
Main developments likely to influence the markets on Monday:
– IFO survey on the business climate in Germany in November
– Chicago and Dallas Fed surveys
– Speech by Philip Lane, Chief Economist of the ECB, and Gabriel Makhlouf, Member of the ECB.
– Appearances by Clare Lombardelli, Deputy Governor of the Bank of England, and Swati Dhingra, member of the Monetary Policy Committee.
