Wayne Cole provides an update on the European and global markets for the day ahead.
The dollar took its first steps this Monday, recovering part of its losses from last week, helped in part by rare words of support from US President-elect Donald Trump.
While 100% tariffs seem unlikely, the latest comments mark a shift from former Trump, who openly touted a weaker dollar as a way to close the U.S. trade deficit. The market deduced that it would not be a source of pressure on the currency.
The Chinese yuan certainly took it badly, hitting a three-month low against the dollar.
The dollar is also up about 0.5% against the yen and above 150.50 yen to the dollar, eclipsing recently more optimistic comments from Bank of Japan Governor Kazuo Ueda, who said that next interest rate hikes were “close in the sense that economic data is on track.”
Mr. Ueda's comments, combined with data showing that Japanese business investment grew at a healthy 8.1% in the third quarter, encouraged markets to put the chance of the Bank of Japan increasing at 65%. its rates by a quarter of a point to bring them to 0.5% at its general policy meeting on December 18 and 19.
This is about the same chance that the Federal Reserve will cut rates by a quarter point at its December 18 meeting, although much will depend on the results of the ISM surveys and the employment figures of this week.
U.S. jobs are expected to have increased by 195,000 in November, although the forecast range of 160,000 to 270,000 suggests the risk of an upside surprise. JPMorgan, for example, is counting on 270,000, with the end of hurricanes and strikes having added nearly 90,000 jobs to the payroll. However, they also expect the unemployment rate to rise to 4.2% and move closer to the Fed's 4.4% curve, likely leaving the door open for easing in December.
For the ECB, a 25 basis point cut on December 12 is considered the absolute minimum and the market implies a 21% probability of 50 basis points. Investors have set the ECB's rate floor at 1.6%, compared to 3.75% for the Fed.
French bonds will need all the rate love they can get after the far-right National Rally party raised the risk of a vote of no confidence this week that could oust Prime Minister Michel Barnier. In any case, budget consolidation seems unlikely and the deficit could reach 6% of GDP, perhaps making borrowing more expensive for France than for Greece.
Finally, it is worth keeping an eye on the Russian ruble, which almost collapsed last week, as the authorities seemed to tolerate its fall, perhaps believing that a devaluation was worth it to increase their export earnings by commodities priced in dollars.
Main developments likely to influence the markets on Monday:
– House prices in the United Kingdom in November; unemployment in the EU; PMI in the Eurozone, Germany, the United Kingdom and France.
– Christine Lagarde, President of the ECB, Lee Foulger, Director of the BoE, Anna Breman, First Deputy Governor of the Riksbank, Christopher Waller, Governor of the Fed, and John Williams, President of the New York Fed, will make appearances.
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