French politics in limbo as Barnier faces no-confidence vote

In focus today

The no-confidence vote against French PM Michel Barnier is set to take center stage and is scheduled this afternoon at 16:00 CET. As Marine Le Pen's party announced they would support the vote of no confidence, the government will most likely collapse this evening. President Macron will have to take on the difficult task of appointing a new prime minister who can survive no confidence votes in the National Assembly. The current stalemate in French politics is likely to persist, with no large reforms to be pushed through.

In the afternoon, both US ADP private sector employment and ISM services data for November are due for release. The former will provide an early sense of what to expect from the pivotal NFP print coming up on Friday, weekly jobless claims have still pointed towards solid labor market conditions. We will also follow if the ISM index shows a similar sharp increase as its PMI counterpart did earlier. Fed chair Powell will participate in an interview today at an event hosted by the NY Times.

In the euro area, focus turns to the release of the final service and composite PMIs for November. The manufacturing PMI this Monday remained exactly unchanged as expected at 45.2. The flash releases triggered significant market reactions, so we are closely monitoring the final release.

Economic and market news

What happened overnight

In China, the Caixin Services PMI for November saw a slight decrease to 51.5 from 52.0 in October, due to slower new business growth and worries about additional tariffs under Trump's administration.

What happened yesterday

In South Korea, President Yoon Suk Yeol unexpectedly declared martial law in a move targeting "shameless pro-North Korean anti-state forces". Protesters took to the streets and just hours later President Yoon moved to lift the declaration, abiding to the unanimous vote by parliament against the measure. USD/KRW surged to the highest level in two years, albeit to some degree slid back down as martial law was rescinded. Lawmakers are now calling for President Yoon to either resign or face impeachment.

In the US, October JOLTs job openings came out on the strong side, although with negative revisions. Actual hiring slowed down to 5.3M from 5.6M, but involuntary layoffs also decreased to 1.6M from 1.8M the previous month. The ratio of job openings to unemployed job seekers remained at 1.11, very close to the average level observed over the past 5 months. EUR/USD ticked slightly lower following the release given the big higher job openings.

Federal Reserve policy makers Daly and Kugler both signalled that they believe inflation is set to reach the 2% target rate but avoided giving any guidance on whether they support a rate cut at the Fed's December meeting, with investors currently pricing just below 20bp for the meeting. We expect a 25bp cut in December.

In Switzerland, inflation for November was in line with expectations. Headline came in at 0.7% y/y (cons: 0.7%, prior: 0.6%) and core at 0.9% y/y (cons: 0.9%, prior: 0.8%). Note the SNB's projection for Q4 is 1.0%, thus pointing to inflation once again undershooting the SNB's forecast. EUR/CHF was close to unchanged on the release with markets evenly split between a 25bp and 50bp cut at the next quarterly meeting in December. Key will be continued developments in the real effective CHF as it plays a large role for imported inflation.

Equities: Global equities rose yesterday, with markets in Asia and Europe outperforming those in the US. Once again, cyclicals outperformed defensives, further widening the already historically significant outperformance observed over the last two years. Concurrently, the VIX ticked lower from already low levels. This reflects the benign macro environment and optimism surrounding the new US administration, which is encouraging investors to take on more risks, leading equities to reach new all-time highs. The next significant event that could disrupt the current narrative is the NFP data release on Friday. In the US yesterday, the Dow closed down 0.2%, the S&P 500 was up 0.1%, the Nasdaq increased by 0.4%, and the Russell 2000 decreased by 0.7%. Most Asian markets are higher this morning, except for South Korea, which is bucking the trend. US futures pointing higher this morning, while Europe is a more mixed picture.

FI: There were modest movements in global bond yields yesterday despite the political uncertainty in France and South Korea and comments from various Fed officials that the Federal Reserve is still looking to cut rates, but they gave no clear indication for the upcoming meeting in December about whether they would cut rates. Hence, there is significant focus on the labour market data on Friday as well as comments from Fed chairman Powell later this week.

FX: EUR/USD ended the day slightly north of the 1.05 mark following a slight topside surprise to the JOLTS data. EUR/CHF was close to unchanged following a rather uneventful November inflation print, which came in in line with expectations. Slightly higher oil prices and an underperforming Norwegian fixed income space have delivered some support to the NOK in the early part of this week's trading with EUR/NOK now back close to 11.60 and NOK/SEK re-approaching parity. USD/CNY has continued to move higher driven by both renewed divergence in monetary policy expectations between US and China as well as anticipation of US tariff hikes.