Europe mixed ahead of US CPI

EU mid-market update: Europe mixed ahead of US CPI; FX morning narrative on Chinese yuan and Japanese yen as China's annual meeting started; Biden aims to hit Russia and China with extra levies.

Notes/observations

- Gravity of upcoming US CPI paralyzing markets into directionless trade; Retail sector in Europe is underperforming after Spanish apparel giant Inditex reported 9-month results, missing expectations and recorded slowing in comp sales growth in Nov.

- Truflation proxy of US aggregated Inflation Index overnight hit 2.93%, highest since early Oct 2023 v US govt reported rate of 2.6%; Cleveland Fed’s Inflation Nowcast forecasting Nov US CPI Y/Y (to be out today) to accelerate to 2.7% from 2.6% for Oct US CPI Y/Y; Cleveland Fed also forecasting Dec US CPI Y/Y (out next month) to accelerate again to 2.8% and Dec US CPI M/M to come at 0.4%; Reminder: on Dec 2nd, Fed’s Waller expressed worries about inflation noting that recent data have raised concerns that inflation progress is stalling meaningfully above 2.0%.

- FX saw volatility with strong US flows from China commentary that top policymakers are expecting weaker CNY (yuan) towards 7.50 in 2025 due to Trump tariffs. Offshore yuan (CNH) rose +0.4-0.5% to 7.29. Move in dollar weighing on other major FX pairs.

- In other news, Biden Admin said to announce doubling the tariff on Chinese solar wafers and polysilicon to 50%, and hit tungsten products with a 25% tariff. Meanwhile, Pres-elect Trump picks "China hawk" Jacob Helberg to be the State Department’s top economic policy and trade official. In past, he was a strong advocate for a bill forcing China’s ByteDance to sell its social media platform TikTok.

- Oil prices only slightly up following press report that US govt to consider tougher oil sanctions on Russia ahead of Trump Presidency and may target Russia's shadow tanker fleet.

- Further speculation BOJ meeting next week is ‘live’ with a rate hike still on the cards, despite recent pullback in odds pricing. Report reinforces case of near-term hike at least, meaning January is strong option too.

-Asia closed mixed with KOSPI outperforming +1.0%. EU indices are -1.0% to +0.4. US futures are -0.1% to +0.2%. Gold +0.1%, DXY +0.3%; Commodity: Brent +1.1%, WTI +1.1%; Crypto: BTC +0.7%, ETH -1.3%.

Asia

- New Zealand Q3 Manufacturing Activity Q/Q: -0.1% v +0.3% prior

- South Korea Nov Unemployment Rate: 2.7% v 2.8%e

- Japan Q4 BSI Large All Industry Q/Q: 5.7% v 5.1% prior; Large Manufacturing Q/Q: 6.3% v 4.5% prior

- Japan Nov PPI (domestic CGPI) M/M: 0.3% v 0.2%e; Y/Y: 3.7% v 3.4%e (highest since Jun 2023)

- China Central Economic Work Conference [CEWC] began 2-day meeting. China yields stayed soft after the telegraphing of looser monetary and fiscal policy in 2025 earlier this week. Market expectations of ‘bigger’ rate cuts next year, including the RRR

- Japan said to consider 4% corporate surtax from Apr 2026 to fund Defense spending

Europe

- German Chancellor Scholz said to submit written parliamentary request on Wed (Dec 11th) to hold a vote of confidence, which he’s expected to lose. German Confidence vote likely to be held on Monday, Dec 16th instead of Dec 18th 2024 with new elections likely in Feb 2025.

Americas:

- US Biden administration said to unveil steep new tariffs on imports of critical materials from China; To double tariff on Chinese solar wafers and polysilicon to 50% and announce 25% levy on tungsten products; to take effect from Jan 1st

- Treasury Sec Yellen warned that broad Trump tariff agenda could derail inflation progress

Energy

- Weekly API Crude Oil Inventories:+0.5M v +1.2M prior

- OPEC named Kuwait's Haitham al-Ghais to a second 3-year term as Secretary General, effective Aug 1st, 2025

- US govt said to consider tougher oil sanctions on Russia ahead of Trump Presidency; May target Russia's shadow tanker fleet

Speakers/fixed income/FX/commodities/erratum

Indices [Stoxx600 -0.07% at 518.10, FTSE -0.16% at 8,266.86, DAX +0.05% at 20,359.05, CAC-40 +0.11% at 7,395.39, IBEX-35 -0.94% at 11,853.00, FTSE MIB +0.46% at 34,682.00, SMI +0.07% at 11,655.02, S&P 500 Futures +0.07%]

Market focal points/key themes: European indices open generally lower but recovered to trade mixed after the first hours; markets seen hesitant to take on risk amid political situation and ahead of ECB meeting; among better performing sectors are consumer discretionary and financials; sectors leading the way lower include consumer discretionary and energy; retail subsector dragged lower following Inditex results; oil & gas subsector underperforming following EIA report forecasting drop in US crude imports next year; Zalando to acquire About Youl focus on US CPI to be released later in the day as well as BOC rate decision; among corporate events expected in the upcoming Americas session are earnings from Adobe and Exxon Mobil’s strategy update.

Equities

- Consumer discretionary: About You [YOU.DE] +64.0% (to be acquired by Zalando at €6.50/shr), TUI [TUI.UK] -4.0% (FY24 results, beats estimates, sees Winter bookings slightly lower than in Sept; initial FY25 guidance and notes bookings for summer are well ahead), Metro AG [B4B.DE] -6.5% (CMD), Inditex [ITX.ES] -4.5% (9 month results, misses estimates, affirms guidance), Zalando [ZAL.DE] -5.5% (offers to acquire About You at €6.50/shr)

- Consumer staples: British American Tobacco [BATS.UK] +1.0% (trading update) , Carl Zeiss Meditec [AFX.DE] -3.0% (FY results, misses estimates, guidance for next year).

- Energy: Siemens Energy [ENR.DE] -1.0% (readacross from GE Vernova investor day comments).

- Industrials: Rheinmetall [RHM.DE] +1.5% (reportedly NATO plans to assign new concrete targets for how many more tanks, planes and other weapon systems member countries need to produce; May require raising the NATO's defense spending goal to as much as 3% of GDP).

Speakers

- BOJ said to see little cost to waiting for next rate hike. Saw less risk of a weak yen currency pushing up inflation. Believe a rate hike seen as a matter of time.

- RBA Dep Gov Hauser noted that it was ready to respond "with force" should potential US tariffs hit global trade and threaten growth at home. No particular inflation figure that could trigger easing.

- India Central Bank (RBI) Gov Malhotra inaugural comments on taking position noted that stability and continuity in policy was important. Needed to be alert to address challenges.

- China top policymakers said to be considering weakening the CNY currency (Yuan) amid the Trump tariff threat; PBOC said to have considered the possibility the yuan could drop to 7.50 level to US dollar to counteract any trade shocks.

- Iran Supreme Leader Khamenei vowed to expand 'axis of resistance' in Middle East.

- Pres Biden issued memo urging restructuring of US agencies for global strategy aiming to devise new strategies to tackle the risky, deepening ties among Russia, Iran, North Korea and China as cooperation among them posed challenges for U.S.

Currencies/fixed income

- USD was slightly firmer against the major pairs ahead of the US Nov CPI reading. Dealers noted that strong data could potentially reduce the chances of the Fed cutting interest rates next week. Other dealers noted that a 25bps rate cut next week seemed to be locked in as labor market, not price pressures, being the primary determinant of policy shifts.

- EUR/USD hovering above the 1.05 level ahead of Thurs ECB decision. Currently markets expects the ECB to deliver a 25bps rate cut on Thursday, with modest downward revisions to growth and inflation forecasts. Dealers pondered how ECB chief Lagarde might address any concerns regarding the implications of a weaker euro currency on inflation.

- USD/JPY edged higher to retest the 152.80 area after reports circulated that BOJ saw little cost to waiting for next rate hike. Market currently pricing approx. 10% that such a move would occur in Dec (next week).

- China CNY currency (Yuan) was softer after reports circulated that China’s top policymakers were considering weakening the CNY currency to counter US tariffs. (**Note: During Trump's first term as president, the yuan weakened more than 12% against the dollar during a series of tit-for-tat tariff announcements between March 2018 and May 2020)

Economic data.

- (TR) Turkey Oct Retail Sales Y/Y: 15.0 v 16.4% prior.

- (RO) Romania Nov CPI M/M: 0.4% v 0.3%e; Y/Y: 5.1% v 5.0%e.

- (ZA) South Africa Nov CPI M/M: 0.0% v 0.2%e; Y/Y: 2.9% v 3.1%e.

- (ZA) South Africa Nov CPI Core M/M: 0.0% v 0.1%e; Y/Y: 3.7% v 3.8%e.

Fixed income issuance

- (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK900M in 3-month and 6-month Bills.

- (UK) DMO sold £4.0B in 4.25% July 2034 Gilts; Avg Yield: 4.332% v 4.475% prior; bid-to-cover: 2.87x v 2.81x prior; Tail: 1.3bps v 0.8bps prior.

- (SE) Sweden sold total SEK10.0B vs. SEK10.0B indicated in 3-month and 12-month bills.

- (IT) Italy Debt Agency (Tesoro) sold €8.5B vs. €8.5B indicated in 12-month bills; Avg Yield: 2.411% v 2.695% prior; Bid-to-cover: 1.49x v 1.52x prior.

Looking ahead

- OPEC Monthly Oil Report

- (CH) Switzerland to sell 2038 and 2047 Bonds.

- (CO) Colombia Nov Consumer Confidence: No est v -3.7 prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 06:00 (ZA) South Africa Oct Retail Sales M/M: No est v -0.8% prior; Y/Y: 2.0%e v 0.9% prior.

- 06:00 (PT) Portugal Nov Final CPI M/M: No est v -0.2% prelim; Y/Y: No est v 2.5% prelim.

- 06:00 (PT) Portugal Nov Final CPI EU Harmonized M/M: No est v -1.0% prelim; Y/Y: No est v 2.7% prelim.

- 06:00 (CZ) Czech Republic to sell €500M in 6-month Bills.

- 06:00 (CZ) Czech Republic to sell 2033, 2037 and 2044 Bonds.

- 06:00 (RU) Russia to sell OFZ Bonds.

- 07:00 (US) MBA Mortgage Applications w/e Dec 6th: No est v 2.8% prior.

- 07:00 (BR) Brazil Oct IBGE Services Volume M/M: 0.6%e v 1.0% prior; Y/Y: 5.6%e v 4.0% prior

- 08:00 (UK) Daily Baltic Dry Bulk Index

- 08:30 (US) Nov CPI M/M: 0.3%e v 0.2% prior; Y/Y: 2.7%e v 2.6% prior

- 08:30 (US) Nov CPI (ex-food/energy) M/M: 0.3%e v 0.3% prior; Y/Y: 3.3%e v 3.3% prior.

- 08:30 (US) Nov CPI Index NSA: 315.320e v 315.664 prior; CPI Core Index: 322.410e v 321.666 prior.

- 08:30 (US) Nov Real Avg Hourly Earning Y/Y: No est v 1.4% prior; Real Avg Weekly Earnings Y/Y: No est v 1.1% prior (revised from 1.4%).

- 09:45 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to cut Interest Rates by 50bps to 3.25%.

- 10:30 (US) Weekly DOE Oil Inventories.

- 10:45 (CA) Bank of Canada (BOC) Gov Macklam post rate decision press conference.

- 11:00 (RU) Russia Nov CPI M/M: 1.5%e v 0.8% prior; Y/Y: 8.9%e v 8.5% prior.

- 11:00 (RU) Russia Nov CPI Core M/M: 1.1%e v 0.8% prior; Y/Y: 8.4%e v 8.2% prior.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 13:00 (US) Treasury to sell 10-Year Notes Reopening.

- 14:00 (AR) Argentina Nov National CPI M/M: 2.8%e v 2.7% prior; Y/Y: 167.2%e v 193.0% prior.

- 14:00 (US) Nov Monthly Budget Statement: -$351.0Be v -$257.5B prior.

- 16:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to raise Selic Target Rate by 75bps to 12.00%.

- 16:45 (NZ) New Zealand Nov Total Card Spending M/M: No est v 0.4% prior; Retail Card Spending M/M: No est v 0.6% prior.

- 17:15 (AU) RBA's Jones.

- 19:01 (UK) Nov RICS House Price Balance: 19%e v 16% prior.

- 19:30 (AU) Australia Nov Employment Change: +25.0Ke v +15.9K prior; Unemployment Rate: 4.2%e v 4.1% prior; Full Time Employment Change: No est v +9.7K prior; Part Time Employment Change: No est v +6.2K prior; Participation Rate: No est v 67.1% prior.

- 21:00 (JP) Japan Nov Tokyo Avg Office Vacancies: No est v 4.5% prior.

- 22:45 (TH) Thailand Nov Consumer Confidence: No est v 56.0 prior; Economic Confidence: No est v 49.6 prior.