Le drame

Appetite on Wednesday was limited on both sides of the Atlantic Ocean. In the US, the crowded economic data came in mostly in line with expectations, confirming that the US economy grew 2.8% in Q3 – mostly explained by a robust 3% growth in sales, price pressures were slightly higher than expected but remained below 2%, as core PCE prices for last quarter decelerated faster than expected. Core PCE prices for October, however, posted a small uptick from 2.7% to 2.8%, parallel to market expectations and the initial jobless claims came in softer than pencilled in. Overall, there was no big surprise in yesterday’s data. And the latter gave comfort to investors that the Federal Reserve (Fed) will cut its rates by another 25bp when it meets in December. That probability advanced from around 65% to 68% and the US 2-year yield tipped a toe below the 4.20% level.

But the lower yields, and the first day of ceasefire between Israel and Hezbollah, couldn’t convince investors to buy more US equities into the Thanksgiving holiday. The aggressive reaction from both Mexico and Canada to Trump’s latest tariff threats certainly revived worries of higher business costs and lower profits. As such, the S&P500 closed Wednesday’s session a few points below the 6000 mark, Nasdaq 100 retreated 0.85% as Dow Jones closed in the negative after hitting a fresh record. Microsoft dropped more than 1% on fresh news that the FTC opened a fresh antitrust investigation into the company ‘drilling into everything’ – yes everything they do – while Apple resisted to the news that its iPhone sales barely grew this year as Android-based rivals gained ground in China and in other emerging markets.

Meme news. A drone company called Unusual Machines rallied 110% on news that Donald Trump Jr. - yes Trumps’s eldest son — has joined the company’s advisory board reminding ‘the need for drones is obvious’ and that they must ‘stop buying Chinese drones and Chinese drone parts’. Interestingly, the company warned in a regulatory file that Trump's proposed tariffs on China could affect its ability to source drones critical to its B2C business. Welcome to meme trading 2.0 and Happy Thanksgiving.

Le drame

In Europe, things were much less fun – as it is usually the case. The Stoxx 600 extended losses, and not only because of Trump’s tariff threats, but also on the rising unease in French politics, where Marine Le Pen, the far-right leader - who gained ground in the latest elections, remember? – threatened Michel Barnier’s administration – that’s doing its best to control the country’s deteriorating finances and deficit – that she would bring his government down with a no-confidence vote if he doesn’t respect their budget demands.

Needless to say that the spread between the French and German  10-year yields is rising again, even though Germany has its own political problems – mind you - and is preparing to hold a snap election because people, there, are not happy with Scholz’s government either.

Thank God, the growing French headache remains localized, for now. The French CAC40 underperformed its European peers as French bank stocks took a hit on the political chaos, but the EURUSD rebounded well past the 1.05 level – and even advanced near 1.0590 yesterday, following the other majors up against a broadly weakened US dollar. The worsening political scene in France and the widening yield gap between France and Germany, could however limit the single currency’s upside potential along with clashing opinions from the European Central Bank (ECB) members about how fast the bank should cut rates. Yesterday, ECB’s Schnabel said that the borrowing costs are no longer at a level that retrains the economy, while Luis de Guindos said – a day earlier – that more rate cuts were on their way. One thing is clear, though: while German representatives often sound more hawkish than their southern counterparts, Germany’s economy arguably relies on ECB support more than any other in the union at this point.

For now, the EURUSD has potential to extend a recovery following an aggressive selloff in November. Today, Germany and Spain will reveal their November early CPI figures. The figures are expected to print an uptick in price pressures this month. If that’s the case, the ECB doves could lose ground and let the euro bulls gain field. Also note that, the latest rise in European nat gas prices will somehow impact the inflation numbers in the coming months, and Europe is said to be facing the coldest winter since Russia invaded Ukraine and since the continent gave up on Russian energy supplies. The latter means that the gas reserves will decline faster than otherwise, adding a renewed pressure on gas and broader consumer prices. Such situation would limiting ECB’s rate cutting plans and throw a floor under the euro’s weakness. The next important target for the EURUSD recovery stands at 1.0672 – the minor 23.6% Fibonacci retracement on September to now selloff.

Elsewhere, the USDJPY benefited grandly from a broad-based dollar weakness to extend its retreat to 150 level yesterday. However, note that, released earlier this week, the Bank of Japan’s (BoJ) core CPI measures eased unexpectedly to 1.5%, a number that doesn’t necessarily back the BoJ normalization bets. Japan will release its latest inflation figures while we will be sleeping tonight. If the figures don’t meet the market expectations, if inflation in Japan remains softer-than-expected, the yen bears have room to rebound. The JPY yen bulls need a concrete hawkish sign from the BoJ to send the USDJPY below the 150 psychological level.