Market Commentary

The euro made up some ground against the dollar midday yesterday to touch off $1.1550 , but retreated again later on. That left the euro slightly up on the day at around $1.1525 this morning. This halted the dollar’s advance which had gained about 0.9% last week. There was a limited amount of data to move markets, just German business confidence which disappointed somewhat. Similarly, the euro gained on sterling, back to above 88p for a time but lost those gains back down to just below 88p this morning.

Yesterday’s Events

Government bond yields fell on both sides of the Atlantic.  A couple of Fed members were out talking up the chances of rate cut next month, helping US 10-year yields to move to just over 4%, down 4bps. While in euro area, with little data or news, yields ticked down a basis point or two with German 10-year yields down just 1bp to just below 2.7%. In equity markets, there was a very strong start to the week, with investor confidence improving following jitters last week. The S&P 500 rose 1.5% to take the index back to above 6,700 for the first time in 6 days.

The German IFO sentiment index was poor in November, a sign that the German economy – particularly in manufacturing – is not robust. The current assessment ticked up marginally, to 85.6 from 85.3, but the real pessimism was in expectations which came in at 90.6 from 91.6. The IFO institute said that businesses have ‘little faith in a recovery’ with the manufacturing outlook being ‘significantly hit’. While increases in government infrastructure spending should boost growth in the Euro Area’s largest economy next year, which should help manufacturing and construction, this data shows that there is still a lot of concern within the business community that any uptick in activity may be temporary and underlying structural issues will remain. The final estimate of German GDP data for Q3, released this morning, confirmed that quarterly growth was flat in Q3 though it’s up 0.3% year-on-year. It confirmed the soft underbelly of the recovery with household consumption falling by 0.3% on the quarter, the weakest since Q3 of 2023, exports down 0.7% and just investment and government spending expanding.

Fed Governor Christopher Waller said that he would argue for a rate cut in December. He said his concern is ‘mainly the labour market’ so he would ‘advocate for a rate cut at the next meeting’. Waller, who reportedly is on the short list to be the next Fed chair, said that most private sector data indicates the jobs market is soft and job gains were concentrated in a small number of sectors which is ‘not a good sign’. Waller said he was less concerned about inflation, as he thinks the tariff inflation impact will be one-off and not that big. Waller also said that post January the Fed could go ‘meeting by meeting’ to analyse data and make monetary policy decisions. Separately, San Francisco Fed President Daly, who is not a full voting FOMC member until 2027, said the labour market was ‘vulnerable’ and, while the disagreement among Fed members reflects uncertainty, she favours a rate cut immediately in December and said the Fed ‘should not hold off out of fear’. The market moved to price in a greater chance of a rate cut in December, which is now up to 75%.

The Day Ahead

On the data front today, it’s all about the US where we get the Philly Fed non-manufacturing, retail sales, PPIs, conference board consumer confidence and house market data. Speakers due out include ECB Villeroy, Escriva and Cipollone.

Market Commentary

The dollar advanced again on the euro on Friday to end a good week for the US currency. The dollar has gained to about $1.1520 to the euro this morning from over $1.1620 at the start of last week. The dollar also gained on sterling last week to around $1.31, appreciating about 1 cent over the week. The dollar’s gains are coming as the market is adjusting expectations for a Fed rate cut at next month’s meeting.  The delayed US payrolls for September was more positive than expectations, adding 119k jobs, but also showed unemployment ticking up to 4.4%. The next jobs data will now not come until after the December 10th FOMC meeting. This leaves the market speculating, that without further labour market data, the Fed’s decision on rate cuts is finely balanced, with the probability shifting day by day and is currently lying at about 60:40 in favour of 25bps cut. The euro lost a little ground against sterling last week too, down to just under 88p this morning.

Yesterday’s Events

US government bond yields fell across the curve on Friday, as the market again adjusts its expectations for the Fed’s next move. US 10-year yields fell 5bps on Friday meaning, despite a rise in US yields midweek, 10-year yields finished the week at under 4.1% from 4.15% at the start of last week.  German 10-year yields were largely unchanged last week remaining at close to 2.7%. UK 10-years lost a few bps for the week but UK markets could be in for a more volatile time this week with the key UK budget due.  In equity markets, the S&P 500 gained 1% for the day on Friday but lost nearly 2% on the week as investors fret about AI and equities valuations.

The flash PMIs for the Euro Area were somewhat of a mixed bag. Euro Area services PMI held up in November at 53.1 from 53 in October but manufacturing disappointed coming in at 49.7, below the expansion threshold, and down from 50 the previous month. The readings were not helped by weakness in Germany with manufacturing falling to 48.4 (from 49.6) though services in Germany were still expanding robustly, at 52.7 (from 54.6). The readings indicate, that despite the manufacturing sector dampening growth somewhat, the solid growth in services – and given the size of the services sector in Europe – means the Euro Area should continue to grow in the final quarter of 2025, and appears to the weathering  the uncertainty caused by US trade policy. Although the ECB is on hold, growth next year should hold up, helped by investments in infrastructure and defence that are due to come on stream.

UK PMIs for November disappointed with the composite falling to 50.5 from 52.2 in October. Manufacturing improved slightly, to just above 50, but services were weak down to 50.5 from 52.3. This adds to data showing consumer confidence is falling back in the UK also. The services sector weakness is particularly worrying with new orders falling and indicators of employment growth also poor. Consumers and businesses alike seem worried about the potential impact of the upcoming budget with the need for spending cuts and/or tax increases to curb budget deficits. The poor data, however, does give the doves on the MPC more arguments for a rate cut next month, particularly as the decision to stay on hold this month was a 5-4 split with four members already favouring a cut.

The Day Ahead

Plenty of data this week. Today we get IFO readings from Germany and the ECB’s Nagel and LaGarde are due to speak. Later this week, in Europe we get confidence data as well as CPI expectations while in the UK we get Lloyds Business Barometer and Nationwide House Prices as well as Chancellor Reeves’ Budget. In the US, we are due retail sales, PPIs, durable goods orders and the Fed’s beige book with other delayed data also coming out as the US Government ramps up again following its recent shutdown.

Market Commentary

Yesterday’s employment report in the US was something of a mixed bag. The economy added more jobs than expected in September but the unemployment rate came in slightly higher than forecast. The report didn’t alter expectations for next month’s Fed meeting very much with the chances of a rate cut raised a little but still seen well shy of 50/50. The euro and sterling fell to lows versus the dollar of close to $1.15 and circa $1.3050 immediately before the release of the jobs data and are trading modestly higher this morning at $1.1550 and $1.31 respectively. EURGBP remains in a relatively tight range, trading at around £0.8825. Retail sales data released in the UK a short time ago were a good bit weaker than expected but this hasn’t had any impact really on the pound.

Yesterday’s Events

US government bond yields finished 5-6bps lower across the curve, partly in response to the employment report but mainly in tandem with a sharp (US-led) fall in equity markets. UK yields edged down by a couple of basis points or so, while German yields ended broadly flat once again. The positive boost to equity market sentiment from Nvidia’s better than forecast results proved very short-lived indeed. US stocks reversed course sharply, giving up early gains to end down around 1.6% in the case of the S&P 500 and 2.2% lower in the case of the Nasdaq (the latter is now down around 8% from its all-time highs at the end of October). European stocks added 0.5% yesterday were finished well off their best levels of the day.

The US economy added 119k jobs in September, well ahead of the expected increase of 50k, though they were downward revisions to the previous couple of months’ data. Employment growth averaged just over 60k a month in Q3, much the same as in the second quarter (+58k). However this wasn’t sufficient to prevent the unemployment ticking up through the third quarter, reaching a four-year high of 4.4% in September (up from 4.1% in June).

Retail sales volumes in the UK fell by 1.1% month-on month in October, the first monthly fall since May this year. According to this morning’s release, “supermarkets, clothing, and mail order retailers fell last month, which some retailers attributed to consumers delaying their spending in the lead up to Black Friday.” The picture over the three months to October was solid enough though, with sales volumes increasing by just over 1% versus the three months to July. Separately, consumer confidence dipped in November according to the GfK indicator, with the impending budget weighing on sentiment perhaps.

The Day Ahead

For the day ahead, flash PMIs for November are due in the Euro area, UK and US. The ECB publishes its negotiated wages indicator for the Euro area, while the University of Michigan publishes the final reading for US consumer confidence in November. There are a good number of ECB (including Christine Lagarde) and Fed members scheduled to speak over the course of the day.

Market Commentary

The dollar advanced across the board yesterday as the market pared back substantially expectations for a Fed rate cut at next month’s meeting. This followed the announcement that, after today’s US jobs report (for September), the next report will not be published until after the December 10th meeting, leading the market to conclude that, in the absence of this important data, the Fed is more likely to sit on its hands and keep rates unchanged. Whether today’s report shifts expectations again remains to be seen, though a weaker than expected outturn might bring a rate cut back into play. The euro is trading at around $1.1520 against the dollar morning, a circa 2-week low and down about a cent from last Friday’s close. Sterling has fallen to around $1.3060, also a 2-week low, and is trading at around  £0.8815 versus the euro. Also notable is the slide in the Japanese yen  – down almost 1.5% against the dollar over the past 24 hours – which alongside rising bond yields points to concerns about the country’s public finances as the new government prepares a fiscal stimulus for the economy.

Yesterday’s Events

US government bond yields rose by 3-4bps across the curve as the chances of a December rate cut were marked down, while German yields were flat on the day. UK bonds underperformed with 10- and 30-year yields rising by 5-7bps, suggesting some market angst ahead of Rachel Reeves budget next week. In equity markets, better than forecast results from Nvidia sees European stocks open in positive territory this morning (up more than 1%) with US indices set to do likewise later today.

The minutes of the Fed’s October meeting noted “strongly differing views…about what interest rate decision would most likely be appropriate at the December meeting.” While “most” members judged that further reductions in rates would be required, “several of these” indicated they did not necessarily view another 25 basis point reduction in December as a given. Some other members believed another cut in rates “could well be appropriate in December“, while a few more suggested rates should remain unchanged through the end of this year.

The Day Ahead

Today’s jobs report is expected to show employment rose by about 50k in September according to the consensus forecast, following an increase of 22k in August, with the unemployment rate seen holding steady at 4.3%. An outturn along these lines would probably leave expectations for a rate cut next month unchanged (now at about 30%). Weaker than forecast jobs growth and/or an increase in the unemployment rate might see the market mark up the chances of a cut, which in turn could weigh on the dollar.

Market Commentary

As suspected might be case, there was limited price action in FX markets yesterday with the main currency pairs continuing to trade in very tight ranges ahead of tomorrow’s jobs report in the US. Inflation data in the UK published a short while ago were broadly in line with expectations and so have had little impact on the pound, which is hovering just north of £0.88 against the euro and trading at around $1.3140 versus the dollar. Yesterday’s trading range for EURUSD was about $1.1575 to $1.1625 and it’s near the bottom of this range this morning.

Yesterday’s Events

There continues to be plenty of price action in equity markets which remain very much on the back foot. European stocks fell for a fourth straight session, shedding almost 2%, while the main US indices ended off their worst levels of the day but still chalked up losses of between 0.8% and 1.2%. All of this ahead of Nvidia’s latest results, which will be released after the New York close today.

US government bond yields ended modestly lower amid the weakness in equity markets and a slight firming of market expectations for a Fed rate cut next month (still seen as a bit less than 50/50 though), falling by around 3-4bps across the curve. UK 10-year yields backed up a little bit more and at over 4.50% are now around 15bps off last week’s 2025 to date lows, while equivalent German yields were broadly flat on the day.

This morning’s CPI data in the UK showed the headline rate of inflation fell to 3.6% in October from 3.8% in September, with a decline in energy price inflation and lower core inflation offsetting a renewed rise in food price inflation. Core inflation fell for a third month running to 3.4%, with services inflation declining to 4.5% (its lowest level since December last year) and goods inflation unchanged at 1.5%. This latest data should copper-fasten a rate cut at next month’s Bank of England monetary policy meeting.

The Day Ahead

Look to the day ahead, the Fed publishes the minutes of its October policy meeting, which are certain to highlight the sharply differing views among members about whether interest rates should be cut again at next month’s meeting. Economic data-wise, a final reading for October inflation is due in the Euro area – the flash estimate showed headline inflation dipped to 2.1% last month from 2.2% in September – and the trade balance for August is scheduled in the US.