Japan’s Inflation Cools: Overnight, Japan reported a cooling inflation trend in November, with headline CPI dropping to 2.8% y/y from 3.3% y/y, and core CPI moderating to 2.5% y/y from 2.9%. Despite services inflation showing acceleration, the JPY modestly weakened against both USD and EUR.
US Economic Indicators: In the US, mixed economic signals emerged. While initial jobless claims surprised on the downside at 205k (from 203k), beating the consensus of 215k, Q3 GDP growth was revised down in the final release to 4.9% (from 5.2%). The focus now turns to the more timely release of November’s core PCE inflation.
Geopolitical Developments:
Shipping Companies Diverting from Red Sea: Growing hostilities by Yemen’s Houthi rebels prompted an increasing number of shipping companies to avoid the Red Sea. While global supply challenges have eased since the pandemic, ongoing monitoring continues.
Geopolitical Radar 2024: A comprehensive overview of disruptions seen in 2023 and the outlook for key elections in 2024, including those in the US, Taiwan, and the European Parliament, was published.
EU Fiscal Rules:
New EU Fiscal Rules: An analysis of the new fiscal rules in the EU was released, outlining a less stringent approach, more gradual fiscal adjustment paths, and protection for specific investments and structural reforms. The impact on the growth outlook and markets remains uncertain pending enforcement.
Equities Update:
Global Equities Rebound: Following an unexplained late-day selloff on Wednesday, global equities bounced back, driven by gains in the US, particularly favoring small caps. Asia showed mixed performance, with tech stocks dragging in China.
Fixed Income Highlights:
European Rates Stable: European rates remained largely unchanged, with minor volatility in the 10y point. The curve experienced slight steepening around the 7-10y point. Net issuance for the next year, excluding EU, is projected at EUR 622 billion, slightly higher than the current year.
Currency Movements:
USD Weakness Across Board: Broad USD weakness led to USD/JPY nearing 142 and EUR/USD trending toward the upper end of its range. GBP/USD and AUD/USD moved higher, while USD/CAD and USD/SEK faced pressure.
Credit Market Overview:
Quiet Credit Markets: Limited primary and secondary activity in credit markets, with ITraxx Main and iTraxx X-Over unchanged. Sydbank raised its 2023 forecast due to lower-than-expected loan losses and slightly improved market conditions, reflecting positive momentum in the banking industry.
As global markets navigate economic data fluctuations and geopolitical tensions, investors remain vigilant in assessing the evolving landscape.
