Breakfast Bites - Global Bond Yields inching up

Rise and shine everyone and Happy Friday!

We have a shorter trading day in the US with the equity markets closing at 1pm ET and the bond market closing at 2pm ET.

It’s a relatively quiet day in terms of Macro data - we have US Flash PMIs being released at 9:45 ET. Last month saw marginal improvements across services and manufacturing, with the latter moving into expansionary territory for the first time since April 2023.

US Equity Futures are trading flat after the holiday, with yields trading higher. The yield curve is at -0.47%. Gold is off it’s lows but now trading at $1996/oz. Oil continues to languish at $76.75/bbl after the news of OPEC postponing their meeting. The US Dollar Index is flat at $103.66 while Bitcoin is looking chipper, crossing 37,800.

In fact Global Yields are higher across the boar

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Asia and Australia

• Asian equities traded mixed Friday. Japan finished higher although off its peak. Losses elsewhere including in Seoul and Taipei, India slightly lower, Southeast Asia mixed. Australia a little stronger, New Zealand higher as its coalition government was signed in.

• Steep losses in Hong Kong as many property stocks reversed yesterday's gains although many still higher for the week; Mainland China markets also lower.

• Japan reported inflation numbers with services inflation passing a 30-year high. Headline inflation increased from 3% to 3.2% y/y. Core CPI rose 2.9% y/y in October following 2.8% in the previous month. This marks the first acceleration in four months. Ex-fresh food & energy inflation eased to 4.0% from 4.2%, the lowest since March. Food inflation continues to remain high, coming in only slightly lower at 8.6% YoY from 9% in the previous month.

  • While the BoJ has been aiming for an overshoot of the 2% inflation target, in order to make sure that inflation has taken hold, more recently there have been concerns about inflation remaining too high and an exit from the Negative Interest Rate Policy regime could be beneficial to controlling inflation and supporting the Yen.

• Japan’s flash PMI reading came in marginally weaker for the manufacturing sector, while services expanded marginally. This reading comes after Japan’s GDP growth dropped to negative on 14 Nov driven by lower investments in businesses. This is definitely a trend to keep an eye on for waning strength in Japanese equities.

• South Korea's stock market faces increased instability as investors react to last month's short-selling ban by heavily betting against single stock futures. This trend has led to futures trading at up to 6% below their actual stock prices, escalating market volatility and complicating efforts for stable returns. Analyst Sanghyun Park attributes this futures discount to redirected short selling demand, foreseeing more intense arbitrage trades and further spot market fluctuations. Offshore funds, having sold 185 billion won ($142 million) in futures since the ban, are primarily driving this trend, targeting stocks previously favored by short sellers.

• Lithium carbonate prices fell to a low since August 2021 dropping 80% y/y, influenced by reduced EV sales in China and surplus inventories. This trend has shifted market forecasts, now expecting a lithium deficit only by 2028. Meanwhile, steady lithium production, including Mineral Resources' expansion in Australia, suggests a stable supply ahead.

Europe, Middle East, Africa

• European equity markets slightly higher. Still on course for modest gains on the week after closing higher in prior session.

• Germany's Ifo Business Climate Index rose to 87.3, slightly below expectations but marking a four-month high. The uptick was observed across manufacturing, trading, and construction sectors, although sentiment in the service sector declined slightly. In other news, final Q3 GDP numbers remain unchanged at -0.1% QoQ.

• The yield on Germany's 10-year government bond continued to rise above 2.6%, up from the two-month low of 2.516% seen on November 22nd. This increase is partly due to Germany's decision to suspend debt limits for the fourth year in a row, sparking worries about heightened borrowing in the region.

• Recent ECB meeting minutes showed that policymakers are open to further rate hikes, despite not considering it their main scenario.

• The UK's 10-year Gilt yield is rising towards 4.3%, driven by the Bank of England's strong anti-inflation stance and positive PMI data. Concurrently, Finance Minister Hunt's new economic measures respond to predictions of slower growth and increased inflation.

• The GfK survey revealed a significant rebound in UK consumer confidence in November, with the sentiment index rising 6 points from October to -24, outperforming Reuters' forecast of -28. This increase, the largest since April, came despite cost of living challenges, with consumers showing more optimism about their financial outlook and inflation concerns being offset by high wage growth.

The Americas

• Brazil's Consumer Confidence Index marginally declined by 0.2 points to 93, the lowest level since June, reflecting the Brazilian central bank's concerns about slowing economic growth.

• Investors are rapidly selling U.S. dollars, anticipating that the Federal Reserve will halt rate hikes and possibly cut rates next year. This has led to the dollar's largest monthly outflow since last November and its worst performance in a year. We have two inflation reports before the next Fed meeting in mid-December and a continued downtrend may increase soft landing wagers around the Fed meeting in mid-December, causing further pressure on the US Dollar.

• Earlier this week, a Deloitte report indicated that consumers intend to spend an average of $567 during Black Friday and Cyber Monday, marking a 13% increase from the previous year. The National Retail Federation projects that about 182 million shoppers will participate in these sales events from Thanksgiving Day to Cyber Monday, the highest number since 2017.

Chart of the Day: Be careful what you wish for!

This is an excellent chart and note from Bank of America that shows what happens to equities under different regimes of Fed Policy and Credit Conditions. No surprise, the optimal condition is Fed and Credit easing, while the Fed easing under tightening credit conditions doesn’t necessarily mean everything will be great.

Calendar

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)