Futures Drop, Dollar Gains After Latest China Stimulus Disappoints

The record election rally has finally fizzled and futs are slightly lower after China's stimulus package revealed this morning disappointed investors. As of 8:00am ET, S&P futures were trading at exactly 6,000, down 0.1% from the first ever closing high above 6,000 but still on track for its best week in a year on the prospect of tax cuts and deregulation under Trump. Nasdaq futures are down 0.3%. Bond yields are 3bp lower after the Federal Reserve delivered a quarter-point interest-rate cut and left the door open for further easing next month; the dollar reversed some of yesterday's sharp losses when markets fretted they had taken Trump trades too far (they haven't). Oil is down but base metals are higher. Overnight, Chinese stock futures and the yuan are lower having extended declines after authorities announced a total 10 trillion yuan ($1.4 trillion) program to refinance local government debt, which was disappointing as (1) There was no lift to the Central Govt debt ceiling, and (2) There was no direct support for consumption or the property market, (3) The only announced a debt swap, not incremental stimulus. Today, the macro focus will be on Univ. of Michigan survey, where consensus expects an increase to 71.0 from 70.5 in October, although the rebound in mortgage rates could weight on sentiment. Later tonight, we will receive China PPI and CPI releases at 8.30pm ET.

In premarket trading, US-listed Chinese stocks declined as Beijing’s latest fiscal policies underwhelm. China announced a plan to refinance local government debt, but stopped short of announcing other measures to boost housing and consumption. Airbnb shares dropped 5.4% after the home-rental company reported third-quarter results. While analysts viewed the results as solid, they flagged the impact of investments on margins. Here are some other notable movers:

• Arista Networks (ANET) shares drop 5.1% after the computer networking company projected fiscal 2025 revenue growth of 15% to 17%, compared with 18% estimated by analysts.
• Cloudflare (NET) fall 8.3% after the infrastructure software company’s forecast for fourth quarter revenue fell short of consensus.
• Doximity (DOCS) shares soar 44% after the healthcare-software company raised its full-year forecast for both revenue and adjusted Ebitda. Analysts say the results are strong, highlighting the client portal roll-out as a catalyst.
• Five9 (FIVN) shares rally 22% as the call-center software provider raised its full-year guidance.
• Pinterest (PINS) shares fall 12% after the search and discovery network gave a weak revenue forecast for the fourth quarter. Analysts flagged weakness in food and beverage ad spend.

Friday’s moves follow a cross-asset rally on Thursday that was supported by Jerome Powell’s comments. He pointed to the strength of the US economy and said he doesn’t rule “out or in” a December rate cut. Powell added the election will have no effect on policy in the near term, and said he would not step aside if asked by Trump. Following yesterday’s cut, traders are betting on 82 basis points of Fed easing by September 2025. The yield on 30-year US bonds declined about two basis points to 4.51% Friday, falling for a second day to retrace some of its post-election spike. Bloomberg’s dollar gauge gained 0.2%.

After an initial stampede into “Trump Trades,” investors in some asset classes are tapering their enthusiasm as they question whether he will push through his ambitious tariff proposals as US president. “Even with red majorities across Congress, it’s likely that these policy actions will take time,” said James Athey, fund manager at Marlborough Investment Management. “That might make significant further gains in the short term a little harder to come by.”

Meanwhile, US equity funds attracted $20 billion on Wednesday when Trump secured victory in the election, the biggest daily addition in five months, according to BofA's Michael Hartnett. US stock funds overall added $32.8 billion in the week through Nov. 6.

Halfway across the globe, Beijing’s disappointing stimulus measures “look like it is just a debt swap, which is frankly not going to be that exciting for markets,” said Bernie Ahkong, global multi-strategy alpha chief investment officer at UBS O’Connor. “The big factor between now and the end of the year is if we are going to get some incremental stimulus from the consumer side.”

"To me, there is little alternative to the US," said Marija Veitmane, a senior multi-asset strategist at State Street Global Markets. “The US is already the best performing equity market globally and we expect that outperformance to continue. US companies are the most profitable and likely to remain so, helped by the potential for lower taxes and less stringent regulation.”

European stocks were also hit by the China disappointment, with mining and consumer products shares leading declines, while real estate and healthcare subsectors were the biggest outperformers leading declines on the Stoxx 600 which falls 0.6%. Here are the biggest movers Friday:

• Dino Polska shares surge as much as 12% after Polish food supermarket chain reported improvement of Ebitda margin, despite challenging environment and slow same-store sales
• Zealand Pharma shares rise as much as 8.5% in Copenhagen, after JPMorgan initiated coverage on the stock with an overweight recommendation, saying amylin is the “next wave in obesity.
• EDP shares rise as much as 5.4% in Lisbon after Portuguese utility reported nine-month net income of EU1.08 billion vs. EU946 million y/y
• IAG shares jump as much as 7.9%, reaching the highest level since June 2020, after reporting a significant Ebit beat in the third quarter. The airline group also announced a share buyback program of €350 million to end no later than Feb. 28
• IMCD shares rise as much as 7.1%, the most since early August, after the Dutch chemicals firm’s results showed improving organic growth that analysts praised. ING says the market could focus on the positives in the context of troubling macro and chemicals news
• Miners are underperforming the broader European market as copper and iron ore joined a slump in commodity prices after China’s debt-swap plan left traders disappointed, with stimulus seen remaining in the slow lane
• Richemont shares drop as much as 5.6%, dragging shares in luxury peers lower, after the jeweler and watchmaker’s first-half sales and operating profit missed estimates amid weakness in its Chinese market
• Vistry Group shares plummet as much as 21%, slumping to their lowest level since October 2023, after cutting its profit guidance yet again. The housebuilder warned it will build fewer homes than previously expected
• Serco shares plunge as much as 15%, hitting their lowest level in almost a year, after the outsourcing company failed to win a renewal to provide immigration services and facilities in Australia
• Greggs shares drop as much as 7.6% after Deutsche Bank downgraded the bakery chain to sell from hold, as the broker flagged measures from the Autumn Budget that are “disproportionately relevant to the labor-intensive leisure sector”

Asian equities rose, capping their first weekly gain in six, as the Fed’s rate cut drove broader risk-on trading despite declines in Chinese stocks. The MSCI Asia Pacific Index rose as much as 0.8% Friday before paring some gains, with TSMC, Recruit Holdings and Hitachi among the biggest boosts. The regional benchmark was on course for a weekly advance of around 2.6%. Key gauges in New Zealand, Singapore, and Australia were among the biggest gainers, tracking a rally in US stocks after the Fed lowered its key interest rate by a quarter point. Comments from Fed Chair Jerome Powell that he doesn’t rule “out or in” a December rate cut also helped boost investor sentiment. Sentiment was gutted, however, by the latest disappointing stimulus announcement out of Beijing, which sent Chinese futures and the yuan sliding. After market close, authorities announced a total 10 trillion yuan ($1.4 trillion) program to refinance local government debt, which disappointed investors who were expecting stronger fiscal spending. The disappointment spread to assets often correlated with the health of the Chinese economy.  Market watchers are now turning their focus to upcoming policy meetings for further stimulus clues.

“The announcement is a letdown and indicative of the underlying conservative framework that reduces the scope for large positive surprises in the next few months,” said Homin Lee, senior macro strategist at Lombard Odier. “It appears that the authorities are kicking the can to December policy meetings, including the Central Economic Work Conference.”

In FX, the Bloomberg Dollar Spot Index rose 0.3%, hitting a session highs after China announced a disappointing 10 trillion yuan ($1.4 trillion) program to refinance local government debt as part of policy support measures to boost flagging growth. The yen is the best performer among the G-10’s, rising 0.4% against the greenback. The Aussie dollar drops 0.6% to the bottom of the G-10 FX leader board.

In rates, treasuries rise, with US 10-year yields falling 3 bps to 4.30%, underperforming bunds in the sector by 2.5bp, gilts by 0.5bp. Bunds outperform, supporting Treasuries, as euro-area stocks fall on global-growth concerns after China’s debt swap plan fell short of expectations. US data and Fed speaker calendars are light for Friday, and expectations for a heavy corporate issuance slate next week may drive hedging flows.

In commodities, the China disappointment hit prices with iron ore futures down 3%, and Brent crude down 1.5%. Spot gold fell $23 to $2,684/oz.

The US economic data calendar includes November preliminary University of Michigan sentiment at 10am New York time. Fed members scheduled to speak include Bowman at 11am on banking topics. Next week, Chair Powell speaks at an event put on by the Dallas Regional Chamber, Dallas Fed and World Affairs Council of DFW

Market Snapshot

• S&P 500 futures little changed at 6,008.75
• STOXX Europe 600 down 0.2% to 508.65
• MXAP up 0.2% to 189.95
• MXAPJ little changed at 603.31
• Nikkei up 0.3% to 39,500.37
• Topix little changed at 2,742.15
• Hang Seng Index down 1.1% to 20,728.19
• Shanghai Composite down 0.5% to 3,452.30
• Sensex down 0.1% to 79,461.04
• Australia S&P/ASX 200 up 0.8% to 8,295.13
• Kospi down 0.1% to 2,561.15
• German 10Y yield down 6 bps at 2.38%
• Euro down 0.2% to $1.0784
• Brent Futures down 1.4% to $74.59/bbl
• Gold spot down 0.7% to $2,687.50
• US Dollar Index little changed at 104.43

Top Overnight News

• Advisers close to President-elect Donald Trump have been in discussions with House Ways and Means Chair Jason Smith (R-Mo.) on a broad tax package that is partially paid for by tariffs approved by Congress. As part of those conversations, staffers and advisers close to the Trump team have also investigated whether House rules need to be changed to use tariffs as offsets for tax cuts. Politico
• President-elect Donald Trump plans to drastically increase sanctions on Iran and throttle its oil sales as part of an aggressive strategy to undercut Tehran’s support of violent Mideast proxies and its nuclear program, according to people briefed on his early plans. WSJ
• A dollar rally triggered by Republican Donald Trump's victory in the U.S. presidential election could heighten pressure on the Bank of Japan to raise interest rates as soon as December to prevent the yen from sliding back toward three-decade lows. Reuters
• Japan’s households cut spending for a second month deterred by inflation, backing the case for the BOJ to take a cautious approach to rate hikes. BBG
• China announced a $1.4 trillion program to allow local governments to refinance debt, finally putting an amount on long-anticipated stimulus. Markets weren’t impressed: The offshore yuan, bond yields and commodities all fell. The finance chief promised more measures next year. BBG
• China auto sales jump 11.2% Y/Y in Oct (this is the second consecutive month of Y/Y increases, and the fastest growth since Jan). Reuters
• The Biden administration is racing to complete Chips Act subsidy deals with Intel, Samsung and others before Trump takes office. TSMC and Global Foundries are said to be readying announcements, but more than 20 companies are still in the process. BBG
• Susie Wiles — one of the top architects of Trump’s political campaign — was named his White House chief of staff. She’ll be the first woman to hold the position. Jared Kushner won’t join the administration, though he may advise on Middle East policy, the FT reported. BBG
• BlackRock is said to be in talks to take a minority stake in Millennium. BBG, FT

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were ultimately mixed despite the early momentum following the fresh record levels on Wall St and a bout of rate cuts by major central banks, with gains capped as participants awaited a potential Chinese fiscal stimulus announcement. ASX 200 outperformed its major peers amid gains in nearly all sectors and with financials kept afloat post-ANZ earnings. Nikkei 225 traded higher but with gains capped after a contraction in household spending and the recent currency rebound. Hang Seng and Shanghai Comp wiped out early gains despite the HKMA's 25bps lockstep rate cut with price action cautious as participants awaited the conclusion of the NPC Standing Committee's session and potential stimulus announcement.

Top Asian News

• PBoC says they will firmly guard against the risk of exchange rate overshooting. Further interest rate cuts face dual constraints of net interest margin and exchange rate
• PBoC Q3 Monetary Policy Report: Reiterates monetary policy is to be flexible & targeted. To enhance the guiding role of central bank policy rates. To keep expanding monetary policy toolbox. Sticking to accommodative monetary policy stance. Maintain yuan exchange rate. To further improve monetary policy framework
• China's MOFCOM says China made progress in talks with EU on EV tariffs, with technical talks next week.
• Hong Kong Monetary Authority cut its base rate by 25bps to 5.00%, as expected, in lockstep with the Fed.
• China's Ambassador to the US Xie Feng said there are no winners in tariff wars, trade wars, science and technology wars, and industrial wars, while he added that the Taiwan issue is the first red line that cannot be crossed in Sino-US relations and words must match deeds. Furthermore, he said no challenge can stop China’s progress and that any containment and suppression will only "hit a wall."
• Japanese Finance Minister Kato said they will closely monitor the impact of Trump policies on the Japanese economy, while he wouldn't comment on the FX level but reiterated it is important for currencies to move in a stable manner reflecting fundamentals and that they will take appropriate steps on excessive moves.
• Sony (6758 JT) 6-month (JPY): Net 570bln, +36%; Operating 734bln, +42.3%; PBT 767bln, +43.8%.
• Softbank (9434 JT) 6-month (JPY) Sales 3.15tln, +7.4% Y/Y, Op. Income 585.89bln, +13.9% Y/Y; Sees FY Net Income 510bln (prev. guided 500bln); Op. Income 950bln (prev. guided 900bln)
• China Q3 (USD) Prelim current account surplus 146.9bln (prev. 54.5bln Y/Y), via China FX Regulator
• Acer (2353 TT) Oct consolidated revenue TWD 18.82bln Year to October +10.1%

China NPC Press Conference

• China's top lawmakers have approved the local debt swap plan; to raise the local gov't debt ceilings to replace existing hidden debts, via Xinhua.
• China's NPC Vice-Chairman says they intend to raise the local gov't debt ceiling by CNY 6tln. Moves to reduce local gov't debt will help to promote growth, expect to save CNY 600bln in interests for local gov'ts over five years; In addition to the 6tln debt limit approved, the local debt repayment resources will be directly increased by 10tln. New debt quota will help to replace existing debts. Will help to increase the local debt ceiling. Will raise the end-2024 local gov't special bond ceiling to CNY 35.5tln from CNY 29.52tln. Debt burdens in some regions are "big & heavy". Must resolutely curb new "hidden" debt.
• China's Finance Minister (Q&A): must resolutely curb new "hidden" debt; China Government debt burden relatively low and still has relatively big room to raise debt; will increase counter-cyclical measures. Will roll out new policy measures. Will issue measures to support the property market. To implement more forceful fiscal policy in 2025. Will soon issue special sovereign bonds to replenish the capital of big state banks. Issue special local bonds to support the purchase of idle land and unsold flats. Will issue ultra-long special treasury bonds.

European bourses, Stoxx 600 (-0.7%) are entirely in the red and to varying degrees vs futures initially indicating a positive open. Sentiment was hit following the China’s NPC press conference, where it largely refrained from providing specific details on fiscal stimulus, but did promise more forceful fiscal policy in next year. Bourses continued to trundle lower and currently reside just off worst levels. European sectors hold a negative bias; Healthcare takes the top spot, lifted by AstraZeneca after it reported a positive update on one of its treatments. Basic Resources and Consumer Products sit at the foot of the pile, with the former hampered by losses in underlying metals prices whilst the latter is weighed on by poor results from Richemont. Additionally, sentiment across these China-exposed sectors was hit given the lack of fresh stimulus measures from China’s NPCSC. US equity futures (ES -0.1%, NQ U/C, RTY U/C) are flat/incrementally lower, but have been edging ever so slightly lower in recent trade, given the weakness also seen in Europe. TSMC (2330 TT) has reportedly informed Chinese customers that it will be suspending production of some of their AI and high-performance chips, via Nikkei citing sources; as the Co. increases efforts to comply with US export controls

Top European News

• Grifols Profit Rises on Biopharma Sales, Repeats Guidance
• Erdogan Expects Lower Interest Rates With Slower Inflation
• German Economy Minister Habeck Returns to X After Five Years
• Cartier Owner Richemont’s Profit Slumps on Weak China Demand
• Logitech CEO Takes Diving Lessons to the Metaverse: Leader Q&A
• Scholz Under Mounting Pressure to Agree to January German Vote

FX

• DXY is slightly higher, with USD stronger vs. most peers (DXY is sluggish on account of JPY strength). DXY has been as high as 105.44 post-election but has since returned to a 104 handle.
• EUR is on the backfoot vs. the USD with the pair unable to hold above the 1.08 mark after venturing as high as 1.0824 on Thursday. For now, today's session low is at 1.0762 is still comfortably above yesterday's base at 1.0712.
• GBP softer vs. the USD to a similar magnitude as peers. Downside for Cable is limited relative to Thursday's moves with the current session low at 1.2936.
• JPY is the only of the majors to be up against the USD in an extension of yesterday's price action. Markets seem willing to fade some of the post-election rally seen in USD/JPY with Japanese officials out in full force attempting to jawbone the pair lower. USD/JPY has been as low as 152.28 with the next targets coming via the 200 and 21DMAs at 151.67 and 151.66 respectively.
• Antipodeans are both softer vs. the USD after yesterday's post-election recovery vs. the USD. Today it is likely that some of the disappointment surrounding the Chinese NPC meeting is acting as a drag on both pairs.
• Yuan is on the backfoot vs. the USD with the outcome of the Chinese NPC meeting judged to be somewhat of a damp squib as some expectations for bazooka stimulus were left disappointed.

Rates

• USTs are in the green, as markets digest the 25bps move from the Fed and continued data-dependent and meeting-by-meeting guidance alongside Powell saying he intends to serve the entirety of his term (mid-2026). Given the cut, yields are lower across the curve though there is no overt flattening/steepening bias currently. USTs at a 110-16+ peak, just off the 110-21+ WTD high. No real follow through from the underwhelming Chinese press conference.
• Bunds are firmer, taking directional impetus from USTs but primarily bouncing back from the marked pressure seen yesterday when the German coalition essentially collapsed. Stopped two ticks shy of the 132.00 mark but remains in striking distance.
• Gilts are directionally echoing peers but the modest outperformer. Action which comes as Gilts pare back the hawkish-skew from yesterday’s BoE. Gilts currently above the 94.00 mark but just off a 94.21 peak, resistance at 94.34 and 94.73 from Monday and last Friday.

Commodities

• A softer session for the crude complex complex thus far in a continuation of the weakness seen overnight following yesterday's choppy performance but with price action contained amid light oil-specific newsflow and against the backdrop of ongoing geopolitical risks. Weakness this morning also emanated from China's NPC press conference which was overall a damp squib - China’s much anticipated NPC Standing Committee meeting concluded today with an announcement on a debt swap plan to rein in hidden local government debt, whilst future fiscal stimulus was promised. Brent trades towards the lower end of a USD 74.45-75.61/bbl.
• Precious metals are softer across the board after rebounding yesterday as the dollar softened on a Trump trade fade, with the broader commodity complex overall underwhelmed by the Chinese NPC press conference.
• Base metals are lower across the board following the underwhelming Chinese NPC announcement which omitted specifics regarding sizes of fiscal stimulus, although China's Finance Minister said China will roll out new policy measures.
• US President-elect Trump reportedly intends to drastically increase sanctions on Iran and throttle its oil sales, via WSJ citing sources.

Geopolitics

• "Deputy Speaker of the Lebanese Parliament to Sky News Arabia: A ceasefire is possible within a few weeks", according to Sky News Arabia; details light
• Iranian Supreme Leader said Iran should put an end to Israel and make a sound decision on responding to its attack, according to Sky News Arabia.
• Israeli PM Netanyahu is aware of serious violence against Israeli citizens in Amsterdam and directed that two planes be sent immediately to assist citizens in Amsterdam after reports of Israeli football fans being attacked by assailants chanting 'Free Palestine'. Furthermore, Israel's Foreign Minister asked his Dutch counterpart to help get Israelis out safely following the security incident in Amsterdam.
• Israeli occupation forces stormed the city of Dhahriya, south of Hebron in the West Bank, according to Al Jazeera.

US Event Calendar

• 10:00: Nov. U. of Mich. Sentiment, est. 71.0, prior 70.5
  • Nov. U. of Mich. Current Conditions, est. 65.5, prior 64.9
  • Nov. U. of Mich. Expectations, est. 75.0, prior 74.1
  • Nov. U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0%
  • Nov. U. of Mich. 1 Yr Inflation, est. 2.7%, prior 2.7%

DB's Jim Reid concludes the overnight wrap

Markets put in another very strong performance over the last 24 hours, with US risk assets continuing their post-election surge. In fact after yesterday’s moves, the S&P 500 (+0.74%) is now up more than +25% on a year-to-date basis, and the last time it was up this much YTD by November 7 was back in 1995. Moreover, US IG credit spreads tightened another -2bps yesterday to just 75bps, which is their tightest closing level since 1998. So there’s an incredibly buoyant mood right now, and the S&P 500 has also just recorded its strongest 3-day move (+4.56%) since 2022.

Of course, the main news yesterday came from the Fed, although the policy decision was a widely-expected 25bp cut, which took the target range for the fed funds rate down to 4.50-4.75%. The language in the FOMC statement was largely unchanged, keeping the view that “the risks to achieving its employment and inflation goals are roughly in balance.” Looking forward, Powell avoided sending any signal about the December meeting, emphasising the data still to come before then. But relative to the previous meeting in September, the overall tone leaned slightly hawkish, as Powell mentioned how the recent data pointed to “diminishing downside risks” as “the economy remains strong”. He also added that “the right way to find neutral… is carefully, patiently”. Our US economists continue to expect another 25bps cut in December, but they think the bar for a skipping a cut at that meeting isn’t high. See their full reaction here.

In terms of recent political developments, Powell steered clear of discussing the implications of the election for the Fed, saying that “We don’t know what the timing and substance of any policy changes will be”. He also replied “No” when asked if he’d resign if Trump asked him, and said that dismissal of any Fed board members was “not permitted under the law”. Separately, a CNN report earlier cited a Trump advisor saying that Trump would allow Powell to serve out the rest of his four-year term until May 2026.

When it comes to the election results, the only outstanding question now is whether the Republicans will take the House of Representatives. That’s still not formally confirmed, but the chances of a Republican sweep on Polymarket have now risen to 97%, and the latest seat count from AP now stands at 211 for the Republicans and 199 for the Democrats, with 218 required for a majority. Meanwhile in the Senate, the latest total now stands at 53-45 for the Republicans, with two seats left to be called. Finally, Trump announced his first appointment yesterday, saying that Susie Wiles, his campaign manager, would become his White House chief of staff.

Before the Fed’s decision, US Treasuries actually unwound some of their post-election moves yesterday, with 2yr Treasury yields ending the day -6.2bps lower at 4.20%, whilst the 10yr yield fell -10.6bps to 4.33%. This also meant the dollar index (-0.55%) posted its worst day since August, albeit giving up just a third of Wednesday’s +1.61% gain. And looking forward, investors believe that another 25bp cut in December is likely, but far from certain, with futures only giving that a 71% probability as we go to press this morning.

Elsewhere, US equities saw continued gains as Powell struck an upbeat tone on the economy. That saw the S&P 500 (+0.74%) reach its 49th all-time high this year, with its YTD gains crossing the +25% mark. Tech stocks led the advance, with the NASDAQ (+1.51%) and the Magnificent 7 (+2.28%) reaching new highs of their own. That said, some of Wednesday’s strongest performers did see a reversal, with the Russell 2000 (-0.43%) and the KBW Bank index (-2.68%) retreating. But positive sentiment dominated overall, with the VIX index (-1.07pts) falling to its lowest level since August at 15.20.

Overnight in Asia, the focus is now on the Standing Committee meeting of China’s National People’s Congress, and what measures they may announce, particularly with the prospect of higher US tariffs under a Trump administration. Ahead of that, equity markets have seen little moves in either direction across Asia, with the Hang Seng (-0.29%), the CSI 300 (-0.09%), the Shanghai Comp (+0.14%), the KOSPI (-0.12%) and the Nikkei (+0.11%) all seeing pretty modest moves. That’s been reflected among US equity futures as well, with those on the S&P 500 up just +0.05% this morning.

Ahead of the Fed, the Bank of England also delivered a 25bp rate cut yesterday, taking their policy rate down to 4.75%. The move was widely expected, and the Monetary Policy Committee voted 8-1 in favour of the decision, with the dissenting vote to keep rates unchanged. Their latest forecasts also included the impact of the government’s budget the previous week, which announced higher borrowing plans for the years ahead. Their statement said that the budget was “provisionally expected to boost CPI inflation by just under ½ of a percentage point at the peak”, and Governor Bailey said that the Budget changes “are expected to reduce the margin of spare capacity in the economy over the forecast period”. Looking forward, the BoE signalled that rates would continue to move lower, and Governor Bailey said that “a gradual approach to removing policy restraint remains appropriate”. From here, our UK economist expects the BoE to leave rates on hold at the next meeting, before delivering another cut at the subsequent decision in February, and eventually moving to a terminal rate of 3.25%.

With the BoE cutting rates, UK gilts saw a strong outperformance yesterday, which saw the spread of 10yr gilt yields over bunds tighten by -10.4bps to 205bps. That took it down from its two-year high the previous day, and it also marked the biggest move tighter in the spread since July 2023. But even as gilts rallied, sovereign bonds elsewhere in Europe struggled, with yields on 10yr bunds (+4.0bps) and OATs (+2.8bps) both moving up to their highest level since July, at 2.44% and 3.20% respectively. For equities it was the reverse picture however, with the UK’s FTSE 100 (-0.32%) lower amidst the stronger pound, whilst Germany’s DAX (+1.70%) posted its best daily performance of 2024 so far. Otherwise, the broader STOXX 600 posted a +0.62% gain.

Elsewhere in Europe, there’s been plenty happening in German politics after the federal coalition broke up on Wednesday night. As a reminder, the breakup happened after Chancellor Scholz of the SPD dismissed finance minister Christian Lindner, who also leads the FDP, and the other FDP ministers then left the coalition as well. In turn, Scholz said he would call a vote of no confidence on January 15, which would pave the way for new federal elections after that. There were calls yesterday for that vote to be brought forward, including from opposition leader Friedrich Merz of the CDU/CSU, but Scholz said again that he wouldn’t put the vote of confidence to the Bundestag until the start of next year.

Looking at yesterday’s other data, the US weekly initial jobless claims were broadly as expected at 221k (vs. 222k expected). However, the continuing jobless claims for the previous week ending October 26 ticked up to 1.892m (vs. 1.873m expected), their highest level since November 2021. Over in Europe, German industrial production contracted -2.5% in September (vs. -1.0% expected), and Euro Area retail sales were up +0.5% in September (vs. +0.4% expected).

To the day ahead now, and data releases from the US include the University of Michigan’s preliminary consumer sentiment index for November, and there’s also Italy’s retail sales and industrial production for September. Central bank speakers include the Fed’s Bowman and Musalem, the ECB’s Vujcic, and the BoE’s Pill.