It's All Bananas

By Teeuwe Mevissen, senior macro strategist at Rabobank

Did we leave behind the cost of living crisis? Obviously this depends on one’ s financial situation but for some money ain’t a thang as Jermaine Dupri would say. Recently the ‘art’ concept ‘ the comedian’ was auctioned via the legendary auction house Sotheby’s. A crypto ‘investor’ is now the new and proud owner of a banana and a roll of silver coloured duct tape. The price?  $6.2 million and up from $120K in 2019. This is still peanuts compared to the Magritte that was also auctioned at the other legendary auction house Christie’s and sold at the hefty price of $121 million. More money more problems? Or more money more bananas? It’s likely bananas since it all seems bananas nowadays.

Yesterday for instance, Russia rattled it’s nuclear sabre once more because it apparently thinks that it’s only Russia’s privilege to use long range weapons obtained from its pariah partners. This was after the West had to discuss bananas once more to finally decide that certain types of weapon systems could be used by Ukraine - and if so - how. Or maybe instead we should discuss how to end the war in 24 hours without addressing and more importantly solving the true underlying problem(s).

Looking at bitcoin one might think that all problems have already been solved. At the moment of writing bitcoin is approaching $100.000 because of expectations of a pro-crypto administration and also indicating that there is plenty of risk appetite in various corners. Stock markets also seem to have brushed off the recent escalation regarding the war in Ukraine with a Dow Jones close to reaching a level of 44,000. But when one takes a look at  eurodollar, the exchange rate diving below a level of 1.05 seems to indicate that there is plenty of (geopolitical) risk and market participants are looking for safe havens. Weak data from Europe this morning, obviously are not helpful here. Regardless let’s discuss bananas simply because it’s all bananas.

So let’s switch from bananas to economic data which in some cases is actually more related to each other than one might think. While the data calendar of yesterday did not have much to offer, today markets will be offered more insights. UK retail sales volumes fell 0.7% in October, after a revised 0.1% rise in September (down from 0.3%).  Monthly retail sales look like a seesaw, often swayed by factors like weather. Over the three months to October 2024, volumes rose 0.8% compared to the three months to July, and 2.4% year-on-year.

However, they remain 1.5% below pre-pandemic levels from February 2020, highlighting the lasting impact of weak growth and inflation. Germany’s Q3 growth was revised down to 0.1% q/q from 0.2%. While this still beats the initial forecasts, the economy’s business model is faltering, and storm clouds loom for next year, particularly with Trump tariffs on the horizon.

Preliminary data measuring European purchase manager indices paint a harrowing picture of sentiment in both the services as well as in the manufacturing sector. Sentiment in the French services sector dropped sharply and came in much lower than expected (45.7 vs 49 expected). Sentiment in the French manufacturing sector also disappointed coming in at 43.2 vs 44.5 expected). Both indices indicating an economic downturn.  

The survey also highlighted that ‘cost pressures’ remain a concern (even in France where wage growth is considerably lower than in, for example, Germany). Operational expenses increased at the fastest rate in 3 months, albeit at a limited rate compared to the series average. Many panellists cited higher wages as the main reason for the cost increases. Output charges rose, but this was fully driven by services providers; manufacturing gave discounts to deal with competition.

Germany also reported a manufacturing PMI of 43.2 vs 43 expected and sentiment in the services sector dropped to a level of 49.2 where a level of 51.7 was expected.  The survey reports uncertainty among panellists, with services providers highlighting fewer new orders from manufacturers. Falling goods production and a lack of incoming new work therefore remains a major drag on overall economic output. This indicates that Germany’s economy is still very much struggling and that a new government will have plenty of issues to deal with.