Market Overview

A look at the day ahead in European and global markets from Wayne Cole.

China

China has kicked off the week with some uninspiring data:
– Retail sales in November rose just 3.0% y/y, when median forecasts had been for +4.6% y/y.
– House prices continue to fall, though industrial output has held up.

Officials continue to discuss stimulus measures, including cuts in bank reserve requirements. However, credit data indicates that lower borrowing costs do not encourage investment. Consequently, Chinese bond yields hit another record low, prompting the central bank to check with commercial banks on their positions.

In a related note, 10-year yields posted their largest weekly drop since 2018, while longer-dated Treasury yields saw the biggest weekly increase this year.

Reports indicate that Beijing is contemplating allowing the yuan to depreciate to support the economy, which drew criticism from President-elect Donald Trump's trade adviser, Peter Navarro.

South Korea

In South Korea, the political landscape appears more stable with Han Duck-soo taking over for impeached President Yoon Suk Yeol. The Constitutional Court is currently reviewing the impeachment, with up to six months to decide Yoon's fate.

Authorities have committed to stabilizing financial markets, resulting in a steady KOSPI on Monday.

United States

All eyes are on the upcoming Fed meeting on Wednesday, where a quarter-point rate cut is 97% priced in. It is rare for the central bank to disappoint such a strong market consensus.

Guidance from Chair Powell and the FOMC dot plots will be particularly interesting, with markets now assuming just three cuts next year instead of four. The terminal rate could rise to 3.0% or more from 2.875% in September. A more hawkish outlook implies a rate floor around 3.80%, contributing to a poor performance for bonds last week.

Other Central Banks

In other central bank meetings, the Bank of Japan, Bank of England, and Norges Bank are expected to remain on hold. Conversely, the Riksbank is anticipated to cut by as much as 50 bps.

Bitcoin Surge

Another mover on Monday was bitcoin, which surged above $106,000 after Trump proposed creating a U.S. bitcoin strategic reserve similar to the strategic oil reserve.

Key Developments

• Appearances by ECB President Christine Lagarde, Vice President Luis de Guindos, and board member Isabel Schnabel.
• PMIs for Europe and the U.S.
• Bank of Canada Governor Tiff Macklem speaks.
• Empire State Manufacturing Survey for December.

(By Wayne Cole; Editing by Jacqueline Wong)