MARKET WRAPS
Stocks:
European indexes were mostly in the red on Monday with political volatility in France and the sudden resignation of Stellantis' chief executive damping the mood.
"At the start of this week, the focus is likely to be on France," XTB said, after the National Rally threatened to bring down the government if Prime Minister Michel Barnier didn't negotiate a budget deal.
The flow of economic data and earnings reports slows this week in the eurozone, but investors will keep tabs on manufacturing and GDP updates, as well as Christine Lagarde's Wednesday appearance at the European Parliament for potential direction on the Dec.12 rate-setting meeting.
Economic Insight
The European Central Bank will likely refrain from cutting interest rates more aggressively this month but will prime for further gradual cuts next year, Pantheon Macroeconomics said.
Inflation rose in the eurozone in November, figures showed last week, and that will likely keep the ECB to a 25 rather than a 50-basis-point cut at December's policy meeting, it said.
But the central bank's more dovish rate setters have an increasingly convincing argument for more rate cuts, and the bank will likely lower borrowing costs at least three times in the first half of 2025, and could even take the deposit rate below 2% next year, Pantheon added.
Stocks to Watch
BP is set to update its strategy in February after a difficult 12 months and Berenberg said the reset should focus on its balance sheet.
A message of greater shareholder returns discipline, lower capital expenditure and a higher cost-reduction target would increase investor interest, the bank added.
BP's net debt has grown over the past two years, and will likely grow again in 4Q, Berenberg added, seeing BP's current buyback pledge of $7 billion a year as unsustainable and forecasting $2.5 billion in 2025.
Deutsche Bank upgraded Inditex to hold from sell, saying it seems like a great business in the context of fierce competition.
The fashion group has the ability to elevate its price points and price perception, providing some breathing room in the current competitive environment, with nearshoring by H&M, the growth of Shein and faster sourcing by ASOS.
"These trends did accelerate but it did not come at the expense of Zara, " Deutsche Bank said, adding the quality of Inditex's stores and fashionable clothes have given Inditex new life and distinguished it from rivals at lower price points.
U.S. Markets:
Stock futures edged down as investors return from the Thanksgiving holiday to a string of data releases this week, including construction spending on Monday and, most importantly, the November jobs report on Friday.
They are also set to hear from Federal Reserve officials including Jerome Powell.
Meantime, bond yields rose as a new tariff threat from Donald Trump reignited worries over inflation.
Forex:
The euro fell in early trade after France's National Rally threatened a no-confidence vote against the government in coming days unless it meets its budget demands.
"While political uncertainty in France has had limited impact on the euro so far, the collapse of the French government does pose a downside risk heading into year end," MUFG said.
It added that heightened political uncertainty could, at the margin, support expectations for a larger 50 basis-point interest-rate cut at the ECB's Dec. 12 meeting
However, economic data don't fully support the case for such a move, with a 25 basis-point cut more likely.
The dollar rose after Donald Trump threatened to impose 100% tariffs against so-called BRICS countries if they create a new rival to the greenback.
Russia and Brazil have suggested creating a BRICS currency to reduce the dollar's dominance in global trade.
Trump's comments on social media Saturday "point to dollar strength being a theme of the new administration," Deutsche Bank said, in contrast to Trump's first term as president when he encouraged a weaker dollar.
Bonds:
The spread between French and German government bonds is likely to widen further in the near term as politicians in France wrangle over the budget, Generali Asset Management said.
If Barnier's government gives in to National Rally's demands, the 2025 budget bill will project a deficit exceeding 5%, it said.
Barnier could pass the law without parliamentary approval but that would risk a no-confidence vote.
"The spread is likely to remain in the range observed in recent days for the next few weeks."
From January, when funding activity resumes, the spread might rise towards 100 basis points, Generali Asset Management added.
Earlier, the 10-year OAT-Bund yield spread was trading flat after S&P affirmed France's AA- rating and stable outlook.
"Despite ongoing political uncertainty, we expect France to comply-with a delay-with the EU fiscal framework and gradually consolidate public finances over the medium term," S&P said.
Last week, renewed concerns about political stability in France pushed the yield spread to an intraday 90 basis points, the highest level since 2012, according to Tradeweb, before narrowing back to around 80 basis points by the weekend.
Commerzbank said the constructive tone in bond markets has scope to extend .
"Soft inflation and growth dynamics together with a favourable supply-demand pattern provide support and the unwinding of short positions ahead of year-end also seems at play."
Energy:
Oil was supported by Chinese factory activity growth and expectations that OPEC+ will further delay its planned output hike at a meeting this week.
An official gauge of China's manufacturing activity expanded modestly for a second consecutive month in November, a positive sign for the top crude oil importer's economy.
OPEC+
The market largely expects OPEC and its allies to hold oil production cuts in place for longer amid widespread concerns over weaker demand and prices.
Still, "OPEC alone will hardly reverse the medium-term bearish pressures if the demand side of the equation doesn't improve," ING said.
European natural-gas prices surged to their highest level this year as faster storage draws drive supply concerns.
"Lower-than-expected storage combined with the prospect of Russian piped gas via Ukraine coming to a stop at the end of this year is a worry for the market," ING said.
"While we still see a relatively comfortable balance by the end of the 2024/25 heating season, the region will still have a bigger task in refilling storage over the 2025 summer."
Metals:
Gold futures slid as optimism around U.S. interest-rate cuts declined.
ANZ Research said there are growing expectations the Federal Reserve will skip a hoped-for interest rate cut in December.
Geopolitical tensions are mixed, with intensifying hostility in Ukraine and Israel signing a ceasefire with Lebanon.
This safe-haven demand is keeping the downside for gold prices relatively protected and the stronger dollar is also suppressing investor appetite for the precious metal, ANZ added.
EMEA HEADLINES
Volkswagen Workers Begin Striking as Labor Dispute Escalates
Workers at Volkswagen sites across Germany began striking on Monday as a conflict with management escalates over the car maker's plans to slash jobs, cut pay and close factories.
Beginning Monday morning, workers at nine plants launched warning strikes, which are usually short walk-outs lasting a few hours a day, halting production as part of the continuing dispute.
Delivery Hero Shares Slump on Profit Hit From Move to Employment-Based Model for Delivery Riders in Spain
Shares in Delivery Hero plunged after the company said its Spanish subsidiary would implement an employment-based model in the country, a move expected to hit profits by 100 million euros ($105.8 million) in fiscal 2025.
In early morning European trading, Delivery Hero shares were down 7.3% at 34.99 euros. Year to date, shares have risen 43%.
Prosus Revenue Rises, Boosted by Strong Growth in Core E-Commerce Businesses
Prosus reported higher revenue for its fiscal half year, boosted by strong growth in its core e-commerce businesses.
The Amsterdam-listed investment group-which focuses on consumer internet companies-posted a rise in group revenue from continuing operations for the six months ended Sept. 30 to $2.96 billion from $2.56 billion for the same period a year earlier.
South Africa's Standard Bank Expects Earnings to Be Hurt by Currency Strength
Standard Bank Group said currency devaluations, together with the recent strength of the South African rand, diluted its performance in local currency but backed its full-year guidance.
The South African bank said Monday that group headline earnings grew by low-to-mid single digits in rand over the ten months ended Oct. 31 and by mid-teens on a constant currency basis.
Telia Completes Restructuring With Costs of Plan Seen Lower Than Expected
Telia Co. completed a restructuring announced earlier this year, with costs of the plan expected to be lower than originally guided.
The Swedish telecommunications operator said the plan should see it book restructuring charges of around 1.3 billion Swedish kronor ($119.3 million) in the final quarter of the year, below the 1.4 billion kronor previously expected.
A Top Mission for Europe's Chief Is to Cool Trump's Ire Toward the EU
President-elect Donald Trump is known for grandiose statements, a larger-than-life persona and a fondness for unpredictability. His counterpart on the other side of the Atlantic couldn't be more different in political style.
The U.S. relationship with Europe will rest in part on whether European Commission President Ursula von der Leyen can cool Trump's ire toward the European Union.
GLOBAL NEWS
Asian Manufacturing PMIs Send Positive Signals But Tariff Threat Tempers Upside
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12-02-24 0526ET
