Futures Rise To Fresh Record High Ahead Of Powell Speech, French Government Collapse

Futures are higher following yesterday’s geopolitical events in France and S. Korea – which ironically highlight the stable exceptionalism of the US and its markets. As of 8:00am ET, S&P futures are 0.3% higher, and on pace for a 56th record high in 2024, after closing at the 55th yesterday; Nasdaq futures surge 0.6% boosted by positive earnings from CRM (+13.4% pre-mkt) and MRVL (+13.1% pre-mkt). All of Mag7 are also higher pre-mkt with Semis seeing a bid. The yield curve is twisting steeper with 10Y yield +4bps to 4.26%; the USD is reacting positively and is also higher. The commodity complex is under pressure with crude the outperformer while gold dips. Today’s macro data focus is on Mortgage Applications, ADP and ISM-Services. Fed chair Powell speaks at the Dealbook conference at 1:45pm ET. Shortly after 10am ET, France will hold a no confidence vote that is expected to topple the government of PM Michel Barnier and plunge France into an even deeper crisis.

In premarket trading, Salesforce jumped 12% to a record high after the software company reported fiscal third-quarter results that beat expectations on a number of key metrics. Dollar Tree gained 3% as sales improved in the third quarter, a sign the discounter is making headway in fending off competition and drawing in more shoppers. Foot Locker plunged 15% after the company cut its full-year sales and profit forecasts, citing more discounts and a pullback in consumer spending. Here are some other premarket movers:

• General Motors (GM) slid after the carmaker said it will incur more than $5 billion in charges and writedowns tied to its troubled operations in China as the automaker tries to salvage its once-profitable business in the world’s largest car market.
• Intuitive Machines (LUNR) sinks 18% as an offering of about 9.52m shares prices at $10.50 each.
• Marvell Technology (MRVL) jumps 13% after the chipmaker delivered better-than-expected results and an upbeat earnings forecast, citing demand for artificial intelligence computing.
• Novavax (NVAX) rises 2% after the biotech firm signed a pact to sell its manufacturing facility in Bohumil, Czech Republic to Novo Nordisk for $200 million.
• Okta (OKTA) jumps 14% after the cloud-software provider posted raised its full-year forecast.
• Pure Storage (PSTG) soars 23% after the cloud storage provider’s posted quarterly revenue that beat estimates and announced a big design win.
• Royal Bank of Canada beat estimates after setting aside less money than expected for potentially bad loans.

Traders were focused on French markets which are relatively stable for now ahead of Wednesday’s no-confidence vote around 4pm CET that threatens to topple the government. South Korea’s won rebounded after President Yoon Suk Yeol rescinded his shock declaration of martial law.

“Our base case expectation is that the government will lose the vote,” Rabobank strategists wrote in a client note. They say French bonds can weaken further and recommend selling the debt against buying Spanish and Italian peers.

Attention will then turn to Powell’s speech at the Dealbook conference in NY around 1:45pm ET, as well as the latest US Manufacturing PMI and ISM services data in the build-up to Friday’s crucial US jobs report. Fed Bank of San Francisco President Mary Daly said a December rate reduction isn’t certain, but remains on the table.

“The Fed has been quite clear up until now in their signaling, so if they were going to pause Powell might give some signals because they won’t want to surprise the market,” said Guy Miller, chief strategist at Zurich Insurance. “But I do think they will cut by 25 basis points this month.”

The surge in US stocks that has driven the S&P 500 index 27% higher this year shows few signs of fading, according to strategists at Barclays, powered by the election of Donald Trump and a positive economic backdrop. “It is hard to see an end to US exceptionalism any time soon, which we think remains the playbook into 2025,” the team lead by Emmanuel Cau wrote in a research note.

In France, the CAC 40 stocks index rose, marginally outperforming Europe’s regional Stoxx 600 gauge which gained 0.3%, while the yield premium on French bonds over their German equivalents was steady ahead of an upcoming no-confidence vote that could lead to the collapse of the French government. The German DAX climbs to a record high. Sweden’s Hexagon made the biggest leap in the Stoxx 600 index after it nominated former ABB’s former CEO as vice chair. Meanwhile, Signify slipped on a double-downgrade from Barclays on revenue and margins pressure. Here are the biggest movers Wednesday:

• Hexagon gains as much as 7.5% after the Swedish industrial technology group’s nomination committee proposed Bjorn Rosengren as the new vice chairman, to be voted on at a May 5 AGM
• BE Semiconductor gains as much as 5.8% after being upgraded to buy BofA, which said demand for the chip equipment maker’s tools has probably reached a trough and is poised to recover
• Campari shares gain as much as 5.5%, the biggest intraday advance since Sept. 26, after the Italian beverage maker named Simon Hunt its new chief executive officer
• Spirax Group shares rise as much as 2.8% after being upgraded to overweight by Barclays, which argues that the selloff in the industrial engineering group has gone too far
• Legal & General shares advance as much as 4.3% after the British insurer said that part of the capital not deployed this year would be returned to shareholders
• Victrex rises as much as 5% following an upgrade to buy from hold at Jefferies, which says the specialty chemicals company offers an attractive recovery opportunity from cyclical lows
• Coca-Cola HBC shares rise as much as 2.8% after analysts at BNP Paribas Exane upgraded the bottling company. Meanwhile, Deutsche Bank hiked its price target
• Learning Technologies jumps as much as 7.1% after the e-learning company said it had reached agreement on a recommended acquisition by General Atlantic
• Signify shares fall as much as 6.8% after Barclays analysts double-downgraded the Dutch light manufacturer citing pressure on revenue, margins and cash flow next year mostly due to China
• Orange shares decline as much as 2.8% after Morgan Stanley downgraded the telecom operator to equal-weight, saying the French firm’s home market is set to see declining Ebitda growth
• Maersk shares fall as much as 4% as JP Morgan slashes its price target to a Street-low, while Morgan Stanley becomes the 10th bank to give the shipping firm a sell-equivalent rating
• Carlsberg drops as much as 3% after Nordea downgrades the stock to sell and BNP Paribas Exane lowers its rating on the brewer to neutral

The stability in French assets before Wednesday’s vote came as no surprise to Nannette Hechler-Fayd’herbe, EMEA chief investment officer at Lombard Odier. “This is not a crisis of the style we had during 2012 and 2013 with the European debt crisis,” she said on Bloomberg Television. “France has a current account deficit that is tiny when you think about it, which means it has the ability to recycle and fund the government debt internally. That is its strength on which markets can take solace and build on.”

Earlier in the session, Asian stocks fell, poised to snap a three-day advance as a brief imposition of martial law in South Korea overnight spurred risk-off sentiment. The MSCI Asia Pacific Index dropped as much as 0.6% and was on course to snap its longest win streak since September. Financial firms Sumitomo Mitsui and Mitsubishi UFJ were among its biggest drags. South Korea’s Kospi ended the day down 1.4% after President Yoon Suk Yeol briefly declared martial law amid a political tussle, before rescinding it just hours later. Investors are assessing what’s next for South Korea after the opposition Democratic Party said it will pursue charges of treason and impeachment against Yoon for declaring martial law illegally. The Bank of Korea said it will increase short-term liquidity and take “active” steps in currency markets as needed to ensure stability.  

“There’s certainly some lingering uncertainty — but the quick response from Korean authorities means that impact on the region could remain limited,” said Charu Chanana, chief investment strategist at Saxo Markets.

Outside of Korea, key gauges also declined in Japan and Australia, while Chinese shares were mixed. Indonesia stocks led gains around the region, while Singapore stocks advanced toward a record high.

In FX, the Bloomberg Dollar Spot Index rose 0.1% while the Aussie dollar slumped after 3Q GDP missed estimates. The yen falls 0.9% to 151 per dollar. The South Korean won climbs 1% versus the dollar while BOK Governor Rhee Chang-yong dismissed cutting rates due to political developments.

In rates, treasuries cheaper across a steeper yield curve — an extension of Tuesday’s price action — ahead of a heavy US economic data slate and an appearance by Fed Chair Powell during the session. US yields are up 1bp-3bp across maturities with 2s10s, 5s30s curves steeper by 1.7bp and 1bp on the day, exceeding Tuesday’s highs; 10-year at 4.26% is ~4bp cheaper on the day with bunds and gilts keeping pace. European markets are also in focus, with Estoxx 50 climbing ahead of a no-confidence vote that could lead to the collapse of the French government. Gilts fell after deriving only brief support from comments by BOE Governor Bailey who said they expect to deliver four 25-bp interest-rate cuts next year. Treasuries and bunds also decline.

In commodities, oil steadied after the biggest advance in more than two weeks. WTI rose 0.6% to $70.40 a barrel. Spot gold falls $3 to $2,641/oz. Bitcoin rises toward $97,000.

Looking at the US economic data calendar we get the November ADP employment change (8:15am), November final S&P Global US services PMI (9:45am), and November ISM services index and October factory orders (10am). •    Fed speaker slate includes Musalem (8:45am), Barkin (9am), Powell (1:40pm) and Daly (6pm); Beige Book release at 2pm

Market Snapshot

• S&P 500 futures up 0.2% to 6,076.25
• STOXX Europe 600 up 0.2% to 516.73
• MXAP down 0.5% to 186.65
• MXAPJ down 0.1% to 585.41
• Nikkei little changed at 39,276.39
• Topix down 0.5% to 2,740.60
• Hang Seng Index little changed at 19,742.46
• Shanghai Composite down 0.4% to 3,364.65
• Sensex up 0.2% to 80,978.30
• Australia S&P/ASX 200 down 0.4% to 8,462.60
• Kospi down 1.4% to 2,464.00
• German 10Y yield little changed at 2.08%
• Euro down 0.1% to $1.0497
• Brent Futures up 0.3% to $73.82/bbl
• Gold spot down 0.1% to $2,641.53
• US Dollar Index up 0.17% to 106.54

Top Overnight News

• South Korea’s opposition submitted an impeachment motion against President Yoon Suk Yeol after he briefly imposed martial law, sparking calls for his resignation. Local stocks closed lower, while the won erased most of its overnight loss. BBG
• South Korea’s central bank said it would boost short-term liquidity and take steps to stabilize the currency as needed, but Governor Rhee Chang-yong said it is unlikely the central bank will cut interest rates. BBG
• China auto sales surged in November, likely on the back of price cuts and government stimulus initiatives. Retail vehicle sales grew to 2.4 million in November, up 18% compared with last year. BBG
• French stocks gained and bond spreads narrowed as President Emmanuel Macron urged lawmakers to reject a no-confidence vote that would topple the government. He said he won’t resign before his term ends. Voting is due to start after 4 p.m. local time. BBG
• The BOE has scope to reduce rates at least four times in 2025 if its UK economy outlook bears out, Governor Andrew Bailey said and the FT reported. Inflation has fallen faster than expected a year ago, he said. FT
• Final GOP majority in the House will be 220-215 after the last race in California was officially called, but the split will be 217-215 in the opening months of the Trump administration (as Trump is taking two House Republicans into his cabinet and Gaetz resigned). NYT
• Robert Lighthizer, the former U.S. trade chief, is unlikely to rejoin the Trump administration in an official capacity. Lighthizer could still be selected by Trump for a formal advisory role in the administration, though his hopes of landing a high-level cabinet job have slipped away. WSJ
• President-elect Donald Trump is considering Florida Gov. Ron DeSantis as a possible replacement for Pete Hegseth, his pick to run the Pentagon as Secretary of Defense. WSJ
• Advisers to Donald Trump publicly and privately are floating proposals to end the Ukraine war that would cede large parts of the country to Russia and taking NATO membership for Ukraine off the table. Reuters
• US Speaker Mike Johnson anticipates the stopgap funding bill will expire in late March 2025. A final decision is expected in the coming days, according to PunchBowl News.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly subdued with underperformance in South Korea following the martial law declaration and backtrack. ASX 200 was led lower by underperformance in real estate, defensives and financials, while Australian GDP data disappointed. Nikkei 225 swung between gains and losses with price action indecisive amid the lack of Japan-specific catalysts. KOSPI underperformed following South Korean President Yoon’s martial law declaration and subsequent backtracking which has led to calls from within the party to step down and an effort by opposition parties to impeach him for treason. Hang Seng and Shanghai Comp lacked conviction after somewhat mixed PMI data in which Chinese Caixin S ervices PMI missed forecasts but Caixin Composite PMI accelerated, while trade frictions also lingered after China’s MOFCOM banned the export of “dual-use items” relating to gallium, germanium, antimony and super-hard materials to the US.

Top Asian News

• South Korean ruling party leaders urged President Yoon to resign from the party and the ruling party leader saw the need to oust the defence chief and suggested that Yoon be kicked out of the party although ruling party lawmakers had various views and were undecided on Yoon’s departure from the party. Furthermore, the main opposition party announced it would seek to impeach President Yoon and it was also reported that South Korea’s Cabinet offered mass resignation.
• BoK said it will increase short-term liquidity measures starting Wednesday and will loosen collateral policies in the repo operation to ease any bond market jitters, while it will deploy various measures to stabilise FX as needed and will make any special loans available to inject funds into the market if required.
• South Korea’s regulator said it is ready to deploy the KRW 10tln stock market stabilisation fund anytime, according to Yonhap.
• South Korean main labour union group called for a general strike until South Korean President Yoon resigns, according to AFP.
• South Korea’s metal workers’ union said it will launch a full strike from December 11th unless President Yoon steps down, according to Yonhap.
• BoK Governor Rhee suggests more rate cuts are unlikely respite the turmoil; adds “political certainty may have actually increased”; not changing economic outlook, via Bloomberg TV.
• South Korea’s Defence Minister offers to resign, according to Yonhap.

European bourses began the session mostly in positive territory, and continued to climb higher as the morning progressed. Today’s Final PMI metrics across Europe were mixed, and ultimately had little impact on price action. European sectors hold a slight positive vs initially opening almost entirely in the green. Autos, Retail and Tech take the top spots – seemingly beneficiaries of the risk-on mood seen in Europe today. Healthcare bottoms the sector list, weighed on by AstraZeneca after it received a PT cut at HSBC. US equity futures are trading on a firmer footing, taking impetus from a mostly positive session in Europe; the NQ is the marginal outperformer so far. ASM International (ASM NA) announces outcome of prelim assessment new export regulations; based on a prelim assessment newly issued US export controls are largely in line with previous assumptions. EU to crack down on Asian online retailers, such as Shein and Temu, according to the FT. Potential charges aim to slow surge of goods sold on sites such as Temu and Shein that evade custom duties and checks. The bloc’s safety authorities have detected a growing number of dangerous and counterfeit goods, many of which are dispatched direct to consumers.

Top European News

• BoE’s Bailey said he sees four 25bps BoE rate cuts in 2025, according to the FT. He welcomes recent inflation developments, and added the MPC has emphasised gradual outlook for rates, and the disinflation process is well embedded but there is further to travel. He noted inflation impact of higher trade tariffs are not straightforward at all.
• ECB’s Holzmann said a 25bps rate cut is conceivable in December and not more, while he added nothing is decided on the next rate move and it will depend on data available at the December meeting. Furthermore, he stated that US President-elect Trump is casting a shadow over inflation in Europe and will probably drive up the inflation forecast.
• ECB policymaker and Bundesbank President Nagel said the German economy faces a weak outlook and 2025 is likely to be another year of weak growth, while he also called for a softer debt brake to ramp up investment, according to FT.
• ECB’s Rehn said he sees more grounds for the ECB to cut rates in December, sees policy easing continuing in the coming months.
• ECB’s Vujcic said a December rate decision will not be difficult, small steps on rates are better amid uncertainty, other ECB officials broadly agree on rates, via Politico.

FX

• DXY a touch higher with the USD showing greater performance vs. JPY and the antipodeans. Recent Fed commentary has continued to talk up the possibility of a rate cut on 18th December. Markets will be looking for greater clarity from Fed Chair Powell later in the session; but before that, traders will look out for US ADP and ISM services.
• EUR is slightly softer vs. the USD ahead of today’s French no confidence vote on PM Barnier’s government; a motion Barnier is expected to lose. Lagarde is due to speak at 13:30GMT but is unlikely to sway the 25bps vs. 50bps debate. EUR/USD has continued to pivot around the 1.05 mark and currently sits within yesterday’s 1.0480-1.0535.
• JPY on the backfoot vs. the USD with USD/JPY continuing to chop around the 150 mark with prices consolidating after the recent declines in USD/JPY.
• GBP has been knocked lower in recent trade following dovish remarks from BoE Governor Bailey who stated that he sees four 25bps rate cuts in 2025; Note, market pricing ahead of his comments looked for three 25bps rate cuts next year. Cable slipped further onto a 1.26 handle, tripping below Tuesday’s low at 1.2637.
• AUD is the laggard across the majors following soft domestic Q3 GDP data overnight which has seen money markets fully price an RBA rate cut for the April 2025 meeting. NZD/USD is lower but to a lesser extent; session low at 0.5832.
• PBoC set USD/CNY mid-point at 7.1934 vs exp. 7.2821 (prev. 7.1996)

Fixed Income

• The US curve is modestly bear-steepening after yesterday’s Waller induced bull-steepening. Commentary from Fed officials since from the likes of Daly has done little to talk up the odds of a pause later this month. Today sees US ADP, ISM Services ahead of Chair Powell at 18:45 GMT. Mar’25 UST has broken below Tuesday’s low and is eyeing the WTD trough at 110.23.
• Bunds/OATs are trading on the backfoot as traders await today’s no confidence vote in French PM Barnier; a motion Barnier is expected to lose. DE/FR spread has narrowed to just below 85bps having peaked just shy of 89bps on Monday. Today’s German 2034 Bund auction passed without issue.
• Gilts have seen a pick-up in recent trade (but are ultimately softer on the session) following dovish remarks from BoE Governor Bailey who stated that he sees four 25bps rate cuts in 2025. Note, market pricing ahead of his comments looked for three 25bps rate cuts next year. Mar’25 Gilts rose from 95.82 to 96.06 within a few minutes to then stabilise around 96.00 ahead of a 2031 auction, which was fairly weak; the results sparked some fleeting pressure in Gilt prices.
• UK sells GBP 4bln 4.0% 2031 Gilt: b/c 2.91x (prev. 3.42x), average yield 4.155% (prev. 3.988%), tail 0.8bps (prev. 0.2bps)
• Germany sells EUR 2.866bln vs exp. EUR 3.5bln 2.60% 2034 Bund: b/c 2.4x (prev. 2.30x), average yield 2.07% (prev. 2.38%) & retention 18.1% (prev. 16.35%)

Commodities

• WTI and Brent are relatively flat and within a tight range ahead of Thursday’s OPEC+ meeting slated for tomorrow at 11:30 GMT. Recent geopolitical developments include reports that “Israeli forces opened fire on Lebanese army forces during their inspection of the port of Naqoura”. A WSJ article reported that Saudi Arabia is aiming to keep oil prices elevated rather than chase market share; news which fuelled some marginal upside in the complex, which ultimately proved fleeting. Brent Feb trades in a USD 73.54-74.17/bbl.
• Precious metals are generally subdued intraday against the backdrop of a slightly firmer Dollar, whilst major newsflow for the yellow metal remains sparse in the run-up US ISM Services PMI, Fed Chair Powell, and then Friday’s US Jobs data. Spot gold resides in a tight USD 2,636.73-2,651.45/oz parameter.
• Mostly subdued trade across base metals amid a slightly firmer Dollar, but despite a mildly firmer risk tone elsewhere. 3M LME copper trades in a narrow USD 9,076.50-9,133.50/t range.
• US Private Inventory Data: Crude +1.2mln (exp. -0.7mln), Distillates +1.0mln (exp. +0.9mln), Gasoline +4.6mln (exp. +0.6mln), Cushing +0.1mln.
• OPEC+ meeting to take place tomorrow at 12:30 Vienna (11:30 GMT), according to Energy Intel.
• Saudi Arabia reportedly aims to keep oil prices elevated rather than chase market share, according to WSJ; Saudi reportedly averse to a price war with US shale. “Delegate noted that Angola already quit the cartel, and speculated that other countries could soon follow as a result of the policy”.

Geopolitics: Middle East

• “Israeli forces opened fire on Lebanese army forces during their inspection of the port of Naqoura”, according to Al Arabiya
• The Israel-Hezbollah ceasefire agreement “will endure and not collapse despite all the shocks it has experienced since its announcement”, according to a government source via Lebanese newspaper cited by Israeli journalist. “According to him, nothing has changed since reaching the agreement in terms of the political reality and the reality on the ground that led to its formulation. “The agreement was not forged so that it would collapse within a few days.”
• Syrian army announced the entry of the largest military convoy to the countryside of Hama to support the forces deployed on the fronts, according to Al Arabiya.
• Iran’s Deputy Foreign Minister of Political Affairs yesterday warned of possible NPT withdrawal if UN ‘snapback’ mechanism triggered, via IRNA citing a top lawmaker.

Geopolitics: Ukraine

• Russian defence units were reportedly engaged in repelling a Ukrainian drone attack on Russia’s Novorossiisk, while the report added that the Black Sea port of Novorossiisk is one of Russia’s most important oil export gateways.

Geopolitics: Other

• US and South Korea postponed planned defence talks and joint military exercises that were scheduled this week.
• China’s Coast Guard said four Philippine Coast Guard ships attempted to enter China’s territorial waters around Scarborough Shoal and the ships dangerously approached China’s normal law enforcement patrol vessels, while it stated that China exercised control over the Philippine ships in accordance with the law. However, Philippine’s Coast Guard said Philippine vessels encountered aggressive actions from several Chinese Coast Guard vessels and the Chinese Coast Guard fired a water cannon against Philippine vessels, as well as “intentionally sideswiped” a Philippine vessel on the starboard side.

US Event Calendar

• 07:00: Nov. MBA Mortgage Applications, prior 6.3%
• 08:15: Nov. ADP Employment Change, est. 150,000, prior 233,000
• 09:45: Nov. S&P Global US Services PMI, est. 57.0, prior 57.0
• 10:00: Oct. Durable Goods Orders, est. 0.2%, prior 0.2%
  • Oct. Durables Less Transportation, est. 0.1%, prior 0.1%
  • Oct. Cap Goods Ship Nondef Ex Air, prior 0.2%
  • Oct. Cap Goods Orders Nondef Ex Air, est. -0.2%, prior -0.2%
• 10:00: Oct. Factory Orders Ex Trans, prior 0.1%
  • Oct. Factory Orders, est. 0.2%, prior -0.5%
• 10:00: Nov. ISM Services Index, est. 55.7, prior 56.0
• 14:00: Federal Reserve Releases Beige Book

Central Bank Speakers

• 08:45: Fed’s Musalem Speaks on US Economy, Policy
• 13:45: Fed’s Powell Speaks in Moderated Discussion
• 14:00: Federal Reserve Releases Beige Book

DB’s Jim Reid concludes the overnight wrap

The last 24 hours have been very unusual in the world of DM governments and the next 24 hours are going to be equally unprecedented. South Korean President Yoon Suk Yeol declared martial law in an astonishing move yesterday afternoon European time (late Korean time) and then later reversed the decision after a vote against it by the National Assembly in the early hours their time. Now today the French government could see the first successful no-confidence votes since 1962.

As soon as we saw the announcement in South Korea, the Won plunged -2.67% against the US Dollar at the lows, but more than halved those losses after a parliamentary vote rejected the move with 190 out of 300 lawmakers managing to return to parliament to all vote against the motion. The opposition controls 170 seats so this was always a move that was unlikely to get ratified. President Yoon has since lifted martial law but the opposition are now demanding the President immediately resign or face impeachment. In fact as I press send, impeachment proceedings have begun. The Won has now recovered most of its losses from yesterday and is just over half a percent below level prior to the drama.

This morning the KOSPI is -1.39% lower having been as low as -2.3% earlier. Samsung (South Korea’s biggest company) is trading -1.49% lower after tumbling as much as -3% initially this morning after yesterday seeing its depositary receipts in London fall by nearly -7.5% at the lows before also paring this back after the parliamentary vote to close down -3.7%. The turn in Korean assets yesterday was also helped by the Finance Ministry saying that it planned to “deploy all possible market-stabilizing measures,” including “unlimited liquidity” just as the parliamentary vote was convened. This morning there have been more specifics with South Korea’s financial regulator indicating that it stands ready to activate 10 trillion won ($7.07 billion) in a stock market stabilisation fund to reduce market volatility. So for now we have a much calmer situation, but given how important South Korea is to the global supply chain this remains a story to keep on our radar.

One story that is unlikely to evade our radar is the one in France. The no confidence debate is set to kick off at 4pm local time today (3pm London), and voting will happen around three hours later. But since Marine Le Pen announced on Monday that her party would vote to bring down the government, it would now require someone to shift position unexpectedly in order for Barnier to win. So the general sense is that this vote could be successful. If so, there isn’t an obvious route forward on what happens next, as even though President Macron has to propose a new PM (which could be Barnier again), we know from Barnier’s own appointment that this is a completely fractured National Assembly where it’s proven impossible so far for a majority to coalesce. Moreover, the French Constitution means they have to wait a year from the last legislative election before another vote can take place, so that isn’t an immediate option either.

Last night President Macron tried to strike an optimistic tone, saying the National Rally choosing to vote for the no-confidence measure, “would be a vote of unbearable cynicism” and did not think they could side with the far-left flank. He also noted that he would not resign as President until his full term has ended in 2027, even as the left has called for him to step down.
From a market point of view, the Franco-German 10yr spread did tighten a bit yesterday, coming down -3.1bps to 85.0bps.

However, they’re still very high by the standards of the last decade, only just coming off their Monday level which was the widest since 2012. Moreover, French equities continued to underperform, with the CAC 40 (+0.26%) lagging behind the STOXX 600 (+0.37%) once again. And banks experienced further declines, with Société Générale (-0.68%), BNP Paribas (-0.29%) and Crédit Agricole (-0.40%) all losing ground.

Away from all the political developments, markets were fairly steady overall, with investors looking forward to the US jobs report on Friday as the next catalyst. Nevertheless, there was a clear intra-day selloff for US Treasuries, after the latest JOLTS report showed a tighter labour market than expected. For instance, the number of job openings rose more than expected to 7.744m in October (vs. 7.519m expected). In addition, the quits rate of those voluntarily leaving their jobs rose to 2.1%, the highest since May. So that added to investors’ confidence that the labour market was holding up.

After Fed Governor Waller indicated on Monday that he was leaning toward supporting a rate cut this month, there was a bit extra attention on speakers yesterday. Overall, the dovish bent continued, albeit less enthusiastically. Federal Reserve Bank of San Francisco President Daly noted that further cuts were coming, saying “Whether it’ll be in December or some time later, that’s a question we’ll have a chance to debate and discuss in our next meeting, but the point is we have to keep policy moving down to accommodate the economy.” This echoed Chicago Fed President Goolsbee’s sentiment that interest rates will “come down a fair amount from where they are now”. Additionally, Fed Governor Kugler said the economy was in a “good position” and that price pressures were on a “sustainable path” toward the Fed’s 2% target. The one semi-hawkish note was from President Daly, who noted that the neutral rate has likely moved up “closer to 3%” now.

With that data in hand and Fed speakers a bit more equivocal, futures slightly dialled back the likelihood that the Fed would cut rates in two weeks’ time, with the probability falling from 76% to 70% by the close. 2yr yields were largely unchanged by the close, at 4.179%, whilst the 10yr yield was up +3.5bps to 4.225% and off the pre-JOLTS/South-Korea-Martial-Law lows for the session of 4.17%. Meanwhile in Europe, 10yr bund yields ended the session up +2.0bps at 2.05%, whilst those on 10yr gilts (+3.1bps) moved up to 4.24%.

For equities, it was a subdued day in the US with the S&P 500 (+0.05%) seeing little movement, with the index just making yet another record high. Tech stocks saw a slight outperformance, with the Magnificent 7 (+0.86%) and the NASDAQ (+0.40%) both inching up to record highs of their own. But small-caps struggled, with the Russell 2000 (-0.73%) falling back. Over in Europe however, the story was one of more consistent positivity, with the STOXX 600 (+0.37%) advancing for a 4th consecutive session, including outperformances from Spain’s IBEX 35 (+1.18%) and Italy’s FTSE MIB (+1.03%).

Coming back to Asia, equity markets are recovering after a weak open following the political drama in South Korea. The Nikkei (+0.27%) and Hang Seng (+0.27%) have now moved higher even as the S&P/ASX 200 (-0.38%), the CSI (-0.21%) and the Shanghai Composite (-0.07%) remain lower. S&P 500 (+0.13%) and NASDAQ 100 (+0.37%) futures are higher.

Early morning data showed that 3Q24 GDP for Australia missed on the downside, coming in at +0.3% QoQ, below the +0.5% figure that had been forecast. It followed growth of just +0.2% QoQ in the previous three quarters. Following the release, the Aussie (-0.72%) is losing ground trading at 0.6439 against the dollar. Elsewhere, China’s services sector delivered a surprise slowdown as the Caixin/S&P Global services PMI fell to 51.5 (v/s 52.4 expected) from 52.0 in October. The downbeat data aligns with the official PMI released on Saturday, which showed non-manufacturing activity weakened to 50.0.

To the day ahead, and data releases from the US include the ISM services for November, the ADP’s report of private payrolls for November, as well as the final November services and composite PMIs from around the world. From central banks, we’ll hear from the Fed Chair Powell, the Fed’s Musalem, Barkin and Daly, ECB President Lagarde, and the ECB’s Cipollone, Makhlouf and Nagel, along with BoE Governor Bailey. Separately, the Fed will release their Beige Book.