European bonds decline on supply concerns; Oil Drops: Markets Wrap

(Bloomberg) — European bonds fell after a report that Germany will suspend debt limits for a fourth straight year, raising concerns about more borrowing as the euro zone economy slows.

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Bloomberg reported on Thursday that Chancellor Olaf Scholz’s government was forced to undertake a radical budget overhaul under a ruling by Germany’s Supreme Court last week. Yields on German 10-year debt rose by as much as six basis points, while yields on other key European bonds also rose after hawkish comments by policymakers.

Belgian Central Bank Governor Pierre Funche said on Thursday that the European Central Bank will not cut interest rates while wage growth remains high, while his German counterpart Joachim Nagel said it would be a mistake to ease too early. Meanwhile, a report on the European Central Bank’s latest policy meeting showed that officials agreed that borrowing costs should be raised again if necessary.

Earlier, data showed that the S&P Global Purchasing Managers’ Index (PMI) contracted again in November, reaching 47.1. While this is a bigger rise than economists expected, it marks the sixth straight month below the 50 level that indicates expansion. European stocks had difficulty gaining momentum, with the Stoxx Europe 600 index rising about 0.3%.

“It is still too early to take a constructive stance on the euro and eurozone economy, which is now likely to see a shallower recession rather than the beginning of a period of re-acceleration,” said Simon Harvey, head of FX analysis at Monex Europe.

Dutch companies were among the losing companies in the European index after far-right MP Geert Wilders achieved a surprise victory in the elections in the country. Wilders promised voters a binding referendum on leaving the European Union. Bank ING Groep NV fell as much as 3% in Amsterdam, while chipmaker ASML Holding NV fell 1%.

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Among other individual stocks, Virgin Money UK Plc fell as much as 4.4% after the British bank’s results came in below estimates due to high impairment rates and costs. Endesa SA shares fell more than 3% after the Spanish company unveiled a strategic plan that failed to impress analysts.

Swedish stocks jumped and the krona weakened after the country’s central bank decided in a surprise move to leave its key interest rate unchanged at 4%. Analysts had expected an increase to 4.25%.

Peter van der Wiele, multi-asset strategist at Robeco Institutional Asset Management, said he remains cautious about the outlook for stocks in 2024 as he expects pressure on corporate earnings amid slowing economic growth. “Although credit has not fully priced in the mild recession, we find the asset class attractive compared to stocks.”

US stock futures were little changed. There is no Treasury cash trading on Thursday due to the Thanksgiving holiday, while Japanese markets are also closed. Brazilian stocks rose to their highest levels in two years, on a closing basis.

Unlike OPEC+

In commodity markets, crude oil continued to fall as discord within OPEC+ forced the group to postpone an upcoming meeting, dampening speculation of further production cuts by the Saudi-led coalition. Brent crude fell below $81 a barrel after a volatile session on Wednesday that saw prices swing by more than $4, while West Texas Intermediate crude fell below $76.

“In terms of macroeconomic data, I don’t see enough positive signals to give me confidence in a buoyant market next year,” Carole Nakhle, CEO of Crystol Energy, told Bloomberg TV. “Even with oil demand forecasts, today we see a big difference between what the IEA expects for 2024 and what OPEC expects.”

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Iron ore fell from its highest level in nine months after Chinese authorities intensified a campaign to try to calm the rise in the steelmaking component. The Bloomberg Industrial Metals sub-index fell by the most in two months with nickel, copper and aluminum prices also falling.

In Asia, shares and bonds of Hong Kong’s Country Garden Holdings rose after news that Beijing included the builder on a draft list of 50 developers eligible for financial support, the latest move to plug an estimated $446 billion gap in financing needed to build the project. Alleviating the housing crisis. The real estate equity index rose 7%, recording its best week since early September.

Main events this week:

  • Thanksgiving Holiday – US markets closed – Thursday

  • Germany Ifo Business Climate, Friday

  • US S&P Global Manufacturing PMI, Friday

  • Black Friday, the traditional start of the holiday shopping season in the United States

  • Christine Lagarde of the European Central Bank speaks on Friday

Some key movements in the markets:

Stores

  • S&P 500 futures were little changed as of 2:14 PM New York time

  • Dow Jones Industrial Average futures were little changed

  • The MSCI Asia Pacific Stock Index fell 0.6%, more than any closing loss since November 10

  • The Stoxx Europe 600 index closed 0.3% higher.

  • The MSCI Emerging Markets Index fell 0.5%, more than any closing loss since November 17

  • The Ibovespa Brasil Sao Paulo stock index rose 0.4% to its highest level in more than two years.

  • The S&P/BMV IPC rose 0.4%, more than any closing gain since November 15

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Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%.

  • The euro rose 0.2 percent to $1.0906

  • The British pound rose 0.3 percent to $1.2537

  • There was little change in the Japanese yen at 149.57 to the dollar

  • The yuan in external transactions rose 0.1 percent to 7.1518 yuan to the dollar

  • There was little change in the Brazilian real and the Mexican peso

Digital currencies

  • Bitcoin fell 1 percent to $37,242.07

  • Ethereum fell 1.1% to $2,059.68

Bonds

  • The yield on 10-year Treasury bonds was little changed at 4.40%.

  • The German 10-year bond yield rose 6 basis points to 2.62%.

  • The UK 10-year bond yield advanced 10 basis points, more than any closing advance since October 18.

Goods

  • West Texas Intermediate crude fell 1.2% to $76.20 a barrel

  • Gold rose in spot transactions 0.1 percent to $1,992.25 per ounce

This story was produced with assistance from Bloomberg Automation.

– With assistance from Richard Henderson, Sagarika Jaisinghani, and Sebastian Boyd.

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