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Relief Rally Faces Challenges Amid Rate Rebound
The much-anticipated relief rally encountered hurdles as market dynamics shifted with a resurgence in rates. Today’s market landscape, shaped by US data and global economic indicators, witnessed a contrasting narrative to the recent rally.
The ebb and flow of rates played a pivotal role, influencing sentiments across various financial sectors and setting the tone for the day’s market movements.
Market Overview in 60 Seconds
Following a series of sessions marked by plunging global real rates and robust risk appetite, market sentiment has slightly soured. A mix of US data boosting US rates and weak Chinese house data triggering sell-offs in Chinese indices affected Asian markets.
The USD stabilized, industrial metals dipped, and oil extended its decline due to worsened global risk appetite and an unexpected build in US crude inventories.
Read More: UK CPI Inflation Falls to 4.6% in October, Below Expectations
Relief Rally Market Wrap
While recent US data indicated an economic slowdown and subdued price growth. Thus, the arket reactions reversed expectations for US rate cuts next year. Retail sales were slightly lower than expected. But the control group showed steady monthly growth, indicating better goods buying by US consumers. However, October’s Producer Price Index (PPI) figures were weaker than anticipated. In the euro area, industrial production declined more than expected, affirming soft indicators’ weakening trend.
President Xi Jinping and US counterpart Joe Biden’s meeting in California yielded constructive talks on military communication. Also talks about drug trafficking prevention, AI advancements, and maintaining peace in Taiwan. Equities rose initially but retreated later, influenced by rising yields. Europe and US equities rose marginally, while futures trended lower this morning.
Financial Insights
US data drove global yields higher, with UST yields up across the curve and a bear steepening. Markets anticipate nearly 90bp worth of ECB cuts next year. Currencies like NZD, AUD, NOK, and SEK retreated, while the USD stabilized against EUR/USD.
The release of US data sparked an upward surge in global yields, marking an increase in UST yields across different maturities. While simultaneously witnessing a bear steepening in the Bund curve. Market sentiments anticipate a potential 90 basis points (bp) worth of cuts from the European Central Bank (ECB) in the coming year, reflecting the cautious outlook in response to evolving economic indicators.
Amidst this shift, currencies such as the NZD, AUD, NOK, and SEK retreated, signaling a retraction in their values. Meanwhile, the US Dollar demonstrated stability in its exchange rate against the EUR. Thus, maintaining a steady position amidst the evolving global market dynamics.
Read More: UK Labour Market Growth in November 2023
Relief Rally Credit Market Update
Following the post-CPI rally, the credit markets displayed signs of stabilization, although there was a marginal upward movement observed in both Itrax and Itrax Xover indices. Despite this slight uptick, primary markets maintained an active stance, witnessing substantial participation from corporate and financial entities seeking to capitalize on pre-Christmas issuance opportunities.
This stability post-rally suggests a cautious yet active approach within the credit sphere, with market players keenly navigating the terrain amidst evolving economic indicators and anticipations for the upcoming festive season. The mild uptrend in certain indices indicates nuanced shifts, highlighting the nuanced dynamics prevalent within the credit markets.
