Markets remained data- and event-driven ahead of a busy macro week, highlighted by the FOMC decision. US Services PMI strength suggests resilience in growth but raises questions about the inflation trajectory. Global equities exhibited mixed performance, while Treasuries stabilized into the close. Canadian markets are digesting significant fiscal and political developments, with CPI and US retail sales data up next on the docket.
A modest overnight bid faded into renewed selling in NY, continuing the recent sell-off. Services PMI surged unexpectedly to 58.5 (vs 55.8 est), its highest since October 2021, while Manufacturing PMI weakened further to 48.3 (vs 49.5 est). The Composite PMI rose to 56.6, the strongest since March 2022.
10yr UST yields pushed above Friday’s highs to 4.41%, before afternoon consolidation allowed Treasuries to close off the lows. 5yr stabilized near 4.25%, while 30yr settled above 4.60%.
Tech outperformed as Nasdaq hit fresh highs (+1.6%), driven by continued strength in large-cap tech. S&P gained 0.38% while the Dow remained flat. Underlying breadth remained weak, marking the 11th consecutive day with more S&P decliners than advancers.
Funding & Rates: Net coupon settlements ($65b) alongside quarterly tax payments pressured funding rates, pushing GC above 4.65%. RRP volumes fell further to $111b, the lowest since April 2021.
On the data front:
Eurozone: Services PMI beat estimates at 51.4 (vs 49.5), though Manufacturing PMI held steady at 45.2.
UK: Services PMI edged up to 51.4 (vs 51.0 est), offsetting weaker Manufacturing PMI at 47.3 (vs 48.5 est).
China: Mixed November data—industrial production aligned at 5.4%, but retail sales disappointed at 3% (vs 5% est).
Central Bank Outlook:
ECB officials reiterated cautious optimism on inflation: Lagarde cited sharply lower services inflation, Schnabel highlighted price stability within reach, while Kazimir reinforced gradual rate cuts.
FOMC: A 25 bp cut is widely expected with focus on hawkish forward guidance. Markets are pricing in only 50bps of cuts through 2025, signaling slower easing ahead.
Key Macro Events Ahead:
FOMC Meeting: Dec 18 (25bp cut expected).
BOJ Decision: Dec 18 (unchanged consensus).
BOE Decision: Dec 19 (unchanged consensus).
US PCE Data: Dec 20.
Canadian Focus:Political uncertainty took centre stage following Finance Minister Freeland’s abrupt resignation, citing differences with PM Trudeau. Markets reacted with early CAD underperformance before stronger US PMI data and Dec 15 coupon extensions stabilized flows.
Canada’s updated fiscal plan included C$23b in T-Bills (+8%) and C$13b in bonds (+6%) through March 2025, signaling heavier near-term issuance.
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