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What’s happening: The euro fell against the US dollar on Monday as investors monitored the political developments in France.
What happened: Concerns over a possible collapse of the government in France exerted pressure on the EUR/USD forex pair.
Meanwhile, the US dollar extended gains during Monday’s session after the release of manufacturing reports.
Why it matters: In France, the government of Prime Minister Michel Barnier is widely expected to collapse after the left- and right-wing parties have promised to call for a no-confidence vote amid a budget dispute.
Dovish remarks from ECB member Martins Kazaks triggered further speculations of another interest rate cut by the central bank in December, exerting pressure on the euro. While most expect policymakers to lower rates by 25 basis points (bps), there were rising speculations of a 50-bps cut.
Data released from the Eurozone showed that the unemployment rate remained at an all-time low of 6.3% in October in-line with expectations. However, the Eurozone’s HCOB manufacturing PMI fell to 45.2 in November, from 46.0 in October.
Meanwhile, the US released better-than-expected manufacturing data. The ISM (Institute for Supply Management) said the country’s manufacturing PMI improved to 48.4 in November, from 46.5 in October. Despite the improvement, manufacturing remained in the contraction zone. Fed Governor Christopher Waller said he was inclined to lower interest rates at the central bank’s upcoming meeting in December.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, moved higher to 106.45 on Monday, after logging its first weekly decline since November 2023 last week. Strength in the greenback weighed on the EUR/USD forex pair.
The EUR/USD fell to $1.0499 on Monday, cutting back some losses after recording its biggest daily decline since early November. The STOXX Europe 600 Index gained 0.66% to close at 513.61.
What to watch: Investors will continue assessing the political crisis in France. With no major economic data due to be released today, investors await reports on services PMI (1330 UAE Time) and PPI (1400 UAE Time) on Wednesday. The HCOB Eurozone services PMI is expected to decline to 49.2 in November. Analysts expect producer price inflation to rise 0.4% in October, compared to a 0.6% decline in September.
Context: Equity markets in Asia traded mixed this morning, as investors monitored the latest economic data.
Details: Data released on Monday showed the au Jibun Bank Japan manufacturing PMI fell to 49.0 in November, from 49.2 in October. This was the weakest reading in manufacturing PMI since March.
Market sentiment was supported by news of the Caixin China general manufacturing PMI climbing to 51.5 in November, from 50.3 in the previous month, topping market expectations of 50.5.
The HSBC India manufacturing PMI declined to 56.5 in November, from October’s reading of 57.5. However, the reading still signalled significant expansion in the region’s manufacturing sector.
Asian equity markets were also supported by the upbeat sentiment for US equities. A rally in tech shares sent US stock indices to new record highs on Monday. The S&P 500 rose to its 54th record settlement for 2024, while the Nasdaq 100 jumped more than 1% during the session.
Markets have been concerned about the escalation in the US-China friction. The US has announced new curbs on China’s access to components for chips and AI.
Japan’s Nikkei 225 gained 1.75% to trade at 39,188.78 this morning. China’s Shanghai Composite Index slipped 0.19% to 3,357.70, while Hong Kong’s Hang Seng Index lost 0.48% to 19,456.06.
What to watch: Investors await the release of economic data on services PMI from Asian nations on Wednesday. Data on Jibun Bank services PMI from Japan (0430 UAE Time), S&P Global PMI from Singapore (0430 UAE Time), Caixin services PMI from China (0545 UAE Time) and HSBC services PMI from India (0900 UAE Time) will be released tomorrow.
Other Markets: US trading indices closed mixed on Monday, with the S&P 500 and Nasdaq 100 up by 0.24% and 1.12%, respectively, and the Dow Jones index down by 0.29%.
Germany’s Chancellor Olaf Scholz announced plans to provide further military support worth €650 million to help Ukraine against its war with Russia. The news sent the RUB/USD slightly lower in forex trading this morning.
UK’s retail sales declined 3.4% on a like-for-like basis in November, after recording gains for four straight months. The latest reading falling short of market estimates of a 0.7% rise exerted pressure on the GBP/USD forex pair.
South Korea’s annual inflation rate accelerated to 1.5% in November, from 1.3% in the previous month. However, the recent reading came in better than market expectations of 1.7%, which sent the KRW/USD pair higher in forex trading this morning.
Mexico’s S&P Global manufacturing PMI rose to 49.9 in November, from 48.4 in the previous month. The recent reading also signalling a contraction in factory activity exerted pressure on the MXN/USD forex pair.
Brazil’s S&P Global manufacturing PMI declined to 52.3 in November, from 52.9 in October, sending the BRL/USD pair slightly lower in forex trading this morning.
South Africa’s GDP growth rate (1330 UAE Time), Brazil’s GDP growth rate (1600 UAE Time), Mexico’s unemployment rate (1600 UAE Time) and gross fixed investment (1600 UAE Time), as well as US Redbook index (1755 UAE Time), JOLTs job openings (1900 UAE Time), JOLTs Job Quits (1900 UAE Time) and RCM/TIPP economic optimism index (1910 UAE Time).
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