DAX Extends Gains, FTSE Climbs Above 7500, Tui Torschlusspanik

Trump: Dictator for a Day 

“If Trump wasn’t running, I’m not sure I’d be running”. So says senile Biden. 

When asked if he would be a dictator, Donald Trump said “No. No. Other than day one”.  On the day one he’s talking about he’d close the southern border (some 8m illegals have entered during the Biden years…) and boost oil drilling (US production is already at an all-time high). 

Tui Torschlusspanik 

TUI is thinking of leaving London…another one bites the dust … City reforms have an aura of Torschlusspanik – time is running out! Tui may also feel like it’s missing out on a better valuation from a single listing and London is no longer the place where a lot of the liquidity can be found. It will surely add to the sense that the City of London is losing its lustre a bit. It’s a sign of decline and underlines the need to revitalise public markets in the UK. It’s not just companies moving listings abroad like Ferguson or CRH, it’s the huge slate of takeovers that has decimated corners of our markets. Blame Gordon Brown, or blame leveraged LDI investing, or blame Brexit, or whatever; a change is required. 

Dax Soaring 

Narrative check: Rates go down, stocks go up; or crap German data sends DAX to record high…bad news is good news for equities right now. Stocks rose early Wednesday in Europe as the DAX came off the back off a record closing high. Shares rose a further quarter of a percent in Frankfurt, whilst London rallied half a percent early on with lower bond yields feeding risk appetite. The DAX is now up almost 13% since October 26th in a startling one-way move. The FTSE has struggled a bit more but oil has lagged. Bond yields eased back yesterday as the ECB’s Schnabel said it’s unlikely to hike again, and fell further as US data slackened to support the narrative driving the market action right now that the central banks will start cutting early next year and aggressively.  Soft German data today is weighing again and raising expectations for some very aggressive cutting by the ECB next year. 

Yields, Rate Cuts and Jobs 

The yield on the benchmark 10yr Treasury note fell below 4.17%, its weakest since September … getting close to a 100bps move in the last month or so, just to highlight the speed of the repricing in the market from H4L to cuts. We are seeing further easing in yields this morning in Europe with traders now fully pricing 150bps of cuts by the ECB next year after some pretty soft German economic data. Stocks were less clear in their direction – investors are trying to work out if bad news is bad news or good news right. The Nasdaq rallied with all the Magnificent Seven higher except Meta, whilst the S&P 500 fell This is indicative of the kind of behaviour and choppy action we might get until at least the December FOMC.   

Jolts job openings slid to 8.7 million in October, which was well below estimate, to the lowest level since March 2021. At the same time the ratio of vacancies for every unemployed worker fell to 1.3, getting much closer to the pre-pandemic high of 1.2.  

Elsewhere... 

Moody’s cut its outlook on China’s sovereign credit rating to negative, citing growing risks of persistently lower medium-term economic growth amid the ongoing property crisis in the country that continues to weigh. British American Tobacco shares plunged as group took a £25bn hit on US brands. Oil fell again to test a 5-month low, gold retreated towards the $2k support before rallying a bit, whilst the US dollar advanced again with DXY testing the 21-day EMA as the euro slid further on ECB rate cut bets, whilst German factory orders slumped 3.7% in October and the German construction PMI fell to a puny 36.2 from 38.2 prior. Data today focuses on the ADP employment report and Bank of Canada rate decision.  

There are two big questions for this rally: growth and inflation. The growth story gets all the attention this week with the US jobs report. But the inflation story remains interesting and far from settled in the way the market thinks it is. The New York Fed's measure of underlying inflation (the "multivariate core trend" rate) ticked down to 2.6% in October from 2.9% in September This was the lowest reading since January 2021   

Cleveland Fed Nowcasting model shows reacceleration in inflation, however.