German Debt Limits Suspension Adds to Concerns Over Euro-Area Borrowing
European bonds fell after a report that Germany will suspend debt limits for a fourth consecutive year, adding to concerns over more borrowing as the euro-area economy slows.
Chancellor Olaf Scholz’s government was forced into a radical budget overhaul by a ruling last week from Germany’s top court, Bloomberg reported Thursday. Yields on German 10-year debt climbed as much as six basis points, while yields on other core European bonds also rose after hawkish comments by policy makers.
Belgian central bank Governor Pierre Wunsch said on Thursday the European Central Bank won’t cut rates while wage growth remained elevated, while his German counterpart Joachim Nagel said it would be a mistake to loosen too early. Meanwhile, an account of the ECB’s last policy meeting showed officials agreed they should raise borrowing costs again if needed.
Earlier, data showed S&P Global’s purchasing managers’ index was in contraction again in November, hitting 47.1. While that’s a bigger uptick than anticipated by economists, it marks the sixth consecutive month below the 50 level that indicates expansion. European stocks struggled for traction, with the Stoxx Europe 600 index edging about 0.2% higher.
“It is still too early to become constructive on the euro and eurozone economy, which is now likely experiencing a shallower recession and not the beginning of a period of re-acceleration,” said Simon Harvey, head of FX analysis at Monex Europe.
Dutch firms were among the biggest decliners in the benchmark after far-right lawmaker Geert Wilders won a shock victory in the country’s elections. Wilders has promised voters a binding referendum on leaving the European Union. Lender ING Groep NV fell as much as 3% in Amsterdam, while chipmaker ASML Holding NV shed 1%.
Among other individual movers, Virgin Money UK Plc fell as much as 4.4% after the UK bank’s results missed estimates due to higher impairments and costs. Endesa SA dropped more than 3% after the Spanish utility unveiled a strategic plan that failed to impress analysts.
Swedish stocks jumped and the krona weakened after the country’s central bank in a surprise move decided to leave its main benchmark rate unchanged at 4%. Analysts had expected an increase to 4.25%.
Peter van der Welle, a 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. “While credit has not been fully pricing a mild recession, we find the asset class attractive relative to equities.”
US equity futures were little changed. There is no Treasury cash trading on Thursday due to the Thanksgiving holiday, while Japanese markets are also closed.
OPEC+ Discord
In commodity markets, crude oil extended a decline as discord within OPEC+ forced the group to delay an upcoming meeting, quelling speculation of further production cuts by the Saudi-led alliance. Brent crude sank below $81 a barrel after a volatile session on Wednesday that saw prices swing by more than $4, while West Texas Intermediate was below $76.
“On the macroeconomic data, I don’t see enough positive signals to give me the confidence of a booming market next year,” Carol Nakhle, Chief Executive Officer of Crystol Energy, said on Bloomberg Television. “Even with oil demand forecast, we see today a big difference between what the International Energy Agency is expecting for 2024 and what OPEC is expecting.”
Iron ore tumbled from a nine-month high after Chinese authorities stepped up a campaign to try and cool the rally in the steelmaking ingredient. Bloomberg’s industrial metals sub-index dropped by the most in two months as prices of nickel, copper, and aluminum also retreated.
In Asia, Country Garden Holdings Co.’s shares and bonds surged in Hong Kong following news that Beijing included the builder in a draft list of 50 developers eligible for financial support, the latest move to plug an estimated $446 billion gap in funding needed to ease the housing crisis. A gauge of property stocks rallied 7%, set for its best week since early September.
Key events this week:
Thanksgiving holiday — US markets closed — Thursday
Germany IFO business climate, Friday
US S&P Global Manufacturing PMI, Friday
Black Friday, traditional kick-off for the US holiday shopping season
ECB’s Christine Lagarde speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.3% as of 2:44 p.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index rose 0.3%
The MSCI Emerging Markets Index rose 0.4%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0895
The Japanese yen was little changed at 149.53 per dollar
The offshore yuan rose 0.1% to 7.1522 per dollar
The British pound rose 0.3% to $1.2529
Cryptocurrencies
Bitcoin fell 1% to $37,233.18
Ether fell 1% to $2,060.85
Bonds
Commodities
Brent crude fell 1.7% to $80.57 a barrel
Spot gold rose 0.2% to $1,993.58 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson and Sagarika Jaisinghani.