Europe – Poor sentiment post Trump
European PMIs dropped strongly post US elections, as the composite PMI fell from 50 to 48.1. Readings from France and Germany were particularly weak, as the services sector gave in and the outlook of tariffs weighed on sentiment, while the rest of the Eurozone looked more resilient. Commentary on slightly higher price pressures and resilient employment in France failed to taint the dovish picture, and European yields fell strongly on the release. Swaps markets now imply 36 basis points for the December meeting, a 44% chance of a 50 basis points cut, and the terminal rate has fallen to below 1.7%. Yields had been higher earlier last week, as ECB speakers pushed back against faster cuts, but this was swiftly undone. This week Eurozone inflation will complete the picture ahead of the next meeting, as headline HICP is expected to rise from 2.0% to 2.3% on higher energy prices. Core inflation is expected to rise only slightly to 2.8%.
Russia/Ukraine – Storm before the calm?
Last week the war between Russia and Ukraine intensified, as Ukraine shot US and UK-made missiles into Russian territory, targeting military arsenals. The US and UK had approved the use of western weapons to attack Russia. The attacks followed Russia’s update of their nuclear doctrine, which now also justifies the usage of nuclear weapons when non-nuclear armies, but backed by a nuclear power, attack the country. Ukraine points to the deployment of North Korean soldiers in Russia as an escalation. The move from President Biden stands at odds with hopes for a peace deal that pervaded markets following US elections. Russia reaction can thus be seen as a signal to the West regarding the alternative to negotiations. The door to a deal in 1H25 remains wide open, in our view, but the road to get there will be tense and bumpy.
Algebris Investments’ Global Credit Team
For more information about Algebris and its products, or to be added to our distribution lists, please contact Investor Relations at algebrisIR@algebris.com. Visit Algebris Insights for past commentaries.
Any opinion expressed is that of Algebris, is not a statement of fact, is subject to change and does not constitute investment advice.
No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris Investments, its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.
© Algebris Investments. Algebris Investments is the trading name for the Algebris Group.
