Photo by David Thielen on Unsplash
 

• Europe higher after positive bond auction and EZ CPI rise
• Rare-earth supplies could hamper European manufacturers
• US-Russia talks help drive oil prices lower

A positive start in Europe comes off the back of a similarly upbeat Asian session. This comes in part thanks to a relatively orderly Japanese 10-year bond auction, with strong demand driving yields lower after a period that has seen borrowing costs soar across the curve. Notably, this has gone hand in hand with a pullback in precious metals, highlighting the positive correlation evident between Japanese yields and gold. If precious metal bulls are to use Japanese bond yields as a guide on future price action for gold and silver, they will undoubtedly be confident that any relief for Japanese bonds will likely be a short-term phenomenon as we move towards a period that markets currently price as a 64% chance of a rate cut at either the December or January BoJ meetings.

On the European-front, the gains seen for the wider indices belie the mixed experience under the hood, with the financials largely providing the one area of strength across the board. This comes after an upbeat report from JP Morgan analysts who predict continued strength for European banking stocks into 2026, with stable macro conditions, and impressive capital generation helping further extend the valuation re-rating for the sector. Notably, with the ECB having already slashed rates from 4.50% to 2.15%, the banks are expected to benefit from strong economic growth prospects despite the lower margins.

The mixed trade seen for European manufacturers comes amid claims that the supply of rare earth materials has been strained thanks to a US clamour for any Chinese exports amid ongoing licensing issues. Reuters have noted that at least three Chinese rare earth exporters have now managed to get their hands on export licenses, enabling increased trade of these key materials after a US-China agreement. However, the exports of these materials are undoubtedly less free-flowing than before, with countries desperately trying to build up their own strategic reserve in a bid to avoid future economic restrictions.

On the data-front, eurozone inflation came in above expectations for both headline and core metrics, with CPI now up to 2.2%. Notably, this comes at a time where some had claimed we could yet see another cut from the ECB, although the likeliness is that their easing cycle is over. With the Bank of England expected to take over the mantle of most active central bank in Europe for the year ahead, it comes as no surprise to see EURGBP head higher off the back of today’s release.

Oil prices are starting to fade recent gains, with WTI turning lower from the $60 handle ahead of key US-Russia negotiations in Moscow. Trump’s envoy Steve Witkoff heads to the Russian capital today, as he engages in high-stakes talks over the prospective deal that could end the war. While Russia may wish to position itself as a country that remains willing to strike a deal, their continued gains on the battlefield highlight exactly why they look to draw out a conflict that will ultimately see any fresh territorial gains as a part of Russia going forward. Thus, while the prospect of a deal does provide the basis for a potential sharp downside move in oil prices, the sceptics will note that the only way a deal gets done is it Ukraine agrees to a deal that will undoubtedly look very similar to the demands from Putin rather than a compromise.  

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