Markets Wrap (14 – 29 November)

Stocks
The S&P 500 forward 12-month target of 4500 points, implied by the aggregated forecast of sell-side analysts, translates into a 13.6% return potential (Chart 1), but based on calculations made by Bloomberg Intelligence, it relies on a 4.3% earnings growth estimate, which may prove to be too optimistic unless inflation in the US eases (it would give the FED some leeway to pause its interest rate hikes).  
The correlation between European stocks and the euro has increased markedly, as the currency rose versus the USD by 8% since September trough, and Stoxx Europe 50 rallied by more than 20%; both asset classes are getting a boost from an improved sentiment and economic outlook for the region. 

Bonds
A metric measuring global bond yields inverted for the first time in two decades, signaling a recession, as 1-3 year yields rose above that of 10 year bonds (Chart 2). 

Central banks
The Riksbank delivered a 75 bps key rate hike at its November meeting, raising the key rate to 2.50%, and hinted that another increase is upcoming at the beginning of 2023; the updated interest rate path implies that the base rate should peak out at below 3% (Chart 3). 
Recent media reports that ECB officials may favour a 50 bps interest rate hike at the upcoming 15 December meeting is in line with what the market expects – the implied probability of a larger 75 bps increase has declined from 50% at the beginning of November to 27%.  

Macro
The latest inflation data finally offered some consolation to the ECB – November euro area CPI (10.0%) was lower than in October (10.6%) and below the median forecast (10.4%), whereas core inflation (5.0%) came in line with expectations.

Commodities
A study conducted by Bloomberg New Energy Finance shows that gas storage in Europe will close out the winter 53% full even if Russia completely cuts off supplies at the beginning of December, which may exert downward pressure on the front end of the futures curve; the projection reflects high demand destruction as prices soared following the Russian invasion in Ukraine.  

Football (yes, football!)
Is there anything in common between financial markets and football (besides that competitive drive of course)? One thing that certainly comes to mind is probabilities that can be derived from market information. So, a couple of figures – based on bookmaker odds, Brazil is a clear favourite to win the Qatar World Cup with the implied probability of 29%, followed by France (14%), Spain (12%), Argentina (11%) and England (9%) – Chart 6.