【True Zoom Finance】Political turmoil in France, euro suffers heavy losses; US tightens chip restrictions on China, blacklist adds hundreds of Chinese entities

French Prime Minister plans to forcibly push through unpopular parts of the budget bill, while the far-right National Rally intends to join forces with the left to overthrow the current government, with a no-confidence motion expected to be proposed soon. Political turmoil in France has triggered a sell-off of the country's assets, with the 10-year French-German bond yield spread nearing its widest since 2012, and the euro falling more than 1% against the US dollar at one point.

Overnight Highlights

The Nasdaq and S&P 500 hit record closing highs on Monday, boosted by tech stocks, as the market rallied strongly in November. After the release of strong US manufacturing data, the US dollar extended its gains, US Treasury yields rose, and the euro fell against the dollar amid growing concerns over the potential collapse of the French government, which would stall plans to curb the surge in budget deficits. Gold prices fell as the dollar strengthened, with investors turning their attention to US economic data due on Friday.

International News

l French Prime Minister plans to forcibly push through unpopular parts of the budget bill, while the far-right National Rally intends to join forces with the left to overthrow the current government, with a no-confidence motion expected to be proposed soon. Political turmoil in France has triggered a sell-off of the country's assets, with the 10-year French-German bond yield spread nearing its widest since 2012, and the euro falling more than 1% against the US dollar at one point. Interest rate strategists at Natixis SA said the base case is that the Barnier government will step down, with a new equilibrium for the yield spread at around 100 basis points.

l Data from the US Institute for Supply Management showed that the contraction in manufacturing in November was better than expected, with a new orders index entering expansion territory for the first time in eight months, indicating a gradual improvement in business confidence.

l Three Federal Reserve officials, including the President of the New York Fed, are open to further rate cuts in the coming year, with Governor Waller expressing a preference for another rate cut in December.

l European Central Bank Governing Council member Kazaks said the central bank will discuss a larger rate cut next week, but uncertainty remains high.

l After Trump threatened to impose 100% tariffs on BRICS countries moving away from the US dollar, South Africa said it has no plans to create a BRICS currency. South Africa's Department of International Relations and Cooperation (Dirco) stated, "South Africa supports greater use of local currencies in international trade and financial transactions to mitigate the impact of foreign exchange volatility, rather than focusing on de-dollarization."

l Intel (INTC.US) CEO Pat Gelsinger chose to retire after facing pressure from the board, which was dissatisfied with the progress of the business revitalization plan.

l Musk urged a US federal court to block OpenAI's "illegal" transformation into a for-profit entity.

Greater China News

l The US government tightened restrictions on AI storage and chip tools related to China, adding 136 Chinese entities to the blacklist. It expanded the Entity List to include "semiconductor wafer fabs, tool factories, and investment companies acting on behalf of Beijing to advance the PRC's advanced chip goals." ASML (ASML.US) said it is assessing the potential impact of new US semiconductor controls, which will take effect immediately, with some changes delayed until December 31.

l Influenced by factors such as Trump's tariff threats, US-listed ETFs tracking Chinese stocks saw record outflows in November.

l People's Bank of China Governor Pan Gongsheng said that next year, the central bank will continue to maintain a supportive monetary policy stance and orientation, focusing on strengthening support for areas such as technological innovation and consumer finance, and actively promoting monetary policy framework reforms.

l Starting with the January 2025 data, the People's Bank of China will include personal demand deposits in the M1 statistical caliber.

l China supports central enterprises in establishing venture capital funds, focusing on early-stage, small, long-term, and hard-tech investments.

l According to Sky News, UK Chancellor of the Exchequer Rachel Reeves is scheduled to visit China in mid-January for talks with her Chinese counterparts.

l China Mobile (00941.HK) plans to make a formal acquisition offer for Hong Kong Broadband (01310.HK), valuing the company at nearly HKD 6.9 billion, with a cash offer representing a 41% premium to Hong Kong Broadband's share price.

Commodities and Forex Markets

l The US dollar index regained momentum, pushing most G-10 currencies significantly lower. MUFG strategists expect a series of trade tariff announcements in January, along with deportation actions and fast-tracked tax-cut legislation, which will drive another dollar rally, with the dollar peaking in the first half of 2025.

l The euro fell 1.1% against the US dollar at one point, pressured by political turmoil in France. Monex forex traders said the euro could fall another 1% if the government collapses due to a no-confidence vote. The yen performed best among developed market currencies. See: "[Market Review] EURUSD Still Has Room for Short Trades in the Medium Term."

Earnings and Economic Data Focus

l US October JOLTs Job Openings (previous: 744.3k, forecast: 748k)

Source: Golden Horse Capital Management (Hong Kong) Limited

Author: Terry Chow

Proofreader: Gloria Guo