French Inflation Eases as Output Contracts

Easing of French inflation, first day of. the OPEC+ meeting, China increase involvement in Israel-Palestine conflict, and what is happening today.

French inflation has dropped close to a two-year low, having eased to 3.4% on an annualised basis. This marked a considerable slowdown from last month’s print of 4% as energy fell from 5.2% to 3.1%. Inflation has eased more slowly in France – relative to many of its European counterparts – given the cutting of energy price caps from Paris. Food price inflation has also remained substantially elevated, hitting 7.6% in November, which despite being 20bps less than last month, is indicative of the pressures still facing French households. When looking at the data from a month-on-month basis, France fell into deflationary territory having eased from 0.2% in October to -0.1% in November.

The easing of inflation across many eurozone member states has raised markets conviction that the ECB have reached their terminal rate. According to Bloomberg, money markets are now fully pricing in a rate cut from Frankfurt in April of next year. Commentary around the ECB’s future monetary pathway and discussions around the possible timing of rate rate cut

comes after the ECB’s most aggressive tightening cycle. Indeed, since Frankfurt stated their tightening cycle in July 2022, they have conducted 10-consecutive rate hikes before holding in October.

French growth has also come in negative, with the economy contracting 10bps over Q3 against expectations of a modest 0.1% expansion. Here, the number of hours worked slowed down as household purchasing power reduced. The household saving’s ratio also fell easing from 17.9% to 17.4% as the cost of living continued to squeeze household budgets. Elsewhere, the government deficit also expanded to 4.8% of GDP, following Q2’s figure of 4.4%.

While the French government are projecting a 1.4% expansion in growth over 2024, though today’s print demonstrates that Europe’s second largest economy continues to face headwinds.

OPEC+

Markets will be keeping a close eye on the first day of the OPEC+ meeting today, following a postponement. Given that the postponement came after disagreements around output quotas from Angola and Nigeria, it is evident that divisions are becoming more prevalent in the bloc. Markets have been hotly anticipating today’s meeting as investors weigh up whether Saudi Arabia may extend their supply-side cut of one million barrels of oil per day. Some are suggesting that Saudi Arabia could seek to get other members to cut production, as oil prices earlier this month sank to their lowest level since July. Presently, OPEC+ has cut output by around five million barrels per day over the last year.

China: Israel – Gaza

China is becoming more vocal on the Israel-Palestine conflict, using their current position at the head of the UN Security Council to say that “Peace cannot be limited and the ceasefire cannot have an expiration date”. They’ve also said that the security council needs to formulate a concrete timetable and roadmap for a two-state solution that will achieve a “comprehensive, just and lasting” solution, whilst president Xi Jinping said separately that “the crux of the Palestinian-Israeli conflict lies in the delay in the realisation of the legitimate national rights of the Palestinian people to establish and independent state”. China has been walking a bit of a tight rope on the conflict, with a historic pro-Palestinian stance but a reasonably deep economic relationship with Israel. They’re possibly feeling less encumbered by that dilemma now as the ceasefire continues to be extended and more hostages are being released.

Today’s events

Today’s events include Eurozone HICP figures at 10:00 ahead of US Initial Jobless Claims and Personal Consumption Expenditure at 13:30. Canadian GDP is also released at 1330 ahead of Japanese Unemployment figures at 23:30.