In focus today
Today will be quiet in terms of data releases, as we anticipate the upcoming inflation figures later this week.
The rest of the week promises to be eventful, particularly with the release of inflation figures. On Wednesday, the highlight will be the US CPI for December, accompanied by inflation data from Sweden, France, Spain and the UK. Additionally, euro area industrial production figures will be released. Thursday brings German inflation data, leading up to the release of euro area HICP for December on Friday. Early Friday sees the release of Chinese data for GDP, housing and retail sales.
Economic and market news
What happened overnight
In China, trade data surprised positively in December, as both exports (+10.7% y/y, November +6.7%) and imports (+1.0% y/y, November -3.9%) grew more than expected. The former could be explained at least partially by firms frontloading purchases ahead of expected tariffs.
What happened over the weekend
In the US, December Jobs Report was published last Friday. Nonfarm payrolls growth blew past expectations to +256k (cons: +160k) confirming solid job growth after hurricanes and strikes muddled past two readings. Moreover, unemployment rate fell to 4.1% (prior: 4.2%), while wage growth declined to 0.3% (prior: 0.4%). Overall, the report indicates a pause in the cooling of the labour market, making further interest rate cuts in the US less likely. The market reacted with a stronger dollar and higher US interest rates, influencing European rates as well. On Friday evening, the Chicago Fed’s Goolsbee (voter) cautioned against overinterpreting single reports and noted that if current expectations are met, ‘rates would be a fair bit lower’ in 12-18 months’ time. We still expect the next Fed cut in March.
In Norway, core inflation dropped to 2.7% (prior: 3.0%) in December, below the 2.8% expected by consensus and Norges Bank. This confirms the ongoing disinflationary trend, indicating that November’s surprising jump was a one-off, which is reassuring to Norges Bank. This supports the case for a rate cut in March and with inflation now slightly below Norges Bank’s forecast, at least three cuts in 2025. We continue to forecast somewhat lower short-term rates and some headwind for the NOK FX.
In Denmark, CPI inflation rose to 1.9% (prior: 1.6%) in December, as anticipated. This increase is primarily due to a base effect on energy, with food prices also contributing as they declined less than last year. Underlying price pressures remain subdued, with no significant evidence of high wage growth impacting inflation.
Equities: Global equities fell on Friday and were down for the week as strong data pushed yields higher. With a macro-focused approach and an outlook in which inflation is under control we argue that the data we have seen from the US, including the job data on Friday, is extremely positive for equities. We have experienced similar situations before, where strong data causes the Fed to reprice. When the long end of the curve rises by roughly 100 basis points, equity investors lose confidence, and equities stop performing until yields settle at the higher plateau. This is the situation we find ourselves in today, and equities should struggle for direction until yields begin to stabilise. In the US on Friday, equities ended lower: Dow -1.6%, S&P 500 -1.5%, Nasdaq -1.6% and Russell 2000 -2.2%. All markets in Asia are lower this morning, and the same applies to European and US futures.
FI: The strong US labour market report sent yields higher across the board. US 10y UST rose 10bp on the day to 4.76% and is now 110bp above the lows from September last year, see our discussion in Reading the Markets USD – Term premium lifts US bond yields, 8 January.
FX: The USD ended last week on a strong footing amid US data releases triggering a further leg higher in USD rates. Interestingly, despite the move higher in yields the risk-off channel seemed to dominate in USD/JPY as the cross ended the day lower leaving the Japanese currency as the top performer. In the Scandies both NOK and SEK saw intraday fluctuations but ended Friday remarkably unchanged compared to Thursday’s close. Finally, in GBP the pressure returned as EUR/GBP is back at the 0.84 level. Only MXN, AUD and ZAR had a worse session than GBP.
