Markets
European equities are on track to end the week with a bang. The EuroStoxx50 had an excellent week, shrugging off a weak start to finish around 5% higher and to its strongest level since 2000. Wall Street, already being near record highs had to settle for less. They do open with gains that make them head for the best week since the November US election. The European relief rally in particular is striking from a timing point of view given Trump is about to embark on its second presidential term next Monday – during which financial markets are closed for Martin Luther King Jr. Day, by the way. Similarly we’ve had few data prints over the last couple of weeks that were clearly indicating the European economy is picking up. The stock boost does coincide with core bonds taking a breather. The weekly US tally amounted to up to -20 bps at the belly of the curve. Lower-than-expected inflation numbers and Waller were responsible for the bulk of the move. The influential Fed governor expected more rate cuts in 2025H1 if more such inflation numbers arrive. Markets up until then weren’t really considering such a scenario, even after the sharp CPI repositioning. Front end yields do recover a bit today on solid housing & industrial production data. Ahead of his inauguration, Trump already had “very good” call with his Chinese counterpart, a.o. on trade. Such headlines now deserve market attention. European (swap) rates joined the US lower with weekly declines of up to around 10 bps in the same bucket of the curve. UK gilts outperformed, ending this week between -17 and -23 bps lower. A series of British data reminded investors the UK is more of a European growth story than a US. Slower-than-expected inflation, a disappointing industrial update and declining UK retail turnover (in December) brought a February rate cut by the Bank of England back to the table (90% discounted). FX experienced a similar pause this week in what was up until now a one-way stronger dollar driven market. The trade-weighted index retreated slightly after hitting a more than 2-yr high around 110 on Monday. DXY is currently changing hands around 109.2. EUR/USD at the beginning of the week was in serious peril, temporarily losing the 1.0201 mark as a last line of defense before parity. The duo has been trading within a 1 big figure range after avoiding this highly consequential technical break. It’s up to Trump from next week on whether the pair can hold on to it short term. Sterling was the G10 underperformer. EUR/GBP built on a recovery that began last week to trade around its highest level since end-October (+/- 0.845). GBP oscillated against USD around 1.22, the lowest level since November 2023. The Japanese yen stood at the other side of the aisle, benefiting in from (core) bond yields easing elsewhere but rising domestically. Markets have all but fully embraced a third rate hike (25 bps) by the Bank of Japan at the meeting next week. Tactical leaks by BoJ officials over these last couple of days made sure of that. USD/JPY trades around 155.7, EUR/JPY hovers around 160.
News & Views
Aside from the 2024 GDP growth and activity data published this morning, the statistical office of China also reported the population numbers at the end of 2024. The national population was estimated at 1 408 mln, an annual decrease of 1.39 mln. The number of births and birth rate both rose slightly to respectively 9.54 mln (from 9.02 mln) and 6.77 births per 1000 people (from 6.39 in 2023). However, the rise is mostly a delayed rebound after COVID and is expected to reverse in 2025 again. The number of deaths in 2024 also declined to 10.93 mln. The urbanization rate in the country rose further, with the share of urban population in the total population at 67% (+0.84 ppts). This higher urbanization rate is seen as one factor behind the structurally declining birth rate.
The National Bank of Poland yesterday as expected left its policy rate unchanged at 5.75%. The press release didn’t contain any signs that it might consider a less hawkish stance anytime soon even as recently published December inflation data came out on the softer side of expectations (headline 4.8%, core 4%). The NBP expects inflation to remain markedly above the 2.5% target, driven by the effects of the already introduced increases in energy prices, as well as rises in excise duties and administered services prices. Core inflation will probably also stay elevated. Some factors easing the inflationary pressures mentioned in the December statement were not mentioned anymore. At today’s presser, governor Glapinski indicated that CPI will exceed 5% in the coming months and won’t fall to target in the nearest quarters (expected at current level end this year). Glapinski concludes that the decision on rate cuts has to be delayed for some time.
