In focus today
The first week of January will be concluded with the December Jobs Report at 14:30 CET, and ISM services index at 16:00 CET. Recent data (Claims/ADP/JOLTs) has generally supported the narrative of robust US labour market conditions in December, and we forecast non-farm payrolls at +170k and average hourly earnings growth at 0.2% m/m seasonally adjusted. In light of ISM services, PMIs warrant a slight improvement in December, while consensus calls for a slight decline.
In the euro area, the star of the show will be the December HICP inflation. Amid fading base effects, we see headline inflation increasing to 2.9% y/y, whereas core inflation is expected to slide down to 3.3% y/y. We expect month-on-month increases in both measures consistent with annual inflation of around 2%. Inflation from Germany and France came in lower than expected yesterday, giving some downside risks to the consensus expectations for the euro area print of 3.0% y/y (0.2% m/m).
In Scandinavia, our focus today will be the Danish unemployment rate for November, which is released at 8:00 CET.
Economic and market news
What happened overnight: The news flow has been fairly light. Israel’s defence minister put out the visions for the next stage of the conflict, and announced that there should be “no Israeli civilian presence” in Gaza when the war with Hamas is over. Additionally, Antony Blinken, U.S. Secretary of State, is set to visit Israel again over the coming days.
What happened yesterday: The second day with US labour market data affirmed the notion of resilience. The December ADP employment ticked higher than expected (164k vs. 115k), while initial jobless claims came in lower at 202k, indicating that firms are still reluctant to lay off workers. With data warranting a still robust US labour market, global equities climbed higher after its slump since the start of the new year. Similarly to stocks, yields ticked higher, with the 10Y UST reaching 4%. In commodity space, oil prices fell 1% (USD77.9/barrel) after the EIA report showed rising US fuel inventories and declining energy demand last week.
Equities: Equities were mixed on Thursday. European equities recovered amid solid macro data while US continued to drop somewhat. Stoxx 600 recovered 0.7% while S&P 500 closed down -0.3%. The defensive rotation continued, but in a slower pace than earlier this week. This translated into a preference for health care and banks while yield sensitive cyclicals that underperformed (tech, consumer discretionary, communication) as yields rose. In total, global defensives have outperformed cyclicals by 4p.p. this week, which is a lot. US futures unchanged in a wait-and-see mode ahead of the job report this afternoon.
FI: Soft headline inflation figures from Germany and France was not enough to counter a significant sell-off in bond markets yesterday. The Bund curve rose 9-10bp throughout the day as markets softened the bets on ECB rate cuts this year, declining from 162bp to 150bp. The repricing happened very smoothly during the session. 10Y UST yields followed European peers higher with ADP employment growth coming in above consensus estimates. Long-term inflation swap rates rose slightly across USD and EUR products.
FX: EUR/USD retraced some of previous sessions’ gains yesterday, settling around 1.0950. JPY took a beating against both EUR and USD, which is a bit surprising given the sour risk sentiment, but possibly connected to speculation that the recent earthquake makes it harder for BoJ to abolish negative rates. Scandies strengthened modestly, defying risk sentiment. EUR/GBP had a quiet session, remaining above 0.86 despite stronger-than-expected UK PMIs.
 has generally supported the narrative of robust US labour market conditions in December, and we forecast non-farm payrolls at +170k and average hourly earnings growth at 0.2% m/m seasonally adjusted. In light of ISM services, PMIs warrant a slight improvement in December, while consensus calls for a slight decline.){kind=link}