In focus today
In Norway, we expect core inflation to remain unchanged at 2.7% y/y in November, a tad lower than consensus at 2.8%. If we are proven right, this will once again be below Norges Bank’s forecast from the latest MPR at 3.0%, and in isolation contribute to a downward revision of the rate path in the upcoming MPR. The risk to our forecast is if the increase in prices ahead of Black Week was larger than last year.
In Sweden, at 08:00 CET the SCB releases October GDP, production and consumption indicators. With both PMIs above 50 and consumer confidence going in a more positive direction in recent months, we expect positive m/m readings.
Overnight China starts the annual Central Economic Work Conference (CEWC) where the top leadership discusses and lays out economic priorities for the next year. It is a two-day meeting so we will likely not hear much until tomorrow (for more details see below).
Economic and market news
What happened overnight
In Australia, the Reserve Bank of Australia (RBA) kept its monetary policy unchanged overnight as expected. Markets were pricing in a very slim probability of a rate cut ahead of the meeting, but Governor Bullock noted that RBA did not even discuss cutting rates today. However, RBA’s forward guidance was more dovish than before. It delivered no new economic forecasts, but still confirmed that the board had gained more confidence on inflation returning to target. RBA also acknowledged the recent downside surprise in Q3 GDP and Bullock did not write off the possibility of a cut at the next meeting in February. This pushed AUD/USD lower near 0.64, as markets are now pricing in 55% likelihood of the first cut in February. We have maintained a downward-sloping forecast profile for AUD/USD, but the current level is not far away from our 12M target of 0.63.
In China, exports slowed in November to 6.7% y/y (cons: 8.5%), while imports fell markedly below expectations to -3.9% y/y (cons: 0.3%) – the weakest print in nine months. This points to economic strain amid looming U.S. tariffs under incoming President Trump, highlighting the need for stronger domestic stimulus measures. More clarity on this may emerge following yesterday’s Politburo meeting and the upcoming CEWC meeting.
What happened yesterday
In the euro area, the Sentix indicator declined to -17.5 in December from -12.8, marking the lowest level this year after rebounding in the past months.
In China, the Politburo held a meeting ahead of the CEWC meeting overnight, where they vowed to implement a “more active” set of tools to expand domestic demand in 2025. They also cited that the property market would stabilise. Interestingly, the Politburo altered course – for the first time since 2009 – emphasizing that monetary policy would be moderately loose, in contrast to their usual expression of “prudent”. At the same time, they also stated that fiscal policy would become more active in tandem with a strengthening of the extraordinary counter-cyclical adjustment.
In continuation of the akin policy message in September, this underscores that the economy now has a higher priority for China’s top leadership. With the outlook of trade war with the US, China’s leaders likely see an even bigger need to deal with the struggling domestic economy more forcefully. Hence, a looming trade war could be a blessing in disguise for China.
Equities: Global equities were lower yesterday, primarily dragged down by the US, while other regions, including Europe were higher. It was a relatively slow start to the week, but we anticipate busier days ahead with a focus on central banks. With the US underperforming, we also had defensives outperforming cyclicals following a significant underperformance last week. Similarly, the VIX ticked higher, which could be seen as indicative of a risk-off mode. However, we interpret this more as a sign that recent movements have been overly rapid, rather than a fundamental shift in the narrative. In the US yesterday: Dow -0.5%, S&P 500 -0.6%, Nasdaq -0.6%, and Russell 2000 -0.7%. This morning, the picture is mixed in Asia, with China outperforming, buoyed by renewed hopes for stimulus. US and European futures are currently lower.
FI: Global rates rose through yesterday’s uneventful session, reversing the declines seen on Friday following the NFP. The 10Y US Treasury yield rose 5bp throughout the day, while the short end of the US curve was less changed with markets still discounting 22bp of cuts at next week’s meeting. EGB yields saw only marginal moves throughout Monday with no important data releases and the ECB in silence mode ahead of the Thursday decision. The 5y5y EUR inflation swap rate crept back below 2% as energy prices declined. This is certainly being noticed at the ECB, where the risk of undershooting medium-term target has gained attention recently.
FX: A quiet start to the week with no significant moves in G10 FX. EUR/USD remains range-bound in the mid-1.05 to 1.06 area. The JPY weakened as markets question whether the Band of Japan will proceed with a hike next week. Scandies gained against the EUR, with EUR/SEK dropping below 11.55 and EUR/NOK slipping below 11.75.