In focus today

The most important data release of the day will be the US December Jobs Report. We expect nonfarm payrolls growth to slow down to +170k (from +227k), see unemployment rate steady at 4.2% and average hourly earnings growth at +0.3% m/m SA. University of Michigan’s preliminary consumer sentiment survey for January is also due for release later in the afternoon.

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In Denmark, we get December inflation data. We expect an increase to 1.9% from 1.6% in November. Much of the increase is driven by a base effect from falling energy prices in December 2023. The scale of the food sale (not least on butter) is always a joker in December.

In Norway, inflation data for December is released. There are always significant effects on the inflation figures in December amid the effects of Christmas shopping. Card data suggests that consumption in December was moderate, at least until the last weekend before Christmas. In addition, we saw less price reductions than usual during Black Week. Overall, we therefore believe that core inflation slowed to 2.8 % y/y in December.

In Sweden, November’s batch of Swedish macro data is on the agenda, including the GDP-indicator, Production Value Index (PVI) and household consumption. The two prior GDP-readings have signaled negative monthly growth and was further corroborated by negative readings for both PVI and the consumption indicator in October. As the weak Swedish growth, and repeatedly postponed recovery, have been a key reason behind the Riksbank’s previous monetary policy stance, today’s numbers are likely to carry some weight for the January meeting. Especially if they continue to disappoint given the Riksbank’s recent hawkish shift in communication. However, the GDP-indicator is notably unstable and subject to heavy revisions, so interpret with caution. The Nation Debt Office will also release their latest, and 2024’s last, monthly report on the net borrowing requirement. Up until and including November, the budget surplus sums up to SEK 22.9bn. However, with a forecasted deficit (and hence borrowing requirement) of SEK 108bn for December, Sweden is heading for a deficit for the full year 2024, following three years of budget surpluses.

Economic and market news

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What happened overnight

In China, PBOC said that it has halted its buying of treasury bonds until an “appropriate time” due to supply shortage on the market. The decision follows months after the announcement from PBOC that they would start purchasing bonds as part of measures to improve liquidity management. Chinese yields jumped somewhat on the message.
What happened yesterday

In the euro area, retail sales rose 0.1% m/m SA in November following a decline of 0.3% m/m SA in October. The positive rebound trajectory that retail sales have been on since H2 2023 has thus faded recently like the development in consumer confidence. This is a concerning sign for the GDP outlook since consumption is expected to be the key driver of the recovery in 2025.

In Germany, industrial production rebounded in November with production rising 1.5% m/m SA following a decline of -0.4% m/m SA in October. The increase was broad-based across manufacturing, construction, and energy production. The negative trend in industrial production has become less severe in H2 2024. The same picture is shared when looking at “truck toll mileage” which has stabilised at a low level. These hard data points contrast somewhat with the continued weak PMIs. Overall, we expect the negative trend in industrial production to continue, likely resulting in a small decline in GDP in both Q4 and Q1 2025 before lower policy rates and rising real wages should give temporary boost to growth in the second half of this year and in 2026.

In the UK, GBP FX and Gilts remained under pressure with the 30Y Gilt yield trading at its highest level since 1998 above the 5.35% mark. Amid a backdrop of global financial conditions tightening and rates ticking higher, the UK is left vulnerable given its fragile fiscal position due to its large public debt and deficits. The Labour government’s expansionary budget from the end of October has come under pressure with funding costs soaring together with weaker than expected growth since the announcement of the budget. As we have previously argued, we think the government is set to either roll back some of its measures or hike tax further at the next fiscal event in March. We remain cautiously optimistic that the move in UK space is overdone, but stress that if risk appetite continues to sour the moves could continue.

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On the geopolitical front, we published our revamped Geopolitical Radar yesterday. The key things to look out for in January are Trump’s inauguration, the expiry date of Hezbollah-Israel ceasefire a few days later and whether the EU and China can make any progress in tariff talks. Please see the revamped edition here Geopolitical Radar, 9 January.

Equities: Global equities were flat yesterday, with Europe higher, Asia lower, and the US closed. In Europe, we observed some improvement in sentiment during the day. However, it was not an outstanding day on the European macro front. Nevertheless, European equities have been performing well lately, outperforming their US counterparts. This indicates how low the consensus expectations for Europe currently are.

In Europe yesterday, the STOXX 600 rose by 0.4%, the FTSE 100 increased by 0.8%, the DAX remained unchanged, and the CAC gained 0.5%. Asian markets are lower again this morning, and the same applies to US futures, while European markets are marginally higher.

FI: The upward pressure on EGB yields continued throughout Thursday’s session, with market attention focused on the substantial supply entering the market. Debt sustainability is currently the key theme in the UK market. Yesterday, the 30Y Gilt yield reached its highest level since 1998. As global financial conditions tighten due to higher real yields, the question arises whether and how central banks should respond. For now, members of both the Fed and ECB seem hesitant, likely because they are waiting to see how persistent the recent move will be. However, the UK Treasury issued a public statement yesterday asserting that a repeat of the 2022 Gilt crisis is unlikely, as institutional investors currently have significantly higher levels of liquidity and collateral.

FX: Lower trading volume and more consolidation yesterday as the US markets observed the National Day of Mourning. EUR/USD consolidates around 1.03 and GBP/USD around 1.23. GBP has been the last couple of days’ focal point within G10 FX but for today we look towards NFP and the dollar. Scandies found some modest support and NOK/SEK consolidates just shy of 0.98.