In focus today
Markets are eyeing developments in oil markets amid diplomacy in the Ukraine war and US President Trump blocking oil tankers in Venezuela. Later in the day, we will be following several speeches from Fed members, including Waller on the economic outlook and additionally speeches by Williams and Bostic.
The UK November CPI inflation print is released. Price pressures have eased recently, although core inflation remains too high at 3.4%. We think it will take a print north of the 3.4% consensus to question the Bank rate being cut by the Bank of England tomorrow.
The euro area final inflation print for November is set for release, which we expect to confirm the flash release of 2.2% y/y headline inflation and 2.4% y/y core inflation.
In Sweden the large Origo survey (formerly Prospera) on inflation and wage expectations in the Swedish economy will be released. Inflation expectations are well anchored at or just above the target. The one-year expectations are likely to decline following the reduction in food VAT, in line with the monthly inflation expectations from money market participants. The most interesting aspect will be the wage expectations, as the two-year wage expectations have historically been by far the best leading indicator of actual wage developments in the economy.
Economic and market news
What happened overnight
In Japan, the November export figures exceeded expectations and increased +6.1% y/y (cons: 4.8%), driven by a weaker yen and a rebound in shipments to the US (+8.8% y/y). November imports rose 1.3% y/y.
What happened yesterday
In the euro area, flash PMIs for December weakened, as the composite PMI declined to 51.9 from 52.8 and below market expectations of 52.7. The manufacturing PMI fell to 49.2 from 49.6 in November and the services PMI slipped to 52.6 from 53.6. Overall business confidence weakened, while input cost inflation and output price pressures increased.
In the US, October nonfarm payrolls came in at -105k as the government shutdown caused a dip of -157k government jobs. November nonfarm payrolls were at +64k. Domestic labour supply continued to increase in November (+191k), lifting the unemployment rate higher to 4.6% from 4.4% in September. Even though the figures were likely negatively distorted by the shutdown, the rising unemployment rate suggests the labour market balance is indeed softening.
October retail sales were on the strong side with control group sales growing by 0.8% m/m SA. Discretionary categories saw especially strong growth, including furniture, electronics, sporting goods and online stores. Wage sum growth slowed gradually, as average hourly earnings disappointed with only +0.1% m/m SA in November, but the propensity to spend remains high.
The composite PMI figure for December remained in positive territory but weakened to 53.0 from 54.2 in November. The manufacturing PMI declined to 51.8 from 52.2 and the services PMI declined to 52.9 from 54.1. The services details looked gloomy, with new orders and employment indices weakening, but both input and output prices indices turned higher. On the manufacturing side, the new orders index declined, but so did inventories, so the manufacturing order-inventory balance actually improved from November.
In the UK, the released labour market data showed payrolls declining by 38K in November, although job losses were revised down for September and October. Private sector (3M rolling average) wage growth declined in October to 3.9% from 4.2% in September and below the Bank of England forecast of 4.2% for Q4. Viewing the overall picture, data has turned sourer since the November meeting, and we continue to expect a Bank rate cut on Thursday. The composite PMI exceeded expectations and improved to 52.1, supported by an uptick in both manufacturing and services PMIs. The manufacturing PMI rose to 51.2 in December – the highest level in a year. Services PMI increased to 52.1 in December from 51.3 in November.
Equities: Global equities ended the session 0.4% lower following a busy data day. Performance was clearly driven by the more cyclical and sentiment-sensitive sectors, with tech and consumer discretionary leading the declines, the latter largely dragged down by Tesla. S&P500 ended only -0.2% lower despite almost 75% of the constituents ended the day lower. NASDAQ gained 0.2%, while Russell 2000 and Stoxx600 ended the day both around -0.5% lower. Overnight, futures are in red.
FI and FX: The US labour market data showed enough softness to support the current pricing of two rate cuts from the Federal Reserve in 2026, but other than that market pricing changed very little although the unemployment rate is almost at a 4yr high. The Bund ASW-spread keeps widening together with the Buxl spread, but we expect this has more to do with the outright level for German yields, which is attractive for traditional long-only investors. This can also be seen from the continued spread tightening in e.g. the 10Y OAT-Bund spread as investors are still looking for carry despite the political uncertainty in France.
