Sunset Market Commentary

Markets

US retail sales injected more momentum to the dovish repositioning that originated from last week’s disappointing set of labour market data (job cuts, JOLTS, jobless claims). American consumers tightened the belt in the final month of 2025 with both the headlines series as well as the core gauges (ex. auto & ex. auto and gas) showing no growth compared to the (downwardly revised) month before. The control group series, used in GDP calculations for private consumption of goods, even declined by 0.1% m/m. All of the measures missed the common consensus bar of 0.4%. 8 out of the 13 categories printed declines, including the only services-related one (restaurants and bars, -0.1% m/m). Building materials (1.2%) along with sporting goods (0.4%) were among the sole risers. The retail sales are not adjusted for inflation so some of the traditional steep holiday discounts may have had an impact. But that’s a nuance markets are not really picking up, especially with separate data on labor cost growth only reinforcing the current dovish bias. The Employment Cost Index rose 0.7% in Q4 of 2025, a deceleration from the 0.8% in Q3 and the slowest pace since 2021. Fading wage pressures support the case for cutting rates on further subsiding upside inflation risks. ADP’s weekly employment indicator showed encouraging signs. The NER pulse climbed for three weeks straight now, to a weekly average of 6.5k in the four weeks to January 24. With tomorrow’s payrolls and 2025 annual revision on tap it carries too little weight though. US Treasuries extended earlier gains with the long end outperforming the front. Net daily changes currently vary between -3.5 to -7 bps. A Fed rate cut in June is now more than fully priced in. The 10-yr tenor risks losing the 4.2% support. European rates lose ground in sympathy with Bund yields dropping 1-3.5 bps in a bull flattener. Attention of European investors should gradually turn to the informal summit on Thursday. Macron seized the moment and championed Eurobonds again in interviews published by six (!) European media outlets. The French president is a fan of common debt to finance what he calls three innovation battles: AI and quantum computing, the energy transition and defense. The dollar holds steady with DXY only losing marginal ground due to back-to-back JPY strength after PM Takaichi’s landslide election victory. USD/JPY falls below 155 to test the 100dMA. Other signs of market approval emerged from a strong JGB session. Long-term yields shed between 6-8 bps. EUR/USD is going nowhere near yesterday’s +1.19 close. US stock markets open mixed, tech underperforms.

News & Views

January inflation data published by Statistics Norway surprised sharply to the upside. Headline inflation jumped 0.6% M/M and 3.6% Y/Y (3.2% in December). Underlying CPI-ATE inflation (excluding energy and tax changes) accelerated to 0.3% M/M and 3.4% Y/Y (from 3.2%). Strong monthly price increases were reported a.o. for food (1.4% M/M), housing, water electricity, gas and other fuels (+1.3%), transport (+1.2%) and insurance and financial services (2.1%). The Norges Bank (NB) back in December forecasted January headline inflation at 2.7% Y/Y and CPI-ATE at 2.9%. The upward inflation surprise comes after solid Q4 growth reported yesterday. At its January 21 policy meeting the NB left its policy rate unchanged (4%) as it considered inflation staying too high, but flagged that, if the economy would evolve broadly as expected it might cut the policy rate later this year (one or two 25 bps steps). This condition is now in question. The 2-y swap yield jumped 20 bps (4.43%). Markets priced out a rate cut by end Q2. The Norwegian krone appreciated from the EUR/NOK 11.425 area to currently trade near 11.34, testing the strongest levels since early April last year and nearing the EUR/NOK 11.26 support (2024/2025 strongest for the NOK).

Brazilian inflation rose by 0.33% M/M and 4.44% Y/Y (was 4.26% in December), data published by Statistics Agency IBGE showed today. The outcome was close to expectations. This keeps inflation near the top, but within the 3% +/- 1.5% target range of the Brazilian central bank. The central bank left its Selic policy rate unchanged at 15% at the January policy meeting. However, in the meeting Minutes published last week, the bank indicated that it was ‘appropriate to signal the beginning of an interest-rate easing cycle in its next meeting’ even as it remains necessary to ‘maintain interest rates at restrictive levels until not only the disinflation process is consolidated but also expectations are anchored to the target, given the resilience of factors pressuring both current and expected prices, particularly the dynamism still observed in the labor market’. Today’s data still support the scenario to start easing in March. The Brazilian real, after a strong performance at the start of the year today holds near USD/BRL 5.2.