In focus today
Central bank interest rate decisions are on the agenda and are kicked off by the Riksbank in the morning. We expect the central bank to stay on hold at 1.75%, which is in line with market consensus. We anticipate unchanged communication regarding the interest rate in the near term, with some upward adjustments to the rate path further out.
Also in the morning, we expect Norges Bank to keep the policy rate unchanged at 4.00% at the MPC-meeting. Based on the developments since the monetary policy report in September, we think Norges Bank will send moderately more dovish signals at this juncture and open the door for a rate cut in March.
In the afternoon the Bank of England is expected to cut the Bank Rate to 3.75% from 4.00% following softer PMI and CPI figures in recent months. Despite the very high market pricing we expect a relatively close vote split of 5-4. For the preview see Bank of England Preview – Slowdown paves way for rate cut, 12 December.
The ECB meeting follows thereafter, and we expect the ECB to leave the deposit rate unchanged at 2.0% line with consensus and market pricing. Data has come in stronger than expected by ECB staff, so we predict an upward revision to the growth forecasts with the inflation forecast remaining relatively steady. We see the ECB holding rates steady at 2.0% in both 2026 and 2027 due to undershooting inflation. We expect a muted market reaction as Lagarde will likely signal ECB being on hold for a while, reiterating the ‘good place’ assessment. For the details, please see our ECB Preview: Hold on, we’re not hiking, 11 December.
From the US, the November CPI is due for release in the afternoon. We forecast headline inflation steady at +0.3% m/m SA and 3.0% y/y (September +0.3% m/m SA & 3.0% y/y) and core inflation picking up to +0.3% m/m SA & 3.0% y/y (September +0.2% m/m SA & 3.0% y/y).
Overnight the Bank of Japan is expected to hike interest rates at the December meeting after Governor Ueda said he would “consider pros and cons” at the meeting. Despite wage growth struggling to compensate for inflation, economic momentum has been strong throughout the year. Ahead of the meeting, November CPI data is released.
The German Debt Office (the Finanzagentur) will publish their funding outlook. Germany has a gross funding need of around EUR 520bn, which must be financed through issuance of bonds and bills. We expect that they will sell EUR 340bn-350bn in bonds.
Economic and market news
What happened overnight
In the US, President Trump addressed the nation in a 20-minute speech. He focused entirely on the domestic economy and particularly on the cost of living. Polling numbers from the likes of Politico have indicated that Americans are increasingly unhappy with the cost of living. Trump also said he would soon announce the next Fed chairman who “believes in lower interest rates by a lot”.
What happened yesterday
In the euro area, the final HICP inflation print for November was revised down to 2.1% y/y from 2.2% in the flash print. The details show this was due to rounding, as inflation was revised from 2.15% y/y to 2.14% y/y. The final data allows a calculation of the “LIMI” measure of domestic inflation, which again remained very sticky at 3.5% for six consecutive months. Surprisingly elevated wage growth in Q3 is causing the stickiness in LIMI inflation. This is used as a hawkish argument for the ECB despite headline inflation being forecasted to undershoot the target in the coming months due to low energy inflation.
The December German Ifo index declined against expectations to 87.6 (cons: 88.2) from 88.0. The assessment of the economic situation was stable at 85.6 (cons: 85.5) like in November, while the expectations component took a hit declining to 89.7 (cons: 90.5) from 90.5. With the PMI data also correcting lower in November and December from the relatively high level in September, the German economy likely ended the year with only a small expansion in activity. While German activity has remained low in 2025, we expect a clear rebound next year with real GDP rising 1.4% y/y as tax cuts and subsidies take effect.
In Sweden, the quarterly Origo inflation survey showed CPIF expectations on the 1y horizon declining from 2.1% to 1.6%, most likely due to the upcoming VAT reduction. The 2y and 5y horizons remained stable at 2.0% and 2.1%, respectively. Wage expectations on the 5y horizon rose slightly for both employee and employers’ organizations, which point towards higher wage growth ahead compared to the years before the pandemic.
In the UK, November CPI inflation released considerably lower than expected. Inflation measures declined across the board, with headline inflation at 3.2% (cons: 3.5%) from 3.6%, core at 3.2% (cons: 3.4%) from 3.4% and services at 4.4% (cons: 4.5%) from 4.5%. This is the second soft CPI surprise over the recent three months. It aligns well with recent PMI indicators, which suggested lower inflation in November, and markets are now pricing in an almost 99% likelihood of the Bank of England cutting the Bank Rate today.
In the US, Federal Reserve Governor Waller said he thinks that current interest rates are 50-100bp above the neutral level. Waller said he sees room to cut interest rates as the labour market is very soft, and inflation is unlikely to reaccelerate. The remarks were on the dovish side even for Waller, with the WSJ reporting that he was interviewed for the Fed chair position by US President Trump yesterday.
Equities: Global equities had a rough trading session yesterday, with a broad-based decline of about 0.9%, marking the fourth consecutive session of overall declines. The defensive sectors ended mostly in green, led by energy, staples, and materials, while the more classical cyclical sectors posted significantly negative returns. Tech declined 2.2% in the US. Overall, the S&P 500 fell 1.2%, with Nasdaq down 1.8% and the Russell 2000 lower by 1.1%. In Europe, the Euro Stoxx declined 0.4%. This risk-off sentiment carried over into the overnight session, with Asian equity markets trading lower.
FI and FX: Today, we have a string of central bank meetings from BoE, ECB. Sweden and Norway as well as US CPI data. BoE is expected to cut rates, ECB, the Riksbank and Norges Bank are expected to be on hold, and here it is more about the comments for monetary policy in 2026 that attract the attention of the markets.
The German Debt Office will launch their funding outlook for 2026. The consensus forecast for the bond issuance is some EUR 350bn. In this case there is a going to be a very active issuance calendar. Despite the solid issuance, then Bund and Buxl’s have performed well in the recent week versus swaps.
