In focus today
From the US, ISM Services index and ADP private sector employment report are due for release for December, and the JOLTs report for November. ADP’s weekly employment estimates signalled improving jobs growth momentum towards late November and early December.
In the euro area, we expect HICP inflation to decline to 1.9% y/y in December from 2.1% y/y in November with a risk that it could round down to 1.8% y/y. We expect core inflation at 2.3% y/y. Hence, the December inflation should be seen as a dovish surprise, although sticky services inflation somewhat limits how dovishly it should be interpreted.
In Sweden, services PMI for December are released today. The November service PMI outcome for Sweden was the highest since summer 2022 and significantly stronger than the outcomes in both Europe and the US. Given that we have seen a decline in most countries for the December outcome, it would not be surprising if we also see some pullback in today’s December release for Sweden.
Economic and market news
What happened overnight
China imposed a ban on the export of dual-use items to Japan for military use, escalating a diplomatic dispute over Japanese Prime Minister Takaichi’s recent remarks on Taiwan. Japan has called the measure “absolutely unacceptable,” as the ban includes rare earth elements critical for manufacturing. Beijing is reportedly considering broader rare earth curbs, which could significantly impact Japan’s economy and key industries like automotives. Market reaction has been muted so far, though Japanese shares fell on Wednesday, led by declines in mining stocks.
Overnight, US President Trump once again rekindled his ambition to acquire Greenland, citing national security priorities in the Arctic region and the island’s untapped mineral resources. While the White House stated that purchasing Greenland is being discussed, it also explicitly stated that military action to acquire it is an option. That said, WSJ also reported that Secretary of State Marco Rubio had downplayed the threats as a negotiation tactic in a recent internal briefing. European leaders and US lawmakers have expressed strong opposition, stressing respect for Denmark’s sovereignty and NATO obligations, but the administration insists the goal “is not going away”.
What happened yesterday
In Germany, December inflation came in weaker than expected, with HICP inflation falling to 2.0% y/y (cons: 2.2%, prior: 2.6%) and CPI inflation declining to 1.8% y/y (cons: 2.1% y/y, prior: 2.3% y/y). The surprise was driven by sharp declines in goods and food prices, while energy prices fell as anticipated. However, services inflation remained very sticky at 3.5% y/y, limiting the dovish interpretation of the weaker headline figures.
In France, HICP inflation fell to 0.7% y/y in December from 0.8% y/y in November, as expected. The decline was driven by lower energy prices, while food inflation rose and services inflation held steady at 2.2% y/y. These prints point to lower than initially expected euro area headline inflation today, which we now expect to decline to 1.9% y/y.
In the US, Federal Reserve Governor Stephen Miran argued for aggressive interest rate cuts in 2026, calling for over 100 basis points of reductions to support economic growth. Miran stated that policy remains overly restrictive despite inflation being close to the Fed’s 2% target and warned that failing to lower rates could hinder robust growth expectations for the year. His term as a Fed governor ends on 31 January, and he is serving at the Fed while on leave from his role as a top economic adviser to President Trump.
In geopolitics, Venezuelan opposition leader Maria Corina Machado praised US President Trump for the capture of Nicolas Maduro and expressed confidence that her movement would win a free election. Machado escaped Venezuela in October and received the Nobel Peace Prize and now vows to return as soon as possible. However, Trump appears to be working with interim President Delcy Rodriguez, a Maduro ally, to stabilise Venezuela before an election, disappointing the opposition. International backlash against the US intervention continues, with concerns over the precedent it sets for global norms. Overnight, Trump announced plans to refine and sell up to 50 million barrels of sanctioned Venezuelan oil, with revenues controlled by the US administration to allegedly benefit both Venezuelans and Americans
In the euro area, final December services PMI was revised slightly down to 52.4 from the flash estimate of 52.6, while the composite PMI fell to 51.5 from 51.9 due to the manufacturing print being revised down. Despite the downward revisions, the euro area economy ended the year on a positive footing, with the Q4 average composite PMI significantly higher than in Q3, indicating decent growth and supporting the ECB’s assessment of the economy being in a “good place”.
In Norway, house prices (SA) were unchanged in December, falling short of Norges Bank’s December MPR estimate of +0.8%. While this is unlikely to affect monetary policy in the short term, the data could support lower rate expectations in the market.
Equities: Global equities extended gains yesterday, marking the third consecutive positive trading day to start 2026. In Europe, the advance was more defensively led, with healthcare outperforming. Oil prices reversed lower after a brief uptick, weighing on energy stocks, which underperformed on the day.
More importantly, the first three trading days of the year have been characterised by a broadening of the equity rally. Performance has rotated away from some last year’s winners (not least tech) and towards more classic deep cyclical sectors. Likewise small caps have outperformed large caps for three days in a row, reinforcing the message of broader participation. Putting this into perspective: since our last tactical shift in mid-December, the materials sector is up 8.2%, while global technology is down 1.7%.
Part of this reflects the exceptional strength in both industrial and precious metals, but the broader takeaway remains clear. Global equities are up 2.2% over the same period, despite technology underperforming. In other words, equities can rise even when tech does not lead! In the US yesterday, Dow +1.0%, S&P 500 +0.6%, Nasdaq +0.7%, and Russell 2000 +1.4%. This morning, Asian markets are mixed, and futures in both Europe and the US point to a more cautious open.
FI and FX: The USD outperformed most of the rest of the G10 currency space yesterday closely followed by the Scandies on another day marked by positive sentiment in the stock market. The bond market was overall steady with US yields inching higher and European yields lower. The DKK market came under pressure. The culprit was a rise in EUR/DKK close to past central bank FX intervention levels, which led widening of the spread between Danish and German government bonds.
