In focus today
Today the French Prime Minister faces two motions of no confidence for the first time since October. The far-right RN and far-left LFI has filed to separate motions over the government’s failure to derail the EU’s Mercosur trade agreement, which was adopted on Friday. The motions are unlikely to pass, with the left-wing refusing to back the RN’s motion and the Socialists rejecting the LFI’s motion. While the risk of a government censure is small the impact in the event of no-confidence is higher than usual as Macron has said it would likely lead to snap elections. These could take place together with the municipal elections in March.
In the US, the Producer Price Index (PPI) and retail sales will be released for November after a lengthy delay caused by the government shutdown. November CPI was distorted by delayed data collection, and similar issues could affect the PPI figures. Retail sales will be interesting to follow given that US economic growth increasingly relies on private consumption. NY Fed’s Williams is scheduled to speak this evening.
The US Supreme Court rescheduled its opinion day, initially planned for last week, to today. This could include its first ruling on President Trump’s global tariffs.
Economic and market news
What happened overnight
China’s December trade data exceeded expectations, with exports rising 6.6% y/y, significantly above the expected 3%. This robust performance drove China’s annual trade surplus to a record high, highlighting resilient external demand despite renewed tariff tensions in 2025. Strong export growth has helped offset weak domestic demand. Shipments to the US fell sharply in December, dropping 30% y/y, while imports declined 29%, signalling a significant reduction in US-China trade throughout 2025. Amid these tensions, China’s exports fell 20%, as Chinese exporters increasingly redirected trade routes and increased shipments to non-US markets.
What happened yesterday
In the US, December CPI surprised to the downside. Headline inflation rose +0.3% m/m SA, while core CPI grew at a slower pace of +0.2% m/m (cons: +0.3% m/m). The downside surprise was largely attributed to weaker core goods prices, while services inflation rebounded modestly across shelter, health care and other services, largely in line with expectations. Energy and food inflation surprised slightly to the upside, resulting in a mixed inflation picture for December. Markets reacted dovishly, with UST yields declining and EUR/USD edging higher. As the Fed is focused on services inflation, policymakers may await January data before reassessing trends.
The US small business confidence index increased by 0.5 points to 99.5 in December. The NFIB’s December survey indicated that US small business optimism improved towards the end of 2025. Both realised and expected price changes, which historically correlate well with CPI, have remained relatively steady in recent months. Hiring plans also showed little change, although they remain below pre-pandemic levels. Overall, the survey suggests that firms perceive a stabilising business environment following a volatile year.
Equities: Equities grinded lower yesterday, in our view despite and not because of the inflation figures. The retreat was undramatic, with the S&P 500 down 0.2% and the Stoxx 600 down 0.1%. The strong cyclical run since the start of the year took a breather. Most cyclical sectors traded lower, primarily banks following Q4 reporting. The rotation out of US tech and into value cyclicals continued, albeit mildly, with industrials and materials outperforming the broader market. US futures point to a similar opening today.
FI and FX: EUR/USD consolidated in the mid-1.16-1.17 range as the broad USD modestly firmed across G10 FX in yesterday’s session, following an initial dip after the slightly softer-than-expected US December core CPI print. The IEEPA Supreme Court ruling could emerge today and represents a far more significant catalyst for near-term USD direction. USD/JPY continues to rise as speculation over a snap election grows, which would likely open the door for a pro-stimulus agenda from PM Takaichi. Global swap yields ended yesterday’s session largely unchanged. In Sweden, the first SGB auction for the year will be held today, with the auction size having been increased from SEK6bn last year to SEK8bn. We remain negative 10y SGB ASW. EUR/SEK edged higher yesterday after failing to breach the 10.70 level, while EUR/NOK is slightly lower overnight.
