EU mid-market update: Warm data in a cold environment is unlikely to change the European Central Bank’s thinking; in the coming week, the US employment report and NVIDIA CES keynote will be the focus.
Notes/Observations
– Services PMI across Europe unexpectedly rose, overturning traders’ expectations for the extent of the European Central Bank’s interest rate cuts in 2025, while inflation in the German state of Hesse topped expectations for national data due later and was above levels a month ago. The ECB does predict a slight increase in inflation by the end of 2024. Are these figures a sign of stagflation, a growth reversal and an end to the monetary easing cycle, or are they just seasonal anomalies? Central banks may wait until the Trump transition is over before making forecasts.
– France CAC40 outperformed on a technical rebound from the recent sell-off and upbeat comments from the budget minister on the passage of the budget in parliament.
– U.S. Speaker Johnson vowed after Friday’s confirmation vote that the bill, which touches on a host of President-elect Trump’s priorities and would mean Republicans don’t need Democrats, will be voted on by the U.S. House of Representatives in April 2025 through a reconciliation process. A vote would pass the bill.
– Japan’s Nikkei 225 index underperformed after Japanese markets were closed last week to catch up with the year-end global sell-off.
– Cold and stormy weather is weighing on Europe’s travel/leisure industry due to flight cancellations and rising gas prices in the U.S. and Europe.
– ASML bids after Foxconn reports December and 2024 revenue; U.S. AI stocks overall higher in premarket after Microsoft on Friday announced an investment of about $80B in AI-enabled data centers in fiscal 2025; Sam Altman says OpenAI now Confident in how AGI will be built, NVIDIA CEO Jensen Huang will deliver a keynote address at CES later tonight.
– Asia ended mixed, with KOSPI outperforming the market by +1.9%. The EU index was -0.2% to +0.4. U.S. futures rose 0.1-0.7%. Gold -0.2%, US dollar index -0.4%; commodities: Brent crude oil -0.2%, West Texas Intermediate Crude Oil -0.3%; Cryptocurrencies: BTC +1.3%, ETH +0.9%.
Asia
– Australia’s December final services PMI (confirming its 11th consecutive month of expansion (50.8 vs. 50.4 forecast).
– Japan’s final December services PMI confirmed second month of expansion (50.9 vs 51.4 expected).
– China’s December Caixin PMI service recorded its 23rd month of expansion (52.2 vs 51.4e).
– China’s central bank says it has “sufficient tools and experience” to deal with yuan depreciation (reports in early December alerted China’s top policymakers to consider devaluing the yuan in 2025 amid Trump’s tariff threats. The People’s Bank of China said it had considered the yuan The exchange rate may fall to the 7.50 level against the US dollar to offset the possibility of any trade shock).
– Japanese Prime Minister Shigeru Ishiba noted that a broader alliance agreement is not currently being considered.
– Governor of the Bank of Japan Ueda Pointing out that the virtuous cycle gradually strengthened last year; reiterated the stance that interest rates will be raised if the economy continues to improve.
Europe
– Several economists believe the ECB “risks falling behind the curve” in policy easing because it is cutting rates too slowly.
– Austria’s nationalist right is said to be “closer” to power; Austria’s president plans to meet with the Freedom Party’s Kickel to seek a chance to form a government.
– British Chamber of Commerce (BCC): Business confidence has fallen to its lowest level since the 2022 autumn mini-budget.
– Fin Min Reeves is said to be facing a £640m hit from rising gilt yields. The situation could throw her tax and spending plans into disarray.
America
– House Speaker Johnson vowed that ambitious legislation addressing a range of President-elect Trump’s priorities will be voted on by the U.S. House of Representatives in April 2025.
– Fed Coogler (voter) noted that 2024 is ending on a good note; deflation continues and the labor market remains resilient. The 2% target has not yet been reached, but it is certainly still achievable.
– Fed’s Daly (nonvoting in 2025) noted that despite significant progress in reducing price pressures over the past two years, inflation remains “troublingly above our objective.”
Speakers/Fixed Income/FX/Commodities/Errata
stock
index [Stoxx600 +0.13% at 508.86, FTSE -0.22% at 8,205.80, DAX +0.39% at 19,987.18, CAC-40 +0.51% at 7,319.69, IBEX-35 -0.25% at 11,622.43, FTSE MIB +0.24% at 34,208.00, SMI +0.09% at 11,615.90, S&P 500 Futures +0.43%].
Market focus/key themes: European indexes generally opened higher; a return to normal trading volumes in the new year is expected to ease the European Central Bank’s expectations ahead of key data releases this week; leading industries include technology and industrials; lagging industries include consumer discretionary and materials; Microsoft said it will spend $80B to build artificial intelligence Technology sector gets boost after smart data centres; watch for German consumer price index (CPI) preview later today; profits expected in the upcoming U.S. trading session include business metals.
stock
– Consumer Discretionary: Hermès [RMS.FR] +2.0% (Stifel Nicolaus raised funds to purchase).
– Consumer Staples: Unilever [ULVR.UK] -2.0% (RBC downgraded to underperform), TomTom [TOM2.NL] +5.0% (Working with Esri to integrate global maps and transportation data into the ArcGIS geospatial platform).
– Healthcare: Medacta [MOVE.CH] +5.5% (Morgan Stanley upgrades to Overweight).
– Industry: Volkswagen [VOW3.DE] +2.5% (Xpeng Motors and Volkswagen Group (China) jointly create one of the largest ultra-fast charging networks in China), Rolls-Royce [RR.UK] -3.5% (downgraded to neutral by Citigroup), Alstom [ALO.FR] -0.5% (preliminary Q3 orders).
– Technology: ASML [ASML.NL] +4.5%, STMicroelectronics [STM.FR] +4.0% (Microsoft expected to spend $80B on AI data centers in 2025; read Foxconn December sales; Nvidia CES keynote later today; blog post by Sam Altman), Sartorius AG [SRT.DE] +3.5% (JPMorgan Positive Catalyst Watch), Spectris [SXS.UK] +2.5% (HSBC offers buy).
speaker
– French Budget Minister Lombard reiterated his stance of seeking cost savings to reduce the deficit; hopes for a budget in February.
Currency/Fixed Income
– The U.S. dollar started the week with a minor technical correction to its recent strength as trading conditions began to normalize.
– The Czech koruna (CZK) continues to strengthen against the US dollar following an upward revision to Czech GDP on Friday.
– The Mexican peso (MXN) and Canadian dollar (CAD) underperformed on Trump tariff concerns.
– EURUSD The index moved higher as various PMI services PMI readings were revised slightly higher. The pair approached the 1.0360 level during the session.
– GBP/USD It rose 0.5% on a test above 1.2480.
– USD/JPY By mid-session it was 157.65. Bank of Japan Governor Ueda pointed out that the virtuous cycle gradually strengthened last year and reiterated his stance that interest rates will be raised if the economy continues to improve.
economic data
– (NL) Dutch producer confidence in December: -1.6 compared to -1.8 previously.
– (NL) Dutch November retail sales year-on-year: 2.2% vs. previous value of 2.3%.
– (ZA) South Africa December PMI (overall economy): 49.9, previous value 50.9 (first contraction in 5 months).
– (ES) Spain’s December services PMI: 57.3 vs 54.1e (16th month expansion); Composite PMI: 56.8 vs 54.3e.
– (TW) Taiwan’s December foreign exchange deposit bottom: $576.7B vs. the previous $578.0B.
– (IT) Italy’s service industry PMI in December: 50.7 vs 50.0e (resuming expansion); Comprehensive PMI: 50.2ev, previous value 47.7.
– (France) France’s December final services PMI: 49.3 vs. 48.2 forecast (confirmed as contraction in the fifth month); Composite PMI: 47.5 vs. 46.7 forecast.
– (DE) Germany’s final services PMI in December: 51.2 vs. 51.0 forecast (confirmed to resume expansion); Comprehensive PMI: 48.0 vs. 47.8 forecast.
-(European Union) Eurozone final services PMI in December: 51.6 vs. 51.4 forecast (confirming resumption of expansion); Composite PMI: 49.56 vs. 49.5 forecast.
– (DE) Germany’s December Hesse CPI month/month: +0.7% vs. the previous value -0.3%; year-on-year: 2.7% vs. the previous 2.0%.
– (UK) December new car registrations year-on-year: -0.2% vs -1.9% previously.
– (Switzerland) Total weekly demand deposits in Switzerland (Swiss francs): 439.6B vs. 445.7B previously; domestic demand deposits: 426.6B vs. 436.4B previously.
– (EU) Eurozone Jan Sentix Investor Confidence: -17.7 v -17.9e.
– (UK) Final services PMI in December: 51.1 vs. 51.4 forecast; Composite PMI: 50.5 vs. 50.5 forecast.
– (UK) Official reserves change in December: -$1.3B compared to -$1.0B previously.
fixed income issuance
– Didn’t see it.
Looking to the future
– 05:25 (EU) Daily European Central Bank Liquidity statistics.
– 05:30 (DE) Germany will sell €2.0B of 6-month Bubier bonds.
– 05:30 (NL) The Dutch Debt Agency (DSTA) will sell €2.0-4.0B of 3-month and 6-month notes.
– 06:00 (IL) Israel will sell consolidated ILS3.55B bonds in 2027, 2028, 2029, 2033, 2035 and 2052.
– 06:00 (IN) India announces details of its upcoming bond sale (to be held on Friday).
– 06:25 (BR) Brazil’s central bank weekly economist survey.
– 06:30 (TR) Türkiye November real effective exchange rate (REER): no expectations, previously 67.03.
– 06:30 (CL) Central Bank of Chile (BCCh) December Minutes.
– 07:00 (MX) Mexico Consumer Confidence Index for December: No expectations, previously 47.7.
– 07:00 (MX) Mexico December domestic auto sales: No estimate, previously 148.0K.
– 08:00 (DE) German December CPI monthly initial value: +0.3%ev -0.2% previous value; Y/Y: 2.4%ev 2.2% previous.
– 08:00 (DE) German December EU CPI monthly unified data initial value: +0.5%ev -0.7% previous value; Y/Y: 2.6%ev 2.4% previous.
– 08:00 (CZ) Czech December budget balance (CZK): None est v -259.2B ago.
– 08:00 (BR) Brazil December services PMI: no estimate, previously 53.6; Composite PMI: no estimate, previously 53.5.
– 08:00 (UK) Daily Baltic Dry Index.
– 09:00 (FR) French debt agency (AFT) will sell €5.9-7.5B of 3-month, 6-month and 12-month notes.
– 09:00 (IL) Central Bank of Israel (BoI) interest rate decision: The base rate is expected to remain unchanged at 4.50%.
– 09:15 (US) Fed Cook.
– 09:30 (CA) Canada December Services PMI: no estimate v 51.2 previously; Composite PMI: no estimate v 51.5 previously.
– 09:45 (United States) December S&P Services PMI final value: 58.5ev 58.5 preliminary; Composite PMI: No estimate, preliminary value is 56.6.
– 10:00 (US) November Factory Orders: -0.4%ev +0.2% ago; Factory Orders (before shipping): None est v 0.1% ago.
– 10:00 (US) November final durable goods orders: -0.4%ev -1.1% prelim; Durable goods (excluding transportation): +0.3%ev -0.1% prelim; Capital goods orders (excluding non-defense/aircraft): 0.1%ev 0.7% prelim; transportation of capital goods (except non-defence/aircraft): 0.3%ev 0.5% prelim.
– 11:30 (US) Treasury sells 13-week and 26-week Treasury notes.
– 13:00 (BR) Brazil’s monthly trade balance in December: $3.4Be vs. the previous $7.0B; total exports: $23.9Be vs. the previous $28.0B; total imports: $20.9Be vs. the previous $21.0B.
– 17:30 (Australia) Australia’s ANZ Roy Morgan weekly consumer confidence index: no expectations, previously 83.9.
– 18:50 (JP) Japan December Monetary Base Y/Y: Unexpected v -0.3% previous.
– December 19:01 (UK) BRC LFL sales year-on-year: -0.2%ev -3.4% before.
– 19:30 (Australia) Australia November building approvals m/m: -1.0%ev +4.2% ago; private sector housing M/M: n/a est v -5.2% ago.
– 20:00 (PH) Philippines December CPI monthly rate: 0.3%ev 0.4% previous value; year/year: 2.6%ev 2.5% previous.
– 22:30 (Japan) Japan will sell 3-month bills.
– 22:35 (JP) Japan will sell 10-year JGBs.