Eyes on final Q3 Euro area GDP data

In focus today

In the euro area, focus turns to wage growth and the final estimate of Q3 GDP. The data will give us the first full picture of wage developments in the third quarter, which are very important for the ECB outlook since services inflation, which is mainly determined by wages, is what currently keeps inflation from falling below target. The data on negotiated wages showed a very sharp decline in Q3 signaling that the compensation per employee, which in addition to negotiated wages includes wage drift, is also going to fall in Q3. The ECB staff projections estimated that compensation per employee would decline from 3.8% y/y in Q2 to 3.2% y/y in Q3. The final GDP data for Q3 is expected to confirm the two previous estimates of 0.2% q/q, so focus will instead be on the details, particularly private consumption and the savings ratio.

In the US, the September PCE data on both real private consumption and inflation is finally due for release after a lengthy shutdown-driven delay. December's flash consumer confidence index from the University of Michigan will also be released. Note that the November Jobs Report originally scheduled for today has been delayed until 16 December

In Sweden, Budget numbers for November are due at 08:00 CET. The Debt Office has pencilled in a SEK 12.1bn surplus (revised down from 18.1bn in the previous report).

Over the weekend, Japan publishes October wage data. Wages struggle to compensate for price increases with real wage growth still in negative territory. Real wage growth is the key remaining piece of the puzzle for Bank of Japan to confidently raise rates further. Largely all other factors are in place, though, and a December hike is also close to priced- in, in alignment with our expectations. Further hikes will largely hinge on improvement in wage data and the outlook for solid wage growth in 2026. We will also look for the revised national accounts for Q3.

Economic and market news

What happened overnight

In the US, senators introduced the SAFE CHIPS Act to block the Trump administration from relaxing restrictions on sales of advanced Nvidia and AMD AI chips to China, Russia, Iran, and North Korea for 2.5 years. The bipartisan bill, aimed at protecting national security, seeks to limit Beijing's access to cutting-edge AI technology and requires a congressional briefing before any changes to export controls can take effect.

What happened yesterday

In the US, the November Challenger report showed a sharp decline in layoff announcements to 71k (prev: 153k), with AI-related cuts accounting for 6.2k. Despite growing attention on AI, it has explained less than 5% of layoffs this year, with most linked to traditional factors. Hiring announcements dropped significantly to 9k (prev: 283k), partly due to seasonal effects, though the figure remains low even for November. Meanwhile, initial jobless claims fell to 191k, and continuing claims dropped to 1.94 million, which is very close to the average level seen since June, suggesting that actual layoffs remain low despite slowing headline job growth.

Meta plans to cut up to 30% of its metaverse budget as part of 2026 planning, which could involve layoffs starting next month. The decision follows over USD 60bn in costs since 2020 and reflects Meta's focus on artificial intelligence after recent setbacks in its AI initiatives.

In Sweden, November inflation surprised to the downside, with underlying inflation at 2.4% y/y and CPIF at 2.3% y/y. The decline was likely driven by larger-than-expected Black Friday price reductions, as the monthly drop was unusually large compared to the past decade. Details on inflation components, expected next week, will be key for assessing whether the decline is seasonal and temporary or more persistent.

In China, French President Emmanuel Macron met Xi Jinping to discuss trade, geopolitics, and the environment, while urging Beijing to help end the war in Ukraine. Despite signing cooperation agreements in areas like nuclear energy and population ageing, no major deals were sealed, including the expected Airbus order. Macron also raised concerns over rare-earth export restrictions and China's subsidised goods impacting European industry.

In India, Russian President Vladimir Putin began his first visit in four years, aiming to boost and diversify trade with Indian Prime Minister Narendra Modi. Both countries seek to raise bilateral trade to USD 100bn by 2030, with Russia looking to increase imports of Indian goods and India expanding exports of industrial goods, shrimp, tropical fruits, and machinery. The visit comes amidst US pressure on India to distance itself from Moscow due to the ongoing war in Ukraine.

Furthermore, the Reserve Bank of India cut its repo rate by 25 basis points to 5.25% and announced measures to boost liquidity by USD 16bn to support growth during a "goldilocks economy". The central bank raised its GDP forecast to 7.3% for 2025 while lowering its inflation projection to 2%, citing strong growth and rapid disinflation.

Equities: Equities extended gains yesterday in what can only be described as a classic, old-fashioned cyclical risk-on rotation. Defensives, min-vol, quality and large-cap all underperformed, with healthcare, consumer staples and utilities closing lower. On the other side of the ledger, industrials led the advance, yields moved higher across the curve, and value outperformed growth. While none of these correlations are unusual, in fact, they are textbook, but it has been a while since we have seen such a clean cross-asset rotation into cyclical risk. In the US yesterday, Dow -0.1%, S&P 500 +0.1%, Nasdaq +0.2% and Russell 2000 +0.8%. Asian trading is a mixed bag this morning: South Korea trades more than 1% higher, while Japan is down by more than 1%. Futures in both the US and Europe are higher this morning.

FI and FX: Global yields moved higher during yesterday's session with US yields rising 3-4bp in Treasury and swap space across the curve. European yields mirrored the move, but it was of less magnitude. EUR/USD took a breather during yesterday's session and edged closer to the 1.16 mark. Lower than expected inflation in Sweden provided support for EUR/SEK, which moved up towards the 11.00 mark.