Germany's 2025 GDP estimate will shed light on Euro area outlook

In focus today

• In Germany, we receive the first full-year 2025 GDP estimate, which thereby gives the first indication of Q4 GDP growth. Note it is a very preliminary release with much data for Q4 lagging, but it will nevertheless give an indication of growth in the final quarter of the year.
• In the US, weekly jobless claims data and regional manufacturing indices from the New York and Philadelphia Federal Reserve are scheduled for release.
• In Sweden, we receive the details of the unexpectedly low December inflation. Primarily the underlying inflation came in lower than expected at 2.3%, where prices for recreation and food could be two factors explaining the deviation. Today's details are important, but the inflation figure for January is likely to be more decisive for the outlook.
• In the UK, November GDP growth figures will be published. The economy has remained stagnant during the second half of the year so far, despite PMIs suggesting stronger growth. The composite PMI for November stands at 51.2, indicating mild expansion.

Economic and market news

What happened overnight

In the US, Trump announced a 25% tariff on certain AI chips, including the Nvidia H200 AI processor and a similar semiconductor, under a new national security order issued by the White House. The move aims to bolster domestic semiconductor production and is part of a broader strategy to incentivise chipmakers to manufacture more semiconductors within the US, reducing reliance on producers in regions such as Taiwan. The tariff is narrowly targeted and will notably exclude chips intended for US data centres, startups, and non-data centre consumer applications.

What happened yesterday

In geopolitics, the meeting between Denmark, Greenland, and the US failed to resolve escalating tensions, as the US continued to insist on ownership of Greenland citing national security concerns. Danish foreign minister Lars Løkke Rasmussen described the discussions as marked by a "fundamental disagreement," with no change in the American stance. However, an agreement was reached to establish a high-level working group to explore a common path forward. In response to the overall situation, Denmark and Sweden announced the deployment of soldiers and military exercises in Greenland.

In France, Prime Minister Sébastien Lecornu's government survived two no-confidence votes initiated by far-left and far-right parties, who criticised its handling of the EU-Mercosur trade deal approved last week. Lecornu argued that the focus on the no-confidence votes was further delaying critical debates on the country's 2026 budget, which remains unapproved. He warned that the chances of passing the budget by the end of January, as demanded by the President, are diminishing.

In the US, November retail sales exceeded expectations, rising by 0.6%, indicating that consumer spending remained strong heading into year-end. Meanwhile, producer price inflation (PPI) for November increased by 0.2% m/m, bringing the annual rate to 3.0% y/y, up from 2.8% in October. This suggests that price hikes accelerated for US-based businesses toward the end of 2025, potentially signalling that inflation has not yet peaked and consumer prices may soon increase at a faster pace.

The US Supreme Court did not issue any ruling on Trump's tariffs, the delay in issuing a ruling, despite rescheduling from last week, highlights the complexity surrounding the highly anticipated decision on President Trump's global tariffs.

In Sweden, household consumption rose by 1.0% m/m in November, resulting in a yearly increase of 3.5% y/y, aligning well with strong retail sales figures. The growth was broad-based, with the highest increases seen in recreation and culture, as well as furniture, furnishings, household equipment, and consumables. Additionally, new manufacturing orders surged by 11.8% m/m and 23.0% y/y in November, with the other transport equipment industry contributing the most to the overall increase.

In Poland, the central bank kept rates unchanged at 4.00%, in line with expectations. Previous communication has indicated that the easing cycle is nearing its end, though there is potential for one or two additional cuts in early 2026. However, any final easing is likely to await and depend on the next updated economic projections, scheduled for release in March.

Equities: Equities had a tough session yesterday at the face of it, but underneath some interesting dynamics continue to play out. S&P500 ended 0.5% lower, Nasdaq was -1% while Russell2000 was +0.7%. Defensives outperformed cyclicals, but when looking at the sector composition it was IT and consumer discretionary that posted significant negative returns of -1.4% and -1.8% respectively. The lack of SCOTUS opinion dragged discretionary lower. Asian markets are primarily in red this morning albeit US equity futures are broadly unchanged.

FI and FX: US yields moved lower yesterday amid a souring risk sentiment, with equity markets on the decline in the US and Asia overnight. The 10y UST now trades in the middle of the 4.10-4.20% range seen from early December. EUR/USD remained stable in the mid-1.16-1.17 range, with US retail sales and inflation data having little market impact. Oil prices are trading lower overnight, as President Trump indicates that he is holding off from attacking Iran for now. This in turn has reversed some of the NOK strength seen during yesterday's session. In Sweden, focus today is on the inflation details for December, although we doubt that there will be much price action in the krona.