Political theme as Japan's Takaichi confirms snap election

EU mid-market update: Political theme as Japan's Takaichi confirms snap election, France resumes debate over 2026 budget and Iran regime looks very fragile.

Notes/observations

- Europe starts the session with little fresh EU macro, leaving attention on French political risk (reports PM Lecornu may invoke Article 49.3 to pass the 2026 budget, 5.4% deficit target), hence muted price action. Core bond yields edge higher into heavy Eurozone bond supply and upcoming catalyst of US CPI at 08:30 ET (13:30 GMT). USD is mixed, oil is higher, while precious and base metals ease from recent highs.

- Bond markets display a peculiar sanguinity, pricing a meager two cuts through 2028 despite the weekend’s turmoil, yet the roaring trade in hard assets whispers a different truth. This divergence exposes the year’s most glaring inefficiency: financial repression might still become the defining macro theme of 2026, and it remains dangerously unpriced.

- In Asia, Japan led risk-on as the Nikkei hit record highs following confirmation of an early general election (Lower House dissolution Jan 23; vote possible in early February). JGB yields rose, while yen weakness paused, reopening debate on whether FX moves could pull forward BOJ tightening. Korea’s Kospi also touched highs despite a weaker won, with the BoK expected to hold rates. China sentiment is supported by policy signals of continued growth support and progress in EU–China EV talks, while the PBoC is expected to manage only a gradual yuan appreciation.

- President Trump has issued a 'final and conclusive' ultimatum, slapping an immediate 25% tariff on any nation trading with Iran and effectively forcing the world to choose between Tehran and the American consumer.

- European gas prices extended gains on colder weather, faster storage drawdowns, and rising Iran-related supply risks. Oil prices are supported after Trump announced 25% tariffs on countries trading with Iran, with markets also watching Venezuela developments and the risk of further Middle East escalation.

- Chancellor Merz declares the "Iranian regime... is effectively finished," assuming we are "witnessing the last days and weeks" of its rule, yet the silence on the streets is likely a digital mirage created by internet shutdowns rather than a return to stability. Simultaneously, Tehran signals a willingness to resume nuclear negotiations to avert US strikes, though observers note no indication that the regime has "softened its red lines" for a deal.

- President Trump promises 'much to announce' regarding data centers, starting with a Microsoft deal ensuring tech giants 'pay their own way' rather than forcing Americans to 'pick up the tab' for soaring power consumption. This stipulation adds a critical layer to his October pledge to speed up industry hookups: capacity will grow, but the voter’s utility bill must remain sacrosanct.

- Notable corporate news: UK housing remains in focus after Persimmon reported FY25 at the top end of consensus and 2026 guidance in line, supporting housebuilders; Whitbread also trades firmer on a better-than-feared tax hit and stronger cost savings. Elsewhere, Brunello Cucinelli beat on Q4 revenue, Roche reaffirmed FY25 guidance, while Sika cut its full-year EBITDA margin outlook. In strategic news, Orsted gained after court approval to resume US wind projects, while reports flagged Diageo reviewing China assets and UniCredit holding talks over the Monte Paschi stake

- Asia closed mixed with Nikkei225 outperforming +3.1%. EU indices -0.1% to -0.5%. US futures -0.1% to -0.2%. Gold -0.3%, DXY +0.1%; Commodity: Brent +1.6%, WTI +2.1%; Crypto: BTC +2.0%, ETH +1.0%.

Asia

- Japan Nov Current Account Balance: ¥3.674T v ¥3.609Te; Trade Balance (BoP Basis): ¥625.3B v ¥518.8Be.

- Japan Dec Bank Lending Y/Y: 4.4% v 4.1% prior.

- Australia Jan Westpac Consumer Confidence Index: 92.9 v 94.5 prior.

- Japan PM Takaichi confirmed her intent to hold snap elections; To dissolve Lower House at beginning of session on Jan 23rd (Fri), 2026 [the same day as the next BOJ rate decision].

- Japan Fin Min Katayama noted that had told US Treasury Sec Bessent on Japan concerns over one-sided decline in Yen. Bessent shared the same views regarding weak Yen.

Global conflict/tensions

- President Trump reportedly being steered by senior Aides and officials towards a diplomatic solution for Iran rather than strikes as protests head into a third week. Trump said to be considering Iran's offer for diplomacy surrounding its nuclear program.

Europe

- UK Dec BRC LFL Sales Y/Y: 1.0% v 1.2% prior (slowest pace in 7 months).

- ECB’s Villeroy noted that a fall in the US Dollar was possible if Fed's independence was challenged.

- German Fin Min Klingbeil noted that there were many open questions remaining after G7 meeting on rare earths. Don't have time to lose on rare earths issue.

Americas

- Fed's Williams (voter) noted that interest rate cuts had brought risks into better balance; Tariff impacts should fade in 2026; Inflation to peak during H1 2026. Markets were not sure what is going to happen with Fed independence. Backed chair Powell's calls for fed independence.

- US Senate bipartisan negotiated Market Structure bill text for the US crypto industry has been released; includes text for yields on stablecoins.

- Senate Maj Leader Thune noted DOJ probe mades Fed Chair confirmation 'challenging'; Probe needed to be 'resolved quickly' (**Note: Bessent said to have told Trump that investigation of Fed chair created a "mess". Republican Senator Tillis stated that would oppose confirmation of any US Fed Nominee including the Chair until legal matter with Powell was resolved.

Trade

- US Pres Trump posted on social media that effective immediately, placing 25% secondary tariffs countries doing business with Iran.

- US and Taiwan said to be near a trade deal, which would include TSMC pledge to build more manufacturing in the US in return for lowering tariffs on Taiwanese imports to 15%.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.13% at 610.16, FTSE -0.03% at 10,137.90, DAX -0.15% at 25,360.21, CAC-40 -0.42% at 8,323.98, IBEX-35 +0.12% at 17,695.71, FTSE MIB -0.13% at 45,673.50, SMI -0.55% at 13,350.80, S&P 500 Futures -0.11%].

Market Focal Points/Key Themes: European indices opened mixed with a positive bias that became more pronounced as the session progressed; risk appetite supported by earnings and tech sector outlook; among better performing sectors are consumer discretionary and technology; lagging sectors include financials and telecom; earnings expected in the upcoming US session include Delta Air Lines, JPMorgan, and the Bank of New York.

Equities

- Consumer discretionary: THG Holdings [THG.UK] +5.0% (trading update), PageGroup [PAGE.UK] -1.0% (trading update).

- Consumer staples: Suedzucker [SZU.DE] -1.5% (earnings).

- Energy: Orsted [ORSTED.DK] +4.5% (US Judge has granted injunction enabling resumption of construction on Rhode Island of wind project).

- Industrials: Symrise [SY1.DE] +6.5% (divestment; buyback), BMW [BMW.DE] -1.0% (analyst downgrade).

- Real Estate: Persimmon [PSN.UK] +0.5% (trading update).

Speakers

- ECB's Kocher (Austria) reiterated Council stance that ECB was not committed to any specific rate path.

Currencies/Fixed Income

- USD on a firm footing. Focus on US Dec CPI data. Dealers noted data unlikely to do much to alter widespread expectations for the Fed to be on hold in January. A handful of Republican officials were willing to publicly express their support for Powell to help offset the concerns over Fed independence. As noted yesterday any “sell America” theme had not fully taken root as markets still expected Trump to appoint a credible successor to Powell and let that person steer policy.

- EUR/USD was steady at 1.1665 throughout the session.

- Yen hit an 18-month low against USD as it tested the 159 level. Dealers note a ~$3.7B option expiration that was in focus for Jan 16th with the strike price is ¥160. Yen weakness attributed to upcoming snap elections that could cement the LDP with an outright majority in Parliament and have the PM push through her stimulus measures. Fiscal concerns pushed Japanese yields higher with the 10-year JGB at 2.16%.

- 10-year German Bund yield last at 2.86%, France 10-year Oat at 3.53% and 10-year Gilt yield at 4.39% 10-year Treasury yield: 4.19%; 10-year JGB: 2.16%.

Economic data

- (SE) Sweden Dec Maklarstatistik Housing Prices: 0.2% v 0.2% prior.

- (NL) Netherlands Dec CPI M/M: 0.0% v -0.8% prior; Y/Y (final): 2.8%v 2.8% prelim.

- (NL) Netherlands Dec Final CPI EU Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 2.5% v 2.5% prelim.

- (TR) Turkey Nov Retail Sales Y/Y: 14.2% v 15.4% prior.

- (TR) Turkey Nov Current Account Balance: -$4.0B v -$3.5Be.

- (NO) Norway Q4 House Price Index Q/Q: 2.2% v 1.4% prior.

- (HU) Hungary Dec CPI M/M: 0.1% v 0.0%e; Y/Y: 3.3% v 3.2%e.

- (FR) France Nov YTD Budget Balance: -€155.4B v -€136.2B prior.

- (CZ) Czech Dec Final CPI M/M: -0.3% v -0.3% prelim; Y/Y: 2.1% v 2.1% prelim.

- (CZ) Czech Nov Import Price Index Y/Y: -5.4% v -4.5% prior; Export Price Index Y/Y: -4.7% v -3.6% prior.

- (CZ) Czech Nov Current Account Balance (CZK): 8.2B v 9.0Be.

- (GR) Greece Dec CPI Y/Y: 2.6% v 2.4% prior; CPI EU Harmonized Y/Y: 2.9% v 2.8% prior.

Fixed income issuance

- (GR) Greece Debt Agency (PDMA) opened its book to sell EUR-denominated 10-year GGB bond via syndicate; guidance seen +60-65bps to mid-swaps.

- (EU) European Union opened its book to sell 3-year and 30-year NGEU bonds.

- (NE) Netherlands Debt Agency (DSTA) sold €4.875B vs. €4.0-5.0B indicated range in 2.50% Jan 2031 DSL bonds; Avg Yield: 2.526%.

- (ES) Spain Debt Agency (Tesoro) sold total €6.077B vs. €4.5-5.5B indicated range in 6-month and 12-month bills.

- (ZA) South Africa sold total ZAR3.0B vs. ZAR3.0B indicated in 2033, 2039 and 2048 bonds.

- (UK) DMO sold £900M in 1.125% Sept 2035 Inflation-linked Gilts (UKTi); Real Yield: 1.432% v 1.571% prior; bid-to-cover: 4.81x v 2.94x prior.

- (IT) Italy Debt Agency (Tesoro) sold €4.0B vs. €3.5-4.0B indicated in new 2.40% Mar 2029 BTP bonds; Avg Yield: 2.48%, bid-to-cover: 1.45x.

- (AT) Austria Debt Agency (AFFA) sold total €2.3B vs. €2.3B indicated in 2035 and 2053 RAGB bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:15 (CH) Switzerland to sell 3-month Bills; Avg Yield: % v -0.059% prior; bid-to-cover: x v 2.79x prior (Jan 6th 2026).

- 05:30 (DE) Germany to sell €6.0B in new 2.50% v Apr 2031 BOBL; Avg Yield: % v 2.27% prior; bid-to-cover: x v 1.49x prior (Nov 25th 2025 under the 2.2% Oct 2030 BOBL).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.8B in 3-month and 12-month bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (US) Dec NFIB Small Business Optimism: 99.5e v 99.0 prior.

- 06:00 (IE) Ireland Nov Retail Sales Volume M/M: No est v -0.5% prior; Y/Y: No est v 2.1% prior.

- 06:00 (PT) Portugal Dec Final CPI M/M: No est v 0.1% prelim; Y/Y: No est v 2.2 prelim.

- 06:00 (PT) Portugal Dec Final CPI EU Harmonized M/M: No est v 0.0% prelim; Y/Y: No est v 2.4% prelim.

- 06:00 (TR) Turkey to sell Bonds (2 tranches).

- 06:30 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:00 (BR) Brazil Nov IBGE Services Volume M/M: 0.1%e v 0.3% prior; Y/Y: 2.9%e v 2.2% prior.

- 07:00 (CZ) Czech Central Bank to comment on recent CPI data.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Dec 26th: No est v $752.6B prior.

- 08:00 (PL) Poland Nov Current Account Balance: €0.9Be v €1.9B prior; Trade Balance: -€0.5Be v +€0.6B prior; Exports: €30.2Be v €32.4B prior; Imports: €30.5Be v €31.8B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending Dec 26th: No est v +11.5K prior.

- 08:30 (US) Dec CPI M/M: 0.3%e v n/a prior; Y/Y: 2.7%e v 2.7% prior.

- 08:30 (US) Dec CPI (ex-food/energy) M/M: 0.3%e v n/a prior; Y/Y: 2.7%e v 2.6% prior.

- 08:30 (US) Dec CPI Index NSA: 324.267e v 324.122 prior; CPI Core Index: 332.058e v 331.068 prior.

- 08:30 (US) Dec Real Avg Weekly Earnings Y/Y: No est v 0.8% prior; Avg Weekly Earnings Y/Y: No est v 0.8% prior.

- 08:30 (CA) Canada Nov Building Permits M/M: -6.5%e v +14.9% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 10:00 (US) Oct New Home Sales: 715Ke v No prior; M/M: -10.6%e v No prior (Oct & Sept release).

- 10:00 (US) Fed's Musalem.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 13:00 (US) Treasury to sell 30-Year Bond Reopening.

- 14:00 (US) Dec Federal Budget: -$152.5Be v -$173.3B prior.

- 14:00 (AR) Argentina Dec National CPI M/M: No est v 2.5% prior; Y/Y: No est v 31.4% prior.

- 16:00 (KR) South Korea Dec Export Price Index M/M: No est v 3.7% prior; Y/Y: No est v 7.0% prior.

- 16:00 (KR) South Korea Dec Import Price Index M/M: No est v 2.6% prior; Y/Y: No est v 2.2% prior.

- 16:00 (US) Fed’s Barkin.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 16:45 (NZ) New Zealand Nov Building Permits: M/M: No est v -0.9% prior.

- 16:45 (NZ) New Zealand Nov Filled Jobs M/M: No est v 0.0% prior.

- 18:00 (KR) South Korea Dec Unemployment Rate: 2.7%e v 2.7% prior.

- 18:50 (JP) Japan Dec M3 Money Supply Y/Y: No est v 1.2% prior; M2 Money Supply Y/Y: No est v 1.8% prior.

- 19:00 (NZ) New Zealand Dec ANZ Commodity Price M/M: No est v -1.6% prior.

- 19:30 (AU) Australia Nov Job Vacancies Q/Q: No est v -2.7% prior.

- 21:30 (HK) Hong Kong to sell HK$1.0B in 10-year Bonds.

- 22:00 (KR) South Korea Nov M2 Money Supply M/M: No est v 0.9% prior; L Money Supply M/M: No est v 0.6% prior.

- 22:35 (JP) Japan to sell 5-year JGB Bonds.