All eyes on US CPI today

In focus today

From the US, we get the most important data release of the day: December CPI. We forecast headline CPI at +0.3% m/m SA (2.8% y/y) and Core CPI at +0.2% m/m SA (3.3% y/y), mostly in line with consensus. The PPI data released already yesterday pointed towards slightly lower-than-expected price pressures. In the evening, a range of Fed speakers will be on the wires, including Barkin, Kashkari, Williams and Goolsbee.

In the euro area, industrial production data for November is released, which is expected to show a small increase of 0.3% m/m by consensus. However, given data released on individual countries we expect production rose 0.7% m/m as Germany rose 1.5% m/m.

In the UK, December inflation data is released this morning at 8:00 CET. Consensus expects headline to remain put at 2.6% y/y but easing in core and services inflation. Focus will be on momentum in core services, which is key for the BoE in determining underlying inflation pressure. Considering the recent sell-off in Gilts and GBP FX, today's print is set to prove highly important for UK markets.

In Sweden, the final details of the December inflation print will be released at 8:00 CET. The flash estimates were below market and Riksbank forecasts. We expect no changes to preliminary outcomes (CPIF 1.5% y/y, CPIF ex Energy 2.1% y/y). Details may affect the January inflation outlook due to volatile price components. Riksbank speeches from Bunge at 9:10 CET and Thedéen at 15:30 CET may offer insights into the inflation print and potential timing of the next rate cut.

Economic and market news

What happened yesterday

In the US, the Core PPI came in lower than expected; keep in mind this (unusually) comes ahead of the CPI due for release tomorrow. EUR/USD edged higher, while UST yields declined. There has been a significant slowdown in the growth of services ex. transportation and core goods PPI. The NFIB survey indicates a continued rebound in US business confidence following the election. Looking at the survey components, it reveals that firms are considerably more optimistic about sales expectations and the general outlook for business expansion. Hiring plans have remained steady, although actual employment changes have slightly weakened. Firms' price plans (which often correlate well with the CPI), have also remained steady. Those firms reporting rising profits mainly attributed this to improving real volumes rather than increased selling prices, which is likely welcomed by the Fed.

In China, the credit and monetary growth data were released, showing slightly stronger than expected results. Year-to-date aggregate financing reached CNY 32260.0 bn (cons: CNY 31560.0bn). although details are not yet available, this overall trend suggest a pick-up in credit in December, supported by stimulus measures. M2 growth increased to 7.3% y/y (prior: 7.1% y/y) in line with consensus.

Equities: Global equities were higher yesterday, driven by cyclical stocks, small caps, and, notably, financials. We had yet another day of supportive macroeconomic figures from the US, but it is important to note that most gains occurred ahead of the key figure releases. When discussing cyclical outperformance over the past few years, it has largely been related to technology, consumer discretionary, and communication services. However, year to date, the best-performing sector is energy, with oil prices up by 7%, followed by materials. While it aligns with the business cycle to see energy and materials outperforming, we believe better data from China is necessary to support continued outperformance in these sectors. In the US yesterday, the Dow was up by 0.5%, the S&P 500 increased by 0.1%, the Nasdaq declined by 0.2%, and the Russell 2000 rose by 1.1%. Markets are mixed in Asia this morning, while both European and US futures are marginally higher.

FI: European government bond yields continued to rise yesterday and there was a modest bearish steepening of the various EGB curves. The Bund ASW-spread keeps testing the 0bp-level and we do expect to break through the level and go towards -10bp to -15bp given the supply as well as no QE. We discuss the outlook for the Bund ASW-spread as well as ECB and our top trades for 2025 in our special edition of RTM EUR. See RtM EUR - Outlook and top trades in 2025, 14 January.

FX: Yesterday proved another relatively soft session for the USD with EUR/USD moving back above the 1.03 level. Also, the JPY had a relatively weak session with USD/JPY moving sideways to marginally higher. In the Scandies, lower energy prices weighed on the NOK while the SEK remained close to unchanged. Finally, GBP had another volatile and nervous session ahead of today's CPI print.