Central bank meetings under the Christmas tree this week

In focus today

In the euro area, focus turns to the Sentix investor confidence indicator for December and the German industrial production data for October. The Sentix indicator will give us the first signal of investor confidence in December while German industrial production is the first 'hard data' for Q4. The German PMIs suggest that industrial production in October was little changed compared to September.

Early tomorrow morning, the Reserve Bank of Australia RBA will hold its final monetary policy meeting of the year. We expect no policy changes, in line with consensus and market pricing. Recent solid economic data has driven a hawkish repricing of markets' policy rate expectations, with the next most likely policy change being a rate hike in H2 2026. 

The big event this week is the FOMC meeting on Wednesday, preceded by the much-delayed September JOLTS job openings data on Tuesday. Rate decisions from Canada (Wednesday) as well as Switzerland and Turkey (Thursday) will also draw attention. In Scandinavia, notable data releases include final Swedish CPI and growth figures, Norwegian CPI, and Norges Bank's regional network report.

Economic and market news

What happened overnight

In China, November trade data showed exports rising by 5.9% y/y (prior: -1.1%), exceeding expectations due to strong growth in shipments to non-US markets amid elevated US tariffs. Imports rose 1.9% y/y (prior: 1.0%), below forecasts and signalling subdued domestic demand. This marks the first time China's year-to-date trade surplus in goods exceeded USD 1tn. Read more in Research China - A two-speed economy, 8 December.

In Japan, total cash earnings were up 2.6% y/y in October compared to 2.1% in September. This leaves real earnings at -0.7% y/y as wages continue to struggle to compensate for particularly food price surges earlier this year. Q3 GDP growth was revised lower to -0.6% on lower investments and exports. This is considered a temporary setback following several strong quarters, though, and it is not enough to derail a December Bank of Japan-hike. Private spending edged 0.2% higher, reflecting continuous recovering consumer sentiment since the spring.

In Southeast Asia, Thailand launched air strikes on Cambodia, marking the collapse of the Trump-brokered peace deal. Cambodia accused Thailand of the attacks, while Malaysia called for restraint as tensions over historic border disputes escalate.

What happened over the weekend

In the euro area, wage growth in Q3 rose against expectations, with compensation per employee rising to 4.0% y/y from 3.8% y/y in Q2. Compared to the ECB staff projections from September, which estimated Q3 wage growth at 3.2% y/y, the high print is a hawkish surprise for the ECB. With headline inflation averaging 2.1%, consumers experienced significant real wage gains, which is supportive for consumption. While inflation is expected below 2% next year due to temporary factors like energy prices and a stronger euro, strong wage growth indicates persistent domestic price pressures.

GDP growth in Q3 was revised up to 0.3% q/q from 0.2% q/q, driven by rounding adjustments. Private consumption contributed positively but slowed to 0.2% q/q from 0.3% q/q in Q2, reflecting cautious consumer behaviour despite solid real income gains of nearly 2% y/y. Apart from consumption, investments and government consumption were the main growth drivers, while net exports weighed negatively. Read more in Euro Area Macro Monitor - Southern Europe outshines in growth and public finances, 8 December.

In the US, the delayed September PCE inflation landed close to expectations. Core services inflation momentum cooled slightly at 0.2% m/m SA (cons: 0.2%, prior: 0.1981). At the same time, December's flash consumer confidence index from the University of Michigan revealed a decline in consumers' inflation expectations, with 1-year expectations falling to 4.1% (prior: 4.5%) and 5-year expectations dropping to 3.2% (prior: 3.4%), likely reflecting lower gasoline prices. While no major surprises, this on the margin supports the Fed's rate cut anticipated this week.

Also in the US, President Trump unveiled his National Security Strategy, emphasising his 'America First' vision. Key priorities include reinforcing US dominance in the Western Hemisphere via the revived Monroe Doctrine, countering China's influence in Latin America, and deterring conflict in the Indo-Pacific through military strength. The strategy also questions Europe's reliability as an ally, calling on NATO members to assume greater defence responsibilities. Notably, the Kremlin welcomed the strategy, stating its adjustments align with Russia's own global perspective.

In the Russia-Ukraine war, US Special Envoy Keith Kellogg stated that efforts to reach a breakthrough are "really close", with key issues including the Donbas region and Zaporizhzhia nuclear plant. However, the Kremlin has called for radical changes to US proposals, underscoring ongoing challenges in reaching a resolution. Today, Zelensky meets European leaders to discuss next steps, including securing meaningful guarantees.

In Japan-China relations, tensions escalated as Japanese aircraft were targeted by radar from Chinese fighter jets near Okinawa in two incidents Tokyo called "dangerous". PM Takaichi condemned the actions and lodged a protest with Beijing, while Japan vowed to respond calmly to maintain regional stability. The incidents highlight strained ties amid disputes over Taiwan and broader regional security challenges.

Equities: Equities slowed on Friday following strong gains earlier in the week. US and European indices were little changed on Friday but ended the week almost 1% higher. Nordic markets outperformed, with Stockholm and Helsinki locking in almost 2% for the week. The explanation is straightforward: Nordic equities lagged in the initial recovery. Asian markets are continuing higher this morning, while US and European futures are somewhat indecisive.

Although markets appeared calm on the surface on Friday, we note a clear risk-on rotation beneath it, with cyclical sectors rising roughly 1%, financed by declines in defensives. For the week as a whole, global cyclicals outperformed defensives by 2.5 p.p., the strongest relative performance since the earnings season.

FI and FX: Last week ended with slightly higher yields, both in Europe (2bp) and the US (4bp). We start the week at unchanged levels compared to Friday in US-treasuries. EURUSD is hovering around 1.165 and USDJPY at 155.2 as markets will increasingly focus on the widely expected Fed rate cut on Wednesday where markets price -23bp.