Investors may prefer sticking to the sidelines going into tomorrow’s December Payrolls report
Markets
Core bonds grinded higher again yesterday. Bunds outperformed Treasuries with the latter returning from their intraday highs after a batch of important economic data. ADP job growth for December (+41k, recovering from -29k) and JOLTS job vacancies for November (7146k, down from 7449k) fell short of expectations but got balanced out by a stronger-than-anticipated services ISM. The headline number unexpectedly improved from 52.6 to 54.4, which was among the highest in around three years. Subindices such as employment (52, returning to growth), new orders (surge to 57.9) and general business activity (56, from 54.5) drove the uptick. Net daily changes for US rates eventually varied between +0.7 (2-yr) to -3.5 bps (20-yr). German/European rates extended their decline by 1 to 3.3 bps. Such a correction was perhaps due after a quarterly-long steady rise that brought the likes of the 10 year to the first important resistance zones. Sub-consensus (core) inflation figures for the euro area (2.3% core, 2% headline) simply acted as a trigger to some short-covering. Should the corrective move lower continue, the 2.73%-2.78% area and 2.65% pops up as first support in the 10-yr swap and the German 10-yr yield respectively. The ultra short end of the European yield curve after this week’s national and yesterday’s EMU CPI figures priced out any speculation on rate hikes (late) this year, which was probably premature anyway. UK gilts had a stellar performance, pushing yields at the longest maturities up to 7 bps lower. The 10-yr and 30-yr yield at the other side of the Channel are near important support zones (2025 lows). FX markets remained stoic with the dollar having held a slight advantage over G10 peers. We fear more of the same listless trading today given the empty eco calendar. Apart from US jobless claims and some second tier European data (EC economic confidence), there’s not much to inspire the market. Investors may prefer sticking to the sidelines going into tomorrow’s December payrolls report. That probably won’t change the January Fed outcome (unchanged) but could affect market thinking on the timing of a next rate cut. The money market is currently split between April and June. The empty calendar today does allow us to gauge any self-sustaining momentum behind the core bond yield correction. We’re also closely watching oil prices, which seem to be at a make or break point near $60/b, a level repeatedly tested in 2025 and the lowest since 2021. In another important note, the US Supreme Court could tomorrow release so-called opinions on Trump’s (IEEPA) tariffs that may end up in actual rulings on the matter as well. If it were to strike them down, uncertainty undoubtedly flares up again, despite the US administration claiming it has other ways of introducing import levies.
News and views
S&P Global argued in a study “the future of copper” that a significant looming deficit poses a systemic risk to global economic growth. By 2040, the study fears a 10mn tonnes deficit, equivalent to 1/3 of current global demand in absence of a meaningful extension of supply. The significant demand/supply mismatch is expected to start showing from early 2030 onwards. Copper is in huge demand because of the energy transition and the booming AI sector (construction data centers). Copper prices rallied significantly since the start of Q4 2025 with spot prices hitting an all-time high earlier this week above $13000/ton.
US President Trump will ask US Congress to raise defense spending from $901bn on the current year’s budget to $1.5tn for the year 2027. “Because of tariffs and the tremendous income that they bring, we are able to easily hit that number”. He also said he would “not permit” US defense companies to issue share buybacks or dividends until they responded to his call for military equipment to be produced more quickly and reliably. He also issued an executive order asking the defense department to add clauses to military supply contracts not to link executive incentive compensation to short term financial metrics.
Author
KBC Market Research Desk
KBC Bank
