Payrolls could cause a stir in US treasury market as volatility sits at four-year lows

EU mid-market update: Awaiting potential US Supreme Court ruling on Trump tariffs; Payrolls could cause a stir in US treasury market as volatility sits at 4-year lows.

Notes/observations

- European equities open mostly higher, supported by gains in miners, energy, and luxury stocks. However, sentiment is cautious ahead of key US risk events. Focus is squarely on US non-farm payrolls (08:30 ET), with expectations for steady hiring and a slight dip in unemployment. Strong data could reinforce the “higher for longer” rates narrative, while weak data would revive near-term cut expectations. Also watching a potential US Supreme Court ruling on Trump’s tariff powers, widely expected just after 10:00 ET, but yet to be confirmed.

- A 6-3 or 5-4 decision striking down the tariffs is widely expected, led by a coalition including Justices Roberts, Gorsuch, Barrett, and Sotomayor, while Justices Thomas and Jackson likely dissent in favor of the administration, leaving Justice Alito as the pivotal swing vote to architect a "soft landing."

- While betting markets assign an 80% probability that the Supreme Court will strike down the administration's IEEPA tariffs as early as January 9th, the White House has potentially prepared a "bureaucratic bestiary" of dormant statutes, likely specifically Section 338 and Section 122, to immediately reimpose protectionist measures. The administration may utilize Section 122's 150-day authority to enact a temporary 15% surcharge, effectively bridging the gap until a permanent Section 232 national security tariff can be finalized.

- TTN US Jobs Report Preview: A consensus gain of 70K jobs may round out the year, but this might end up as a statistical mirage; apply the "Powell discount" - the Chair’s admission that official data are overstated by roughly that amount. Amid a forecasting chasm spanning 25-155K, the prudent eye must look past the headline theatre to the 2-month net revisions.

- German industrial production beats expectations, contrasting with weaker French data. Norwegian inflation surprises to the upside, reinforcing Norges Bank’s cautious stance on further rate cuts. In UK, political headlines suggest limited City of London alignment with the EU, while business rates reform for hospitality appears to be watered down.

- European retailers are under pressure, with Sainsbury’s weaker Q3 and continued cost inflation weighing on shares. In contrast, selective industrial and energy names outperform. Luxury stocks are mixed, with Ferrari facing near-term delivery, cost, and FX headwinds despite long-term brand strength.

- Confirmed merger talks between Glencore and Rio Tinto dominate commodity markets, with copper exposure and decarbonization strategy at the center of the debate.

- US dollar strengthens to a four-week high ahead of payrolls, pressuring the euro toward key support levels. Volatility in US Treasuries has fallen to four-year lows, suggesting markets are comfortable with the current macro regime for now.

- Oil dipped lower after Trump posted about cancelling a second Venezuela attack, citing good cooperation between the two countries. He reiterated plan for US oil companies to spend >$100B for infrastructure.

- Asia closed higher with Nikkei225 outperforming +1.6%. EU indices -0.2 to +0.5%. US futures +0.1%. Gold -0.1%, DXY +0.2%; Commodity: Brent +0.3%, WTI +0.3%; Crypto: BTC 0.0%, ETH -1.0%.

Asia

- South Korea Nov Current Account Balance: $12.2B v $6.8B prior.

- Japan Nov Household Spending Y/Y: +2.9% v -1.0%e.

- China Dec CPI Y/Y: 0.8%v 0.8%e; PPI Y/Y: -1.9% v -2.0%e.

- South Korea Finance Ministry raised 2026 GDP growth forecast from 1.8% to 2.0%.

Global conflict/tensions

- President Trump stated that would start 'hitting' cartels on land; Venezuela would not even know how to have an election right now (**Note: On Jan 8th US Senate advanced a bipartisan measure intended to block the Trump administration from conducting further military action in Venezuela).

- Iran said to be experiencing a nationwide internet blackout following series of escalating censorship measures against protesters in the country.

Europe

- ECB's Centeno (Portugal) reportedly planning to run for ECB Vice President. Says Europe has entered a period of “structural uncertainty” marked by trade tensions, elevated sovereign debt and rapid economic change.

Americas

- US Nov Consumer Credit: $4.2B v $10.0Be.

- President Trump ordered Fannie Mae and Freddie Mac to purchase of $200B of mortgage bonds in effort to make housing more affordable.

- House passed bill to extend ACA tax credits for 3 years ahead of the Jan 30th spending deadline. Vote was 230-196, with 17 Republicans joining the Democrats and 5 Republicans not voting. Senate had not indicated if it will take up the bill.

- President Trump stated that he had made up his mind on who he would nominate to be the next chair of the Federal Reserve.

- US Supreme Court to provide opinions on Friday (**Note: Still awaiting ruling on Trump tariffs).

Energy

- Venezuela co-operating with Trump’s administration on plans to export its oil to the US.

- Trump stated oil companies would spend at least $100B in Venezuela; could be 'taking trillions' of dollars worth of oil.

Speakers/fixed income/fx/commodities/erratum

Equities

Indices [Stoxx600 +0.39% at 606.22, FTSE +0.37% at 10,082.51, DAX +0.03% at 25,132.34, CAC-40 +0.54% at 8,288.09, IBEX-35 -0.21% at 17,599.69, FTSE MIB -0.02% at 45,660.50, SMI +0.29% at 13,375.50, S&P 500 Futures +0.06%].

Market focal points/key themes: European indices opened mixed with a positive bias that was maintained through the early part of the session; markets seen cautious ahead of major data releases later in the day; among sectors posting gains are energy and consumer discretionary; underperforming sectors include financials and real estate; oil & gas subsector supported after rising tensions in Iran; Glencore confirms in merger talks with Rio Tinto; focus on US NFP and potential SCOTUS ruling on tariffs later in the day; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: J.Sainsbury [SBRY.UK] -6.5% (trading update), IAG [IAG.UK] -1.5% (new CFO).

- Industrials: Sandvik [SAND.SE] +0.5% (analyst downgrade).

- Technology: TeamViewer [TMV.DE] +6.5% (trading update), ASML [ASML.NL] +0.5% (TSMC monthly sales).

- Materials: Glencore [GLEN.UK] +8.5% (confirms that it is in preliminary discussions with Rio Tinto plc).

Speakers

- ECB's Radev (Bulgaria) stated that was not committed to any predetermined rate path.

- Czech Central Bank (CNB) Dec Minutes noted that all options regarding path remain open going forward.

- BOJ upcoming Quarterly Outlook for Economic Activity and Prices said to raise the GDP outlook.

- China to remove export tax rebates for solar products; To cancel export tax refund for battery products from 2027.

- Iran Supreme Leader Khamenei stated that Trump should focus on running his own country. Would not tolerate foreign-backed operatives, won't back down in face of vandalism.

- Pres Trump posted on social media that USA and Venezuela were working well together and that he cancelled the previously expected second Wave of Attacks on Venezuela. All ships will stay in place for safety and security purposes; Venezuela was releasing large numbers of political prisoners as a sign of “Seeking Peace.”

Currencies/fixed income

- USD Index hit a 1-month high during the session. Dealers awaiting the US Nonfarm Payroll data due out later in the session and its potential impact potential on path of future interest-rate cuts by the Fed.

- EUR/USD at 1.1650 by mid-session. ECB members continue to tout that the current rate environment is appropriate.

- USD/JPY higher at 157.60 as fiscal concerns continued to dominate the yen’s recent direction. The Japanese yield curve did manage to flatten during the Far East session. Dealers noted the lack of Japanese verbal intervention in recent sessions. Japan will be on holiday next Monday.

- 10-year German Bund yield last at 2.86%, France 10-year Oat at 3.52% and 10-year Gilt yield at 4.40% 10-year Treasury yield: 4.18%; 10-year JGB: 2.08%.

Economic data

- (NL) Netherlands Nov Manufacturing Production M/M: -0.5% v +0.4% prior; Y/Y: 0.7% v 2.1% prior; Industrial Sales Y/Y: -2.3% v -1.7% prior.

- (FI) Finland Nov Industrial Production M/M: 0.5% v 2.3% prior; Y/Y: 1.9% v 2.2% prior.

- (DE) Germany Nov Industrial Production M/M: +0.8% v -0.7%e; Y/Y: +0.8% v -1.0%e.

- (DE) Germany Nov Trade Balance : €13.1B v €16.4Be; Exports M/M: -2.5% v -0.2%e; Imports M/M: 0.8% v 0.3%e.

- (SE) Sweden Nov GDP Indicator M/M: 0.9% v 0.2%e v -0.3% prior; Y/Y: 2.7% v 2.2% prior.

- (SE) Sweden Nov Private Sector Production M/M: +0.5% v -1.4% prior; Y/Y: 3.5% v 3.6% prior.

- (SE) Sweden Nov Industry Production Value Y/Y: 4.2% v 5.9% prior; Service Production Value Y/Y: 3.7% v 3.0% prior.

- (NO) Norway Dec CPI M/M: 0.1% v 0.1% prior; Y/Y: 3.2% v 2.9%e.

- (NO) Norway Dec CPI Underlying M/M: 0.1% v -0.3% prior; Y/Y: 3.1% v 3.0%e.

- (NO) Norway Dec PPI (including Oil) M/M: -1.5% v +1.6% prior; Y/Y: -11.4% v -9.0% prior.

- (DK) Denmark Nov Current Account Balance (DKK): 33.6B v 31.8B prior.

- (DK) Denmark Nov Industrial Production M/M: -5.7% v -4.0% prior.

- (RO) Romania Q3 Final GDP Q/Q: -0.2% v -0.2% prelim; Y/Y: 1.7% v 1.6% prelim.

- (TR) Turkey Nov Industrial Production M/M: +2.5% v -0.7% prior; Y/Y: 2.4% v 2.2% prior.

- (HU) Hungary Nov Retail Sales Y/Y: 2.5% v 3.1% prior.

- (TH) Thailand May Foreign Reserves w/e Jan 2nd: $281.8B v $282.5B prior.

- (FR) France Nov Industrial Production M/M: -0.1% v -0.2%e; Y/Y: 2.1% v 1.6%e.

- (FR) France Nov Manufacturing Production M/M: +0.3% v -0.2%e; Y/Y: 2.2% v 1.6% prior.

- (FR) France Nov Consumer Spending M/M: -0.3% v -0.1%e; Y/Y: 0.0% v 0.2%e.

- (ES) Spain Nov Industrial Production M/M: +1.0% v -0.4%e; Y/Y: 4.5% v 1.2% prior; Industrial Output NSA (unadj) Y/Y: 1.8% v 1.5% prior.

- (CH) Swiss Dec Unemployment Rate:3.1 % v 3.1%e; Unemployment Rate (seasonally adj): 3.0% v 3.0%e.

- (CH) Swiss Dec Foreign Currency Reserves (CHF): 725.4B v 727.4B prior.

- 03:00 (AT) Austria Nov Industrial Production M/M: -1.0% v +0.3% prior; Y/Y: -0.3% v _2.3% prior.

- (TW) Taiwan Dec Trade Balance: $19.4B v $16.5Be; Exports Y/Y: 43.4% v 48.0%e; Imports Y/Y: 14.9% v 28.1%e.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 180.5K v 145.3K tons prior.

- (IT) Italy Nov Retail Sales M/M: 0.5% v 0.5% prior; Y/Y: 1.3% v 1.3% prior.

- (CZ) Czech Dec Unemployment Rate: 4.8% v 4.8%e.

- (UN) Dec FAO World Food Price Index: 124.3 v 125.1 prior.

- (EU) Euro Zone Nov Retail Sales M/M: 0.2% v 0.1%e; Y/Y: 2.3% v 1.6%e.

- (GR) Greece Nov Industrial Production Y/Y: 2.6% v 6.4% prior.

Fixed income issuance

- (IN) India sold INR290B vs,. INR290B indicated in 2040 and 2065 bond.

- (ZA) South Africa sold total ZAR980M vs. ZAR1.0B indicated in 2031, 2038 and 2050 I/L bonds.

- (IT) Italy Debt Agency (Tesoro) sold €8.0B vs. €8.0B indicated in 12 month bills; Avg Yield: 2.112% v 2.181% prior; Bid-to-cover: 1.45x v 1.41x prior.

Looking ahead

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

- 06:00 (IE) Ireland Dec Live Register Monthly Change: No est v -1.4K prior; Level: No est v 167.8K prior.

- 06:00 (PT) Portugal Nov Trade Balance: No est v -€2.8B prior.

- 06:00 (UK) DMO to sell £6.0B in 1-month, 3-month and 6-month bills (£1.0B, £2.0B and £3.0B respectively).

- 06:30 (IN) India Forex Reserve w/e Jan 2nd: No est v $696.6B prior.

- 07:00 (IS) Iceland Dec Unemployment Rate: No est v 4.3% prior.

- 07:00 (BR) Brazil Dec IBGE Inflation IPCA M/M: 0.3%e v 0.2% prior; Y/Y: 4.3%e v 4.5% prior.

- 07:00 (MX) Mexico Nov Industrial Production M/M: 0.1%e v 0.7% prior; Y/Y: -1.2%e v -0.4% prior; Manufacturing Production Y/Y: -1.8%e v -1.3% prior.

- 07:00 (MX) Mexico Dec Vehicle Production: No est v 322.2K prior; Exports: No est v 279.3K prior.

- 07:45 (IE) ECB’s Lane (Ireland, chief economist).

- 08:00 (UR) Ukraine Dec CPI M/M: No est v 0.4% prior; Y/Y: 8.5%e v 9.3% prior.

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

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (US) Oct Housing Starts: 1.330Me; Building Permits: 1.350Me (**Note: Oct and Sept data to be released).

- 08:30 (US) Dec Change in Nonfarm Payrolls: +70Ke v +64K prior; Private Payrolls: +75Ke v +69K prior; Manufacturing Payrolls: -5Ke v -5K prior.

- 08:30 (US) Dec Unemployment Rate: 4.5%e v 4.6% prior; Underemployment Rate: No est v 8.7% prior; Labor Force Participation Rate: 62.4%e v 62.5% prior.

- 08:30 (US) Dec Average Hourly Earnings M/M: 0.3%e v 0.1% prior; Y/Y: 3.6%e v 3.5% prior; Average Weekly Hours All Employees: 34.3e v 34.3 prior.

- 08:30 (CA) Canada Dec Net Change in Employment: -2.5Ke v +53.6K prior; Unemployment Rate: 6.7%e v 6.5% prior; Full Time Employment Change: No est v -9.4K prior; Part Time Employment Change: No est v 63.0K prior; Participation Rate: 65.2%e v 65.1% prior; Hourly Wage Rate Permanent Employees Y/Y: 3.8%e v 4.0% prior.

- 10:00 (US) Jan Preliminary University of Michigan Confidence: 53.5e v 52.9 prior.

- 12:00 (US) Q3 Financial Account Household Change in Net Worth: No est v $7.086T prior.

- 13:00 (US) Weekly Baker Hughes Rig Count data.