Powell investigation casts spotlight on Fed

In focus today

• In the euro area, the Sentix indicator is released today, providing the first estimate of investor confidence in 2026. While confidence improved in 2025 compared to 2024, it ended the year on a downward trajectory.
• In Denmark, December inflation data is released. We expect a decline to 1.9% from 2.1% in November, driven by falling fuel prices. It will also be interesting to see if December's butter sales confirm the recent trend of lower food prices.
• The week's economic calendar is light, with key US data releases including CPI on Tuesday, followed by PPI and retail sales on Wednesday. Also on Wednesday, the Supreme Court is expected to issue its next ruling on President Trump's use of emergency tariff powers under IEEPA. On Thursday, Germany's statistics agency will publish a full-year 2025 GDP estimate, offering insight into Q4 growth, while the UK's November GDP data is released.

The year 2026 has begun with significant developments, particularly in geopolitics rather than economics. In our latest report, Geopolitical Radar: What's next after US assault on Venezuela?, 9 January, we explore these dynamics further. We kindly invite you to share your insights by participating in our Reader Prediction Survey 2026.

Economic and market news

What happened over the weekend

In the US, Fed Reserve Chair Powell is under investigation regarding his testimony last summer about the central bank's building renovation project. In a video statement released last night, Powell described the investigation as a pretext for Trump's ongoing efforts to pressure the Fed to lower interest rates and undermine its independence.

In geopolitics, Iran warned the US against military intervention amidst widespread protests, following Trump's statement that Washington is 'ready to help'. As noted in our Geopolitical Radar, the US may target Iran's regime next. While June's bombing of nuclear facilities caused only a temporary setback, the US's access to Venezuelan oil may reduce concerns about Iranian retaliation. The ongoing protests in Iran could provide a pretext for US-Israeli intervention. According to US officials, Trump is set to be briefed on Tuesday regarding potential responses to the protests in Iran.

What happened Friday

In the US, the December jobs report came in close to expectations, with nonfarm payrolls (NFP) increasing by 50k jobs (consensus: 60k). The unemployment rate declined to 4.4% from 4.6%, supported by solid job growth (+232k) in the household survey and a shrinkage in labour supply (-46k), which explains the drop in the unemployment rate. Similar to the ADP survey, job growth was concentrated in a few sectors, particularly services such as leisure, hospitality, education, and healthcare, while the manufacturing sector recorded job losses (-8k).

On Friday, the preliminary January result of the University of Michigan survey showed that consumers' long-term inflation expectations (5-year) edged up slightly to 3.4% from 3.2% in December, while 1-year inflation expectations remained stable at 4.2%. Consumers showed slightly improved optimism, reflected in the recovery of both current conditions and future expectations in the consumer sentiment component. However, uncertainty around IEEPA tariffs persists and may influence sentiment going forward.

In Norway, core inflation rose slightly to 3.1% y/y in December, driven by higher food prices due to fewer pre-Christmas discounts compared to 2024. Imported inflation appears to be rising again, while domestic inflation remains around 4%. Rent inflation eased to 3.6%, despite signs of higher market-based rents. The December print of 3.1% y/y is marginally above Norges Bank's estimate from the December MPR (3.0%), but unlikely to affect expectations of a rate cut in June.

In Sweden, the GDP indicator for November showed robust growth, rising by 0.9% m/m and 2.7% y/y, driven primarily by the service sector. Private sector production (PVI) grew by 0.5% in November, with the service sector up by 0.7%, while the industrial sector declined by 0.1%. These results align with our forecast and further confirm the ongoing Swedish recovery, though volatility in the GDP indicator remains a consideration.

In the euro area, retail sales exceeded expectations in November, rising by 0.2% m/m (cons: 0.1% m/m) and 2.3% y/y, significantly above forecasted 1.6% y/y due to a major upward revision of October's figures. This is an encouraging sign, indicating that businesses and consumers are adapting well to external shocks such as tariffs.

Equities: Global equities had a strong day on Friday with the cyclicals outperforming the defensives. Tech was once again not in the top performers, extending the pattern we have observed since the start of the year. S&P500 rose 0.6%, Nasdaq +0.8%, Russell2000 +0.8% and Stoxx600 rising 1%. Materials was clearly the outperformer on Friday rising 1.8%. Year to date, Russell2000 has been off to a strong start rising almost 5%, well above the 1.5% rise in S&P500. Asian markets are in green this morning.

FI and FX: Over the weekend, the Federal Reserve was served with subpoenas from the Justice Department threatening a criminal indictment, related to Chairman Powell's testimony in Congress regarding the Fed headquarters' renovations. Chairman Powell has pushed back on this in a video and statement, saying that it is a consequence of the Fed setting monetary policy that will best suit the public, rather than the preferences of the US President. The dollar weakened on the news, with EUR/USD moving from a low of 1.1622 to 1.1663. Gold prices are about 1.5% higher and US equity futures are trading lower (S&P -0.6%). There has been no UST cash trading overnight as Japan has been closed.