Riksbank minutes show members are eyeing a rate cut in January or March

In focus today

From the US, the ISM Manufacturing index for December is due for release. The latest PMI survey and hard industrial production data have pointed towards subdued output growth. In the evening, Richmond Fed's Barkin will be on the wires.

In yesterday's version, we incorrectly stated that we expect the Bank of Japan to hold rates unchanged at 0.25% at the January meeting. This was an error. We expect them to raise interest rates by 25 basis points to 0.50%. We apologise for any confusion this may have caused.

Early on Monday, China will release Caixin composite and service PMIs for December.

Economic and market news

What happened overnight

In China, a government official said that China will increase funding from ultra-long treasury bonds sharply to enhance business investments and consumption-boosting initiatives. The initiatives should finance subsidies for durable goods like cars, appliances and digital products like cell phones, tablets, computers, etc. In December Reuters reported that Chinese policy makers had agreed to issue 3tn CNY worth of these special treasury bonds in 2025. A separate FT scoop is making a reference to anonymous PBOC sources, saying this year the central bank will take steps towards a more orthodox monetary policy, prioritising rate-setting and moving away from loan growth -based targets. Last year, the PBOC clarified that it's main policy objective would be the seven-day repo rate, currently at 1.5%, which it is likely to cut further this year.

What happened yesterday

In Sweden, the minutes from the December Riksbank monetary policy meeting revealed that most Riksbank members are eyeing a cut in either January or March (Q1), rather than later during H1. On the exact timing, Jansson seemingly prefers January ahead of March and Bunge makes a similar comment. Breman said "beginning of 2025", while Thedéen and Seim seem to be on the more hawkish side, not specifying the exact timing but sticking to "H1 25". Our call is for the Riksbank to pause in January and cut in March (and June), but there is clear uncertainty about the exact timing and the minutes give some support to a January cut if anything. Current market pricing and the rate path suggesting a 50/50 distribution between January and March seem fair at this point. 

In the euro area, manufacturing PMI for December was revised marginally downwards from 45.2 to 45.1 in the final release. In November it was 45.2. The final service PMIs will be released on Monday next week.

In the UK, manufacturing PMI fell to 47.0 in December from 48.0 in November. The figure was revised down from the preliminary print of 47.3.

FI: 2025's first trading day ended with virtually unchanged yields after a minor rally earlier in the day, thus 10y bunds ended 1bp higher at 2.37%. The rally in the morning seemed to be swap leg driven, dragging the Bund ASW spread briefly into negative territory albeit it ended the day at around 0.5bp. The turnaround in yields came after lower than expected US jobless claims. ECB's Lane speaks tonight.

FX: The broad USD continues to trade on a strong footing, significantly appreciating against both the EUR and GBP in yesterday's session, pushing EUR/USD down to 1.0250 and GBP/USD below 1.24. USD/JPY remains rangebound in the 157-158 range as uncertainty lingers around potential FX intervention and a possible January BoJ rate hike. In the Scandies, the NOK saw notable gains against the EUR, benefitting from a rising oil price, bringing EUR/NOK to around 11.70, while EUR/SEK remains steady near 11.45.