Taking the temperature on consumer sentiment

In focus today

• Following the large batch of Central Bank meetings yesterday, attention turns to taking the temperature of consumer well-being through data releases on consumer confidence and retail sales. Both figures are released in the morning for Denmark, Sweden and Germany, while consumer confidence figures are out later in the day for the euro area and the US.
• In Sweden, the Economic Tendency Survey (ETS) is released. The main indicator for economic sentiment increased for a fifth consecutive month in November to a level above 100. We expect another print above the 100-level, re-affirming the positive sentiment. Our optimistic growth outlook for 2026 is contingent on a continued improvement in consumer sentiment.
• In Norway, we expect the seasonally adjusted unemployment rate to remain unchanged at 2.2% in December, but with the number of unemployed persons rising marginally. Keep an eye on new vacancies as well, as demand for labour still looks strong.
• The Finnish State Treasury will publish their funding outlook for 2026. We expect that they will issue some EUR 21-22bn in RFGBs and EUR 2-3bn in their EMTN program. Hence, a total of EUR 23-24bn in long-term debt. However, given yesterday's upward revision of the budget deficit due to additional defence expenditure that was supposed to be due in 2025 and has been pushed to 2026, then there is upward risk to our forecast. 
• It is crunch time for the French 2026 budget. The parliament is set to vote on the aggregate finance bill (PLF) and it appears difficult to make a sufficient compromise that could be approved. However, many parties would rather move on from the troubling finance bill instead of 'kicking the can' to the beginning of 2026. France's revised fiscal plans for 2026 now anticipate a budget deficit of 5.3% of GDP, notably higher than the initially proposed 4.7% of GDP deficit. Without a budget agreement this week, France will not face a US style government shutdown and can extend the 2025 budget into 2026, while negotiations continue in January like we saw last year. Regardless of the outcome, we expect a limited market reaction except for the case where a new parliamentary election is called, which at the current momentum seems unlikely.

The Danske Morning Mail will be on break until 2 January 2026. We wish you a merry Christmas and a happy New Year.

Economic and market news

What happened overnight

In the Ukraine war, the EU has agreed to lend Ukraine EUR 90bn. The funds will be raised through a loan in capital markets, secured against the EUs shared budget. Ukraine will only have to pay back the loan after Russia has paid reparations. The proposal to use frozen Russian assets did not immediately succeed, but it was suggested that they could be used to repay the loan if no reparations to Ukraine are paid. Hence, there may an increase in the funding for EU, which just recently published their funding outlook for 2026, where the increase their maximum of borrowing from EUR 200bn from EUR 170bn in 2025.

In Japan, the Bank of Japan (BoJ) hiked its policy rate by 0.25bp to 0.75%, the highest level since 1995. In its statement, the BoJ recognises the diminishing risk from US trade policies and highlights its confidence that wages will continue to increase and add further to price pressures. The central bank also states that it still views the policy stance as significantly accommodative and it will continue to raise rates if the October outlook is confirmed. The market reaction has been muted so far. We will listen in later this morning, when Governor Ueda elaborates. The November CPI increased by 2.9% y/y, slightly down from 3.0% in October but within expectations. The core measure (excl. fresh food) stayed at 3.0% y/y.

What happened yesterday

In the euro area, the ECB also kept its policy rates unchanged, leaving the deposit facility rate at 2.0% as expected. The staff projections were revised up for GDP growth across the board and inflation in 2026. The revisions were a larger than expected surprise, however at the press conference, ECB President Lagarde calmed speculations about future interest rate hikes though her "meeting by meeting" approach. We maintain our call that the ECB will leave the deposit rate unchanged at 2.00% throughout both 2026 and 2027. For more details, see our ECB Review - In an even better place, 18 December.

The German Debt Office (Finanzagentur) published their funding outlook for 2026. They plan to issue a record amount of bonds and bills - EUR 512bn (including Green bonds). This is funded through EUR 318bn in German government bonds sold at auctions, EUR 16-19bn in Green bonds, which include a new 15Y Green bond (issued through syndication) and finally, Bubills of EUR 176bn.

In the US, the delayed November CPI release surprised to the downside by quite a margin. Headline inflation slowed to 2.7% y/y (cons: 3.1%) from 3.0% in Sep. and core inflation to 2.6% y/y (cons: 3.0%) also from 3.0% in Sep. The market reaction ended up being relatively muted, which could be caused by changes in shelter prices, the government shutdown and Black Friday. If this was the case, inflation should rebound in December. For the details of our assessment, see our latest overview of global inflation developments, the Global Inflation Watch - Diverging inflation trends, 18 December.

In Sweden, the Riksbank stayed on hold as expected, keeping the policy rate at 1.75%. The policy rate path was revised marginally and by less than we had expected. In the press conference, Riksbank Governor Thedéen said he expected the Riksbank to be forward looking next year, smoothing over spot deviations caused by e.g. the upcoming VAT reduction.

In Norway, Norges Bank left the deposit rate unchanged at 4.00% as widely expected. The central bank signalled that it would keep the door open for interest rate cuts if the economy evolves broadly as projected in the year ahead. The rate path in the new monetary policy report was adjusted downwards but less than we had expected and indicates no probability for a rate cut in March and roughly 1-2 cuts in 2026 as whole.

In the UK, the Bank of England cut the Bank Rate to 3.75% from 4.00% as expected. The Monetary Policy Committee vote split was also in line with expectations, as 5 members voted for reducing the Bank Rate to 3.75% and 4 members voted to maintain the Bank Rate at 4.00%. Judging the guidance, we think the Bank Rate is likely to continue on a gradual downward path. But further policy easing will become a closer call. Bank of England review - Split committee cuts Bank Rate, 18 December.

 Equities: Global equities had a strong session yesterday, rising 0.7%, with cyclical sectors clearly outperforming defensives. Consumer discretionary and communication services topped the performance table, while defensive sectors underperformed. In the US, the S&P 500 closed 0.8% higher, the Nasdaq gained 1.4%, Russell 2000 advanced 0.6%, and the Stoxx 600 rose 1.0%. Overnight, Asian equity markets are trading in the green across the board, supporting a constructive risk tone to end the week.

FI and FX: It was a fairly volatile day in the European fixed income market given a somewhat hawkish ECB as well as a record amount of issuance from Germany in 2026. However, lower than expected US inflation data send bond yields lower and we ended the day a few bp lower in 10Y Germany and 3bp lower in 10Y Treasuries. Furthermore, the BTPS-Bund spread tightened and there was a general spread compression between core-EU and the semi-core/periphery. This is the last edition of the FI and FX Daily brief. We will return on 5 January 2026.