Trump narrows Fed chair choices to Warsh and Hassett

EU mid-market update: ECB, BOE and BOJ rate decisions this week; Trump narrows Fed chair choices to Warsh and Hassett.

Notes/Observations

- Kicking off last full trading week before Christmas holiday market hours, European indices are modestly higher, led by basic resources and banks while semiconductors drag on tech.

- Busy macro session on the cards for Thurs, with interest rate decisions from Sweden, Norway, BOE, ECB and BOJ late (Asia Fri). Money markets are pricing 85% chance of BOE rate cut, with another split vote among MPC. Key UK jobs and inflation report will drop earlier in week on Tues and Weds respectively. BOJ is expected to hike rates.

- Pres Trump said his shortlist to succeed Fed Chair Jerome Powell when Powell’s chair term ends in May 2026 has effectively narrowed to Kevin Hassett and Kevin Warsh - the “two Kevins.” Kalshi’s Fed chair nominee market currently prices Hassett at about 54% (v 80% last week) versus Warsh about 39%.

- Instead of usual Friday, the combined US October/November Nonfarm Payrolls report will be released tomorrow. It is likely to be unusually noisy and distortion-prone because late collection from smaller employers and an off-schedule/missing household survey can introduce large errors and statistical quirks. Besides Fed Chair Powel, Fed’s Williams and Fed’s Waller stance on the reading may turn important for any January rate cut chance.

- Oracle reportedly signed about $150B of new data center lease commitments in the three months through November, while financial press reported some OpenAI-related sites slipped to 2028 from 2027 - something Oracle disputed, saying milestones remain on track and timelines were jointly agreed with OpenAI. With the AI buildout increasingly debt-funded, the market is now focused on Oracle CDS and whether Oracle returns with another jumbo debt offering (after its recent mega issuance) to help finance the ramp.

- Oil analysts see oversupply and positive peace efforts to end Ukraine war as weights, but escalating Venezuelan-US tensions and signs of uptick of demand in China are helping lift the price this morning.

- Bitcoin trapped below $90K as rotation out of AI continues (more about the expansion of breadth into other sectors and small caps). Sentiment not helped by Oracle and Broadcom earnings last week, failing to meet lofty expectations.

- Asia closed lower with KOSPI underperforming -1.8%. EU indices +0.2-1.0%. US futures +0.4-0.5%. Gold +1.0%, DXY -0.1%; Commodity: Brent +0.1%, WTI +0.1%; Crypto: BTC +0.0%, ETH +1.5%.

Asia

- China Nov New Home Prices M/M: No est v -0.5% prior; Used Home Prices M/M: No est v -0.7% prior.

- China Nov Retail Sales Y/Y: 1.3% v 2.9%e.

- China Nov Industrial Production Y/Y: 4.8% v 5.0%e.

- China Nov YTD Fixed Urban Assets Y/Y: -2.6% v -2.3%e.

- China Nov Surveyed Jobless Rate: 5.1% v 5.1% prior.

- China Nov YTD Property Investment Y/Y: -15.9% v -15.4%e.

- Japan Q4 Tankan Large Manufacturing Index: 15 v 15e; Outlook: 15 v13e; reinforces BOJ rate hike view.

- Japan Q4 Large Non-Manufacturing Index: 34 v 35e; Outlook: 28 v 28e v 28 prior; Large All Industry Capex: 12.6% v 12.1%e.

- Japan Q4 Tankan Small Manufacturing Index: 6 v 2e; Outlook: +2 v -1e.

- Japan Q4 Tankan Small Non-Manufacturing Index: 15 v 15e; Outlook: 10 v 9e.

- RBNZ Gov Breman commented that if economic conditions evolved as expected the OCR was likely to remain at its current level of 2.25% for some time.

- BOJ to start selling ETF holdings as early as Jan, a process expected to take decades to complete.

Global conflict/tensions

- US envoy Witkof commented that a lot of progress made at Berlin talks about possible Ukraine peace deal.

- Ukraine Pres Advisor noted that Ukraine/US team meeting on peace proposal in Berlin lasted >5 hours, and would continue Monday.

- Ukraine President Zelenskyy stated that he was ready to give up on demands for Nato membership in exchange for security guarantees from the US and Europe.

- Enlargement Commissioner Kos:Not the time to speculate on when Ukraine will join the EU.

- Hamas commented that Israel's assassination of a senior Hamas commander threatens the viability of the Gaza ceasefire.

Americas

- President Trump said he was leaning towards Warsh or Hassett for Fed Chair; Interest rates should be at 1% or lower a year from now; Next Fed Chair should consult with Trump on interest rates.

- Fed's Daly (non-voter 2026): This weeks Fed decision was not an easy choice.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.69% at 582.24, FTSE +0.80% at 9,726.15, DAX +0.27% at 24,277.06, CAC-40 +0.91% at 8,142.11, IBEX-35 +1.00% at 17,023.31, FTSE MIB +0.96% at 43,932.05, SMI +0.88% at 13,001.41, S&P 500 Futures +0.45%].

Market Focal Points/Key Themes: European indices opened generally higher and remained upbeat through the early part of the session; markets looking forward to interest rate decisions later in the week; among better performing sectors are materials and financials; lagging sectors include health care and telecom; Sika acquires Finja; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Next [NXT.UK] -0.5% (analyst downgrade), Barratt Redrow [BDEV.UK] -0.5% (UK FCA to focus on simplifying mortgage rules).

- Energy: Siemens Energy [ENR.DE] +1.5% (hearing analyst comments).

- Industrials: Porvair [PRV.UK] +1.5% (trading update), Rheinmetall [RHM.DE] -2.5% (US-Ukraine talks in Berlin).

- Telecom: Orange [ORA.FR] -1.0% (acquisition).

Speakers

- Swiss SECO Winter Economic Forecasts raised the 2026 GDP growth forecast from 0.9% to 1.1% and set 2027 GDP growth at 1.7%. SECO cut the 2026 CPI from 0.5% to 0.2% and set 2027 CPI at 0.5%.

- Swiss KOF Institute Winter Economic Forecast raised the 2026 GDP growth from 0.9% to 1.1% and raised the 2027 GDP growth from 1.6% to 1.7%. KOF cut the 2026 CPI from 0.5% to 0.3% while maintaining 2027 CPI at 0.6%.

- Thailand reportedly confirmed parliamentary elections to be held Sun, Feb 8th, 2026.

Currencies/fixed income

- USD began the week on soft footing ahead of a rash of key rate decisions that included the BOE, ECB and BOJ.

- EUR/USD at 1.1740 by mid-session as ECB was expected to keep its policy steady but upgrade both the inflation and growth prospects in its quarterly Staff Projections. Markets continued to view the next ECB move to be a rate hike somewhere down the road.

- GBP/USD staying below the 1.34 level as the BOE was expected to cut rate by another 25bps on Thurs. The move seen not as a done deal with key inflation and labor data out in the days before the MPC meeting. Markets currently pricing in 50bps of cuts thru 2026.

- USD/JPY at 155.00 area as strong Japanese Tankan data provided another reason for BOJ to hike rates later this week.

Economic data

- (FI) Finland Nov CPI M/M: -0.2% v -0.2% prior; Y/Y: -0.1% v -0.2% prior.

- (IN) India Nov Wholesale Prices (WPI) Y/Y: -0.3% v -0.7%e.

- (DE) Germany Nov Wholesale Price Index M/M: 0.3% v 0.3% prior; Y/Y: 1.5% v 1.1% prior.

- (DK) Denmark Nov PPI M/M: +1.7% v -0.4% prior; Y/Y: -1.5% v +0.1% prior.

- (NO) Norway Nov Trade Balance (NOK): 41.3B v 56.1B prior.

- (CH) Swiss Nov Producer & Import Prices M/M: -0.5% v -0.3% prior; Y/Y: -1.6% v -1.7% prior.

- (ES) Spain Oct Home Sales Y/Y: -2.5% v +3.8% prior.

- (TR) Turkey Nov Central Gov't Budget Balance (TRY): +169.5B v -223.2B prior.

- (HK) Hong Kong Q3 Industrial Production Y/Y: 5.4% v 0.9% prior.

- (HK) Hong Kong Q3 PPI Y/Y: 7.7% v 4.0% prior.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 463.5 v 461.9B prior; Domestic Sight Deposits: 444.7B v 440.5B prior.

- (IS) Iceland Nov International Reserves (ISK): 989B v 954B prior.

- (PL) Poland Nov Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 2.5% v 2.4% prelim.

- (CZ) Czech Oct Current Account Balance (CZK): 16.8B v 16.0Be.

- (IT) Italy Oct General Government Debt: €3.132T v €3.081T prior.

- (CA) Canada Nov Existing Home Sales M/M: -0.6% v -1.0%e.

- (EU) Euro Zone Oct Industrial Production M/M: 0.8% v 0.8%e ; Y/Y: 2.0% v 1.9%e.

Fixed income issuance

- (NO) Norway sold NOK6.0B vs. NOK6.0B indicated in 12-month bills; Avg Yield: 4.00% v 3.95% prior; bid-to-cover: x v 1.53x prior.

Looking ahead

- (NG) Nigeria Nov CPI Y/Y: 15.0%e v 16.1% prior.

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

- 06:00 (IL) Israel Nov Unemployment Rate: No est v 3.0% prior.

- 06:00 (BR) Brazil Dec FGV Inflation IGP-10 M/M: 0.1%e v 0.2% prior; Y/Y: No est v 0.3% prior.

- 06:00 (IL) Israel to sell bonds.

- 06:00 (TR) Turkey to sell TLREF Indexed Bonds.

- 06:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 06:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 08:00 (PL) Poland Oct Current Account Balance: +€0.3Be v -€0.7B prior; Trade Balance: -€0.9Be v -€1.0B prior; Exports: €31.6Be v €30.1B prior; Imports: €32.6Be v €31.1B prior.

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

- 08:15 (CA) Canada Nov Annualized Housing Starts: 250.0Ke v 232.8K prior.

- 08:30 (US) Dec Empire Manufacturing: 10.0e v 18.7 prior.

- 08:30 (CA) Canada Oct Manufacturing Sales M/M: -1.1%e v 3.3% prior.

- 08:30 (CA) Canada Nov CPI M/M: 0.1%e v 0.2% prior; Y/Y: 2.3%e v 2.2% prior; CPI Core-Median Y/Y: 2.9%e v 2.9% prior; CPI Core-Trim Y/Y: No est v 3.0% prior; Consumer Price Index: No est v 165.3 prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €6.2-7.8B in 3-month, 6-month and 12-month bills.

- 09:30 (JP) Fed’s Miran.

- 10:00 (US) Dec NAHB Housing Market Index: 39e v 38 prior.

- 10:00 (PE) Peru Nov Unemployment Rate: 5.8%e v 5.7% prior.

- 10:00 (PE) Peru Oct Economic Activity Index (Monthly GDP) Y/Y: 3.6%e v 3.9% prior.

- 10:00 (CO) Colombia Oct Retail Sales Y/Y: 11.6%e v 14.4% prior; Manufacturing Production Y/Y: 2.7%e v 5.2% prior; Industrial Production Y/Y: 2.3%e v 3.7% prior.

- 10:00 (MX) Mexico Central Bank Economist Survey.

- 10:30 (US) Fed’s Williams.

- 11:30 (IL) Israel Nov CPI M/M: -0.4%e v +0.5% prior; Y/Y: 2.5%e v 2.5% prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week.

- 16:45 (NZ) New Zealand Nov Food Prices M/M: No est v -0.3% prior.

- 17:00 (AU) Australia Dec Preliminary PMI Manufacturing: No est v 51.6 prior; PMI Services: No est v 52.8 prior; PMI Composite: No est v 52.6 prior

- 17:15 (AU) RBA’s Jones.

- 18:30 (AU) Australia Dec Westpac Consumer Confidence: No est v 103.8 prior.

- 18:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 83.5 prior.

- 19:30 (JP) Japan Dec Preliminary PMI Manufacturing: No est v 48.7 prior; PMI Services: No est v 53.2 prior; PMI Composite: No est v 52.0 prior.

- 21:00 (NZ) New Zealand Nov Non Resident Bond Holdings: No est v 60.3% prior.

- 22:00 (KR) South Korea Oct M2 Money Supply M/M: No est v 0.7% prior; “L” Money Supply M/M: No est v 1.0% prior.