US December PPI sets stage for CPI tomorrow

In focus today

From the US, the December PPI data will provide markets with an early sense of what to expect when the key December CPI is released tomorrow afternoon. We will also keep an eye on the NFIB's December small business optimism index after a notable uptick in November following the election results. In the evening, Kansas City Fed's Schmid (voter) and NY Fed's Williams (voter) will be on the wires.

In Sweden, Riksbank Governor Aino Bunge is participating in a seminar at the Stockholm Chamber of Commerce where she will discuss the outlook for the Swedish and Global economies. There may be the odd snippet of monetary policy discussions as well.

Economic and market news

What happened overnight

In Sweden, the house price data from this morning reveals that the Swedish housing market concluded 2024 with decreasing prices in December, showing -1.1% m/m for condominiums and -0.8% for houses. However, for the full year 2024, we saw an uptick of 5.9% and 5.0% y/y, respectively, fully in line with our in-house housing indicator.

Progress in Gaza ceasefire talks: Negotiations for a ceasefire in Gaza have taken a step forward as outgoing US president Biden said that parties were on the brink of reaching an agreement (see Reuters). While the deal would include the release of 33 hostages and phased withdrawal of Israeli troops, it reportedly still lacks concrete plan for the future governance of Gaza. 

FX top trades 2025: This morning, we published our annual FX Top Trades for 2025, in which we discuss both tactical and strategic drivers of currency markets with 8 trade ideas. 

What happened yesterday

The continuous rise in bond yields slowed down yesterday amid quiet macro data calendar. Looking ahead, we still expect yields to move lower over the coming year in our updated forecasts out yesterday. We anticipate an ECB depo rate of 1.5% by September and a Fed Funds target of 3-3.25% by March 2026. Our 12-month forecast for the 10Y US Treasury yield remains at 4.20%, but we have increased the 10Y Bund target from 2.00% to 2.25%.  See Yield Outlook - The Pendulum has swung too far, 13 January.

Equities: Global equities were lower yesterday; however, sentiment improved significantly during the day, with most US indices ending higher. This is a classic example of how a negative reaction to a strong labour market report is typically not a long-lasting response for investors. This is also why we emphasise that the macro data we have received lately from the US has been very positive from an equity perspective, despite equities not having performed particularly well. That said, it is important to note that it was not just cyclicals making a strong comeback yesterday. Some growth stocks, which are sensitive to yields, are attracting increased awareness from investors. In the US yesterday, the Dow rose by 0.9%, the S&P 500 increased by 0.2%, the Nasdaq fell by 0.4%, and the Russell 2000 rose by 0.2%. Most Asian markets are higher this morning, with the exception of Japan. Both European and US futures are higher this morning.

FI: With very little news to trade on, markets yesterday extended the upward move in yields following Friday's super strong NFP figures. The 10Y US Treasury yield rose a couple of basis points, getting closer to the 4.80% mark, which added renewed pressure on risky assets. Long-end EGB yields also edged up with peripherals such as Italy underperforming. In the inflation space, yesterday's US announcement of aggressive sanctions on Russian oil added to the upward trend in energy prices. For the first time since October, Brent closed above 80 USD/barrel.

FX: Yesterday's session was characterised by a slight rally in treasuries, a stabilisation in risk appetite and a further rally in oil. This lead oil FX incl. NOK to be among the outperformers while the USD saw a slight setback with EUR/USD rebounding back to the 1.0250 level on tighter rate spreads. EUR/GBP also edged lower during the US hours while USD/JPY moved sideways. Finally, EUR/SEK moved back above 11.50.