US JOLTs report to set the stage for tomorrow's Fed decision

In focus today

In the US, the delayed September JOLTs report is finally due for release in the afternoon. The number of job openings is a key measure of labour demand for the Fed, and the release will gather extra attention in light of the FOMC rate decision tomorrow. NFIB's small business optimism index for November and ADP's weekly private sector employment estimate will also be released today.

In Denmark, we expect foreign trade data and the current account for October. It will be interesting as exports remain the key driver of growth in Denmark.

In China, overnight, we will see CPI for November, which is expected to move more into positive territory (cons: 0.7% y/y, prior: 0.2% y/y). Core inflation has moved higher over the past six months as well. China still suffers from deflationary pressures in the producer prices, though, and PPI is expected to stay around -2.0% y/y in November.

Economic and market news

What happened overnight

In Australia, the Reserve Bank held its cash rate at 3.60%, citing upside inflation risks and recovering demand. Governor Michele Bullock noted the board is considering the likelihood of rate hikes in 2026 and has not ruled out an increase as soon as its next meeting in February. The move resulted in higher yields and a slightly stronger AUD.

What happened yesterday

In the US, President Trump announced that Nvidia's H200 chips will be allowed for export to China, with Nvidia required to pay a 25% fee on sales, up from the initial 15%. Trump claimed that President Xi reacted positively to the decision, despite China expressing scepticism about such a deal last week. The decision has faced criticism from US lawmakers, who raised concerns over national security and the risk of the chips being used for military purposes in China.

In the euro area, the December Sentix indicator came in slightly better than expected at -6.2 (cons: -7.0, prior: -7.4), indicating investors have gotten less pessimistic about the economic recovery. Given how Sentix is the first sentiment indicator for December, the rise could signal improvements in other sentiment indicators to be released this month.

In Germany, industrial production increased by 1.8% m/m in October, significantly exceeding expectations and marking the second consecutive monthly rise. Growth was driven by construction and manufacturing, while the automotive sector detracted. Despite this sign of short-term stabilisation, soft indicators remain cautious. The Ifo Index fell in November as weaker expectations outweighed a slight improvement in the current assessment, and the Manufacturing PMI dropped to 48.2, its sharpest contraction since February. This highlights that while production shows improvement, weak demand and sentiment suggest recovery remains dependent on the impact of fiscal easing measures.

Equities: Equities had a slow start to the week and generally ended somewhat lower. The S&P 500 closed down 0.4% and the Stoxx 600 slipped 0.1%. Interestingly, the selling was again concentrated in defensives, similar to Friday. Hence, it was a slow day but not risk off emerging. Futures are little changed this morning.

One standout style yesterday was momentum, which has regained traction both on the day and over the past two weeks. One driver is the ongoing TPU-vs-GPU battle between Alphabet and Nvidia, which appears to have stalled. Alphabet fell 2% yesterday, while Nvidia and Microsoft both gained around 2%. After the close, the Trump administration announced that some of Nvidia's chip exports (H200 AI chips) to China may resume, which might have contributed to the rotation.

Another notable sector is health care: A top performer over the past three months—up roughly 8% in global terms. However, it has also been the sector investors have found financing in during the recent rebound, falling about 3% the last two weeks. This contributes to the divergence between defensives and cyclicals, both in risk-off and risk-on phases. Strong recent performance has narrowed global health care's valuation discount to global equities from 20% earlier this year to about 9% today. That is still one standard deviation below the 10-year average of 0%, and so we continue to recommend an overweight in this sector but admit that the upside has declined.

FI and FX: Yields are grinding higher despite the expectations of a Fed rate cut on Wednesday. Markets are seemingly getting a bit worried that the cut will be delivered with a more hawkish communication, and risk sentiment has also been dented with small declines in US and Asian equity indices overnight. EUR/USD declined towards 1.1620 yesterday afternoon as US yields temporarily spiked around 16.00 CET. With yields subsequently moving lower, EUR/USD settled around 1.1640-1.1650. The RBA kept the policy rate on hold at 3.60% as widely expected and signaled that risks from here are on the upside, resulting in a bearish steepening of the curve with the 2y point rising 9bp and the 10y rising 5bp, along with a stronger AUD.