Warmer data in a cold environment but unlikely to change ECB thinking

EU mid-market update: Warmer data in a cold environment but unlikely to change ECB thinking; Week ahead highlighted by US jobs report, NVIDIA CES keynote.

Notes/observations

- Services PMI across Europe surprise to the upside, pushing back against trader expectations for amount of ECB rate cuts in 2025 while German state of Hesse inflation was above estimates for national reading later and higher than month ago levels. ECB did forecast a slight uptick of inflation at end-2024. Is the data a sign of stagflation, a reversal back into growth and a halt to monetary easing cycle, or just a seasonal anomaly? Central banks likely to wait until Trump transition plays out before making predictions.

- France CAC40 outperforms due to technical bounce from recent selloff and optimistic comments from budget minister about passing budget through parliament.

- US Speaker Johnson following confirmatory vote on Friday vowed the bill addressing a range of Pres-elect Trump’s priorities to be voted out of the US House in April 2025 via the reconciliation process, meaning Republicans can pass the legislation without Democratic votes.

- Japan Nikkei 225 underperformed following market closures for Japan last week and playing catch up to year end global selloff.

- Cold stormy weather weighing on travel/leisure sector in Europe due to flight cancellations and lifting Natural Gas prices across both US and Europe.

- ASML bidding after Foxconn reported revenue for Dec and 2024; AI stocks overall are higher in US premarket after Microsoft announced on Friday some $80B investment on AI-enabled data center in FY25; Sam Altman said OpenAI is now confident how to build AGI, while NVIDIA’s CEO Huang to give CES keynote later tonight.

- Asia closed mixed with KOSPI outperforming +1.9%. EU indices are -0.2% to +0.4. US futures are +0.1-0.7%. Gold -0.2%, DXY -0.4%; Commodity: Brent -0.2%, WTI -0.3%; Crypto: BTC +1.3%, ETH +0.9%.

Asia

- Australia Dec Final Services PMI (confirmed its 11th month of expansion (50.8 v 50.4 prelim).

- Japan Dec Final Services PMI registered its confirms 2nd month of expansion (50.9 v 51.4 prelim).

- China Dec Caixin PMI Services registered its 23rd month of expansion (52.2 v 51.4e).

- China PBOC said to have 'ample tool kits and experience' to react to Yuan currency depreciation (Reminder in early Dec reports circulated that China Top policy makers were considering CNY currency (Yuan) weaken in 2025 amid Trump's tariff threat. PBOC said to have considered the possibility the yuan could drop to 7.50 level to US dollar to counteract any trade shocks).

- Japan PM Ishiba noted that was not currently considering a broader coalition agreement.

- BOJ Gov Ueda noted that the virtuous cycle gradually strengthened last year; Reiterated stance that would raise rates if economic improvements continued.

Europe

- Various economists believe that ECB was 'at risk' of falling behind the curve on policy easing as it has been too slow to cut rates.

- Austria Nationalist right said to be 'closer' to power; Austria President planned to meet with Freedom Party's Kickl for chance to form govt.

- British Chamber of Commerce (BCC): Business confidence has slipped to its lowest level since the aftermath of the mini-Budget in Autumn 2022.

- Chancellor of the Exchequer (Fin Min) Reeves said to be facing a £6.4B blow from rising gilt yields. Situation threatening to throw her tax and spending plans into disarray.

Americas

- House Speaker Johnson vowed ambitious bill addressing a range of Pres-elect Trump’s priorities will be voted out of the US House in April 2025.

- Fed's Kugler (voter) noted that ended 2024 in good place; Disinflation continued while labor market remained resilient. Not at 2% target yet but definitely aiming still to get there.

- Fed’s Daly (non-voter for 2025) noted that despite significant progress in lowering price pressures over the past two years, inflation remained “uncomfortably above our target.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.13% at 508.86, FTSE -0.22% at 8,205.80, DAX +0.39% at 19,987.18, CAC-40 +0.51% at 7,319.69, IBEX-35 -0.25% at 11,622.43, FTSE MIB +0.24% at 34,208.00, SMI +0.09% at 11,615.90, S&P 500 Futures +0.43%].

Market focal points/key themes: European indices open generally higher and; resumption of regular trading volumes in the new year looks to easing expectations from the ECB ahead of key data this week; among sectors leading the way higher are technology an industrials; lagging sectors include consumer discretionary and materials; tech sector getting boost after Microsoft said it would spend $80B on AI data center; focus on German flash CPI later in the day; earnings expected in the upcoming US session include Commercial Metals.

Equities

- Consumer discretionary: Hermes [RMS.FR] +2.0% (Stifel Nicolaus raised to buy).

- Consumer staples: Unilever [ULVR.UK] -2.0% (RBC cuts to underperform), TomTom [TOM2.NL] +5.0% (partnership with Esri to integrate global map and traffic data into ArcGIS's geospatial platform).

- Healthcare: Medacta [MOVE.CH] +5.5% (Morgan Stanlay raised to overweight).

- Industrials: Volkswagen [VOW3.DE] +2.5% (XPENG and Volkswagen Group China to Jointly Build One of the Largest Super-Fast Charging Networks in China), Rolls-Royce [RR.UK] -3.5% (CitiGroup cuts to neutral), Alstom [ALO.FR] -0.5% (prelim Q3 orders).

- Technology: ASML [ASML.NL] +4.5%, STMicroelectronics [STM.FR] +4.0% (Microsoft expects to spend $80B on AI data centers in 2025; readacross from Foxconn Dec sales; Nvidia CES keynote later today; Sam Altman's blog post), Sartorius AG [SRT.DE] +3.5% (JPMorgan’s Positive Catalyst Watch), Spectris [SXS.UK] +2.5% (HSBC raised to buy).

Speakers

- France Budget Min Lombard reiterated stance to seek cost savings to cut deficit; Hoped to have budget in Feb.

Currencies/fixed income

- USD began the week with a slight bout of technical correction to its recent strengthening trend as trading conditions begin to normalize.

- Czech Krona (CZK) continues firming up against US dollar after Czech GDP upwards revision on Friday.

- Mexican Peso (MXN) and Canadian dollar (CAD) underperform on Trump tariff concerns.

- EUR/USD drifted higher as various PMI Services PMI readings were revised slightly higher. Pair approached the 1.0360 level during the session.

- GBP/USD higher by 0.5% at test above 1.2480.

- USD/JPY at 157.65 by mid-session. BOJ Gov Ueda noted that the virtuous cycle gradually strengthened last year; and reiterated stance that would raise rates if economic improvements continued.

Economic data

- (NL) Netherlands Dec Producer Confidence: -1.6 v -1.8 prior.

- (NL) Netherlands Nov Retail Sales Y/Y: 2.2% v 2.3% prior.

- (ZA) South Africa Dec PMI (whole economy): 49.9 v 50.9 prior (1st contraction in 5 months).

- (ES) Spain Dec Services PMI: 57.3 v 54.1e (16th month of expansion); Composite PMI: 56.8 v 54.3e.

- (TW) Taiwan Dec Foreign Reserves: $576.7B v $578.0B prior.

- (IT) Italy Dec Services PMI: 50.7 v 50.0e (moved back into expansion); Composite PMI: 50.2e v 47.7 prior.

- (FR) France Dec Final Services PMI: 49.3 v 48.2 prelim (confirmed 5th month of contraction); Composite PMI: 47.5 v 46.7 prelim.

- (DE) Germany Dec Final Services PMI: 51.2 v 51.0 prelim (confirmed move back into expansion); Composite PMI: 48.0 v 47.8 prelim.

- (EU) Euro Zone Dec Final Services PMI: 51.6 v 51.4 prelim (confirmed move back into expansion); Composite PMI: 49.56 v 49.5 prelim.

- (DE) Germany Dec CPI Hesse M/M: +0.7% v -0.3% prior; Y/Y: 2.7% v 2.0% prior.

- (UK) Dec New Car Registrations Y/Y: -0.2% v -1.9% prior.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 439.6B v 445.7B prior; Domestic Sight Deposits: 426.6B v 436.4B prior.

- (EU) Euro Zone Jan Sentix Investor Confidence: -17.7 v -17.9e.

- (UK) Dec Final Services PMI: 51.1 v 51.4 prelim; Composite PMI: 50.5 v 50.5 prelim.

- (UK) Dec Official Reserves Changes: -$1.3B v -$1.0B prior.

Fixed income issuance

- None seen.

Looking ahead

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

- 05:30 (DE) Germany to sell combined €2.0B in 6-month Bubills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month bills.

- 06:00 (IL) Israel to sell combined ILS3.55B in 2027, 2028, 2029, 2033, 2035 and 2052 bonds.

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

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

- 06:30 (TR) Turkey Nov Real Effective Exchange Rate (REER): No est v 67.03 prior.

- 06:30 (CL) Chile Central Bank (BCCh) Dec Minutes.

- 07:00 (MX) Mexico Dec Consumer Confidence: No est v 47.7 prior.

- 07:00 (MX) Mexico Dec Vehicle Domestic Sales: No est v 148.0K prior.

- 08:00 (DE) Germany Dec Preliminary CPI M/M: +0.3%e v -0.2% prior; Y/Y:2.4%e v 2.2% prior.

- 08:00 (DE) Germany Dec Preliminary CPI EU Harmonized M/M: +0.5%e v -0.7% prior; Y/Y: 2.6%e v 2.4% prior.

- 08:00 (CZ) Czech Dec Budget Balance (CZK): No est v -259.2B prior.

- 08:00 (BR) Brazil Dec Services PMI: No est v 53.6 prior; Composite PMI: No est v 53.5 prior.

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

- 09:00 (FR) France Debt Agency (AFT) to sell €5.9-7.5B in 3-month, 6-month and 12-month bills.

- 09:00 (IL) Israel Central Bank (BoI) Interest Rate Decision: Expected to leave Base Rate unchanged at 4.50%.

- 09:15 (US) Fed’s Cook.

- 09:30 (CA) Canada Dec Services PMI: No est v 51.2 prior; Composite PMI: No est v 51.5 prior.

- 09:45 (US) Dec Final S&P Services PMI: 58.5e v 58.5 prelim; Composite PMI: No est v 56.6 prelim.

- 10:00 (US) Nov Factory Orders: -0.4%e v +0.2% prior; Factory Orders (ex-transportation): No est v 0.1% prior.

- 10:00 (US) Nov Final Durable Goods Orders: -0.4%e v -1.1% prelim; Durables (ex-transportation): +0.3%e v -0.1% prelim; Capital Goods Orders (non-defense/ex-aircraft): 0.1%e v 0.7% prelim; Capital Goods Shipments (non-defense/ex-aircraft): 0.3%e v 0.5% prelim.

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

- 13:00 (BR) Brazil Dec Monthly Trade Balance: $3.4Be v $7.0B prior; Total Exports: $23.9Be v $28.0B prior; Total Imports: $20.9Be v $21.0B prior.

- 17:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 83.9 prior.

- 18:50 (JP) Japan Dec Monetary Base Y/Y: No est v -0.3% prior.

- 19:01 (UK) Dec BRC LFL Sales Y/Y: -0.2%e v -3.4% prior.

- 19:30 (AU) Australia Nov Building Approvals M/M: -1.0%e v +4.2% prior; Private Sector Houses M/M: No est v -5.2% prior.

- 20:00 (PH) Philippines Dec CPI M/M: 0.3%e v 0.4% prior; Y/Y: 2.6%e v 2.5% prior.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 22:35 (JP) Japan to sell 10-year JGB Bonds.