BoJ with dovish commentary – Bank of England decision in focus

EU mid-market update: Fed's hawkish pivot on next years inflation expectations and US govt funding saga give Wall Street a reality check; Europe caught the sell off bug; BOJ with dovish commentary; Bank of England decision in focus.

Notes/observations

- Europe sells off as it plays catch up to Wall Street after a hawkish rate cut by the Fed. FOMC cut 25bps as expected but SEP (dot plot) and Powell comments were very hawkish, triggering selloff, citing risk of elevated inflation.

- Flow of rate decisions throughout the session, with BOJ leaving policy unchanged. In the presser, Gov Ueda comments were dovish and he expressed caution on future rate hikes, needing to wait for wage and price data, including letting Trump tariffs play out. JPY (yen) collapsed, taking USD/JPY towards 157 handle; Chance for January rate hike decreased from 70% to 50%.

- Sweden cut 25bps and Norway left policy unchanged, both as expected. No real surprises with only minor terminology change.

- UK gilts launch higher ahead of BOE, 10-year yield up ~12bps at 4.68%, the highest since Oct 2023. FTSE100 at 1-month low. Reminder that there are updates to BOE staff projections and no post rate decision press conference by Gov Bailey.

- On US govt funding front, Punchbowl reports that Pres-elect Trump privately trashed House Speaker Johnson to senators, saying the speaker “mishandled” the situation; Latest reports suggesting the spending bill could be thrown out after Elon Musk released barrage of posts in X, which were highly critical of the components in the bill; Odds of a government shutdown from this Saturday have sharply increased: Since 1981, there have been four major US govt shutdowns with the last and longest one in 2018-2019 (34 days).

- Russia Pres Putin giving annual press conference over next several hours, before Russia Central Bank decision tomorrow.

- Micron's disappointing outlook, despite pretty bullish commentary during earnings call, weigh on chip names globally; Nike and FedEx (may also update on Freight unit spinoff) set to report results tonight.

- Looking further ahead, volume of corporate and macro news to fade as markets turn to Christmas holiday week.

- Asia closed lower with KOSPI underperforming -2.0%. EU indices are -1.2% to -1.6%. US futures are +0.3-0.4%. Gold +1.3%, DXY -0.1%; Commodity: Brent -0.1%, WTI -0.9%; Crypto: BTC -2.2%, ETH -5.1%.

Asia

- Bank of Japan (BoJ) left Target Rate unchanged at 0.25% (as expected) for its 3rd straight pause in the current phase of its tightening cycle. Vote to keep policy steady was not unanimous (8-1) with member Tamura dissenting with 25bps hike. Statement noted underlying CPI inflation was likely to be at a level that is generally consistent with the price stability target in 2nd half of Staff Projection period. Reiterated overall assessment that domestic economy had recovered moderately, although some weakness had been seen in part. Remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices.

- Australia Dec Consumer Inflation Expectation: 4.2% v 3.8% prior.

- New Zealand Q3 GDP Q/Q: -1.0% v -0.2%e; Y/Y: -1.5% v -0.4%e (**Note: officially falls into recession).

- New Zealand Dec ANZ Business Confidence: 62.3 v 64.9 prior.

Americas

- FOMC cut the Target Range by 25bps (as expected) for its 3rd cut under the easing cycle, Vote to cut by 25bps was not unanimous (11-1) with Hammack dissenting (**Note: does not vote in 2025). Statement noted that risks to inflation and employment goals were roughly in balance. Fed projections implied 50bps of rate cuts in 2025, another 50bps in 2026. Projections showed stronger growth and stronger inflation in 2025.

- Fed Chair Powell post rate decision press conference noted that the economy was remaining strong overall and the labor market was solid. Noted that the Dec was closer call [to cut], bu decided it was the right call; best decision to foster dual mandate. Slower pace of rate cuts reflected expectation of higher inflation.

- Government funding plan collapses as Trump makes new demands days before shutdown. President-elect came out against bipartisan stopgap measure after Elon Musk urged its rejection.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.20% at 508.26, FTSE -1.25% at 8,096.49, DAX -1.10% at 20,038.81, CAC-40 -1.23% at 7,293.49, IBEX-35 -1.38% at 11,457.00, FTSE MIB -1.05% at 34,039.00, SMI -1.54% at 11,461.40, S&P 500 Futures +0.43%].

Market focal points/key themes: European indices open down across the board and remained under pressure through the early hours of the session; all sectors start the day in the red; strong negative move seen as continuation of the drop in prior sessions on more hawkish than anticipated Fed; among less negative sectors are financials and telecom; sectors leading the way lower include real estate and utilities; SoftwareOne to acquire Crayon; focus on BOE rate decision later in the day; earnings expected in the upcoming US session include FedEx and Nike.

Equities

- Consumer discretionary: Douglas [DOUG.DE] -3.5% (Q4 results).

- Energy: Friedrich Vorwerk [VH2.DE] +2.5% (awarded low three-digit million euro range contract for the realisation of key parts of the WAD natural gas transmission pipeline in the low three-digit million euro range).

- Financials: Serco Group [SRP.UK] +5.5% (trading update; FY25 outlook), Barclays [BARC.UK] -2.5% (UK’s FCA has given lenders until Dec 2025 to respond to customer complaints regarding non-discretionary commissions on auto loans in motor finance probe).

- Healthcare: Roche [ROG.CH] -1.0% (Phase 2B study of Prasinezumab missed primary endpoint) - Industrials: Valneva [VLA.FR] +2.5% (enters licence agreement with Serum Institute of India to supply chikungunya vaccine to Asia).

- Technology: ASML [ASML.NL] -3.0% (Micron outlook), SoftwareONE [SWON.CH] +11.5% (confirms acquisition of Crayon).

- Utilities: Pennon Group [PNN.UK] +3.0% (Water Regulator Ofwat approves £104B upgrade to accelerate delivery of cleaner rivers and seas and secure long-term drinking water supplies for customers).

-Telecom: Vivendi [VIV.FR] -1.5% (ESN cuts to neutral).

Speakers

- ECB's Simkus (Lithuania) noted that the neutral rate was >1.75%; Inflation risks were balanced for 2025 but tilted to the downside for 2026.

- Sweden Central Bank (Riksbank) Policy Statement reiterated stance to possible cut once again during H1 2025; To carefully evaluate need for further rate adjustments. Domestic economic remained weak which provided a case for more 'tentative' approach to monetary policy. Outlook for inflation and economic activity remained uncertain.

- Sweden Central Bank Staff Projections raised the 2025 CPIF from 1.6% to 2.0% and also raised the 2025 Avg CPI from 0.4% to 0.7%. Projections cut 2025 Avg GDP from 1.9% to 1.8%.

- Norway Central Bank (Norges) Policy Statement noted that a restrictive monetary policy was still needed to stabilize Inflation around target. Time for easing was soon approaching; likely to be cut in March. Reiterated staff forecasts implied gradual reduction of policy rate from Q1 2025.

- Norway Central Bank Staff Projections raised 2025 Mainland GDP growth from 1.1% to 1.4% and raised the 2026 Mainland GDP growth from 1.3% to 1.4%. Projections cut 2025 CPI forecast from 3.0% to 2.7% and cut 2026 CPI from 2.8% to 2.7%.

- Norway Central Bank (Norges) Gov Bach post rate decision press conference noted that saw end-2025 Deposit Rate at 3.75%.

- Russia President Putin annual press conference noted that he saw 2024 GDP growth at 4.0% and 2025 GDP growth between 2.0-2.5%. He expressed concern that Inflation was 9.2-9.3% area. Country was moving towards its primary objectives in Ukraine conflict as situation was changing significantly.

- BOJ Gov Ueda post rate decision press conference noted that to decide timing of adjustment after checking data. To raise rate if economic outlook was realized. Stressed that needed a little bit more data on wage outlook. Needed to watch momentum towards next spring wage talks; Did not need "all data" to make policy change. Reiterated overall assessment that domestic economy was recovering moderately, although some weak moves are being seen. Expected price trend to rise gradually but must pay due attention to financial, FX markets impact on domestic economy and prices.

- Philippines Central Bank Policy Statement noted it would maintain a measured approach to its easing cycle. Inflation was projected to stay within target with expectations being well anchored. Risks to inflation were tilted to the upside seen from transport and power. Economic growth and domestic demand to remain firm.

- Philippines Central Bankupdated its Staff Projections which raised the 2025 Baseline CPI forecast from 3.2% to 3.3% and raised 2026 Baseline CPI forecast from 3.4% to 3.5%.

- Philippines Central Bank (BSP) Gov Remolona post rate decision press conference noted it would maintain easing posture but size of future moves to depend on data; no rate cut was too little.

- Taiwan Central Bank Policy Statement noted that the decision to keep policy steady was unanimous. Steady policy to help maintain price and financial stability. Expected economic growth to be mild next year; Saw risk of slowing Chinese economy. Noted that the policies of new US govt would be the most important factor next year (implying Pres-Elect tariff policy).

- Taiwan Central Bank Staff Projections maintained 2025 GDP growth from 3.1%. Projections maintained 2025 Headline CPI forecast at 1.9% and also kept the Core CPI forecast at 1.8%.

Currencies/fixed income

- USD maintained its firm tone in the aftermath of the Fed rate decision but did give of its best gains back ahead of the US morning.. A more hawkish Fed Dot Plot adjustment of seeing only two rate cuts in 2025 aiding the greenback.

- GBP/USD rose above 1.2650 area. BOE seen keeping policy steady as recent wage and CPI data likely making today’s decision easier.

- USD/JPY moved higher to test above 156.80 during the early EU session as BOJ Gov Ueda press conference was deemed ‘dovish’ as he stressed that needed a little bit more data on wage outlook. Needed to watch momentum towards next spring wage talks which diminished the likelihood of a Jan move.

Economic data

- (EU) Euro Zone Nov EU27 New Car Registrations: -1.9% v +1.1% prior.

- (NL) Netherlands Nov Unemployment Rate: 3.7% v 3.8%e.

- (DE) Germany Jan GfK Consumer Confidence: -21.3 v -22.5e.

- (CH) Swiss Nov Trade Balance (CHF): 5.4B v 8.0B prior; Real Exports M/M: -10.8% v +11.4% prior; Real Imports M/M: -2.8% v +0.9% prior; Watch Exports Y/Y: -3.8% v -2.1% prior.

- (PH) Philippines Central Bank (BSP) cut Overnight Borrowing Rate by 25bps to 5.75% (as expected).

- (FR) France Dec Business Confidence: 94 v 96e; Manufacturing Confidence: 97 v 98e; Production Outlook Indicator: -19 v -14e; Own-Company Production Outlook: -1 v +4e.

- (TW) Taiwan Central Bank (CBC) left Benchmark Interest Rate unchanged at 2.00% (as expected).

- (TW) Taiwan Nov M2 Money Supply Y/Y: 5.5% v 5.8% prior; M1 Money Supply Y/Y: 4.6% v 4.9% prior.

- (ES) Spain Oct Trade Balance: -€3.9B v -€3.3B prior.

- (SE) Sweden Central Bank (Riksbank) cut Repo Rate by 25bps to 2.50% (as expected).

- (EU) Euro Zone Oct Current Account Balance: €25.8B v €38.8B prior.

- (NO) Norway Central Bank (Norges) left the Deposit Rate unchanged at 4.50% (as expected).

- (IS) Iceland Dec CPI M/M: 0.4% v 0.1% prior; Y/Y: 4.8% v 4.8% prior.

- (PL) Poland Nov Sold Industrial Output M/M: -5.4% v -6.1%e; Y/Y: -1.5% v -1.3%e; Construction Output Y/Y: -9.3% v -11.0%e.

- (PL) Poland Nov Employment M/M: 0.1% v 0.0%e; Y/Y: -0.5% v -0.6%e.

- (PL) Poland Nov Average Gross Wages M/M: 1.9% v 1.5%e; Y/Y: 10.5% v 10.0%e.

- (PL) Poland Nov PPI M/M: 0.3% v 0.4%e; Y/Y: -3.7% v -3.8%e.

- (IT) Italy Oct Current Account Balance: €5.6B v €1.0B prior.

- (GR) Greece Oct Current Account Balance: -€0.4B v -€0.3B prior.

- (PT) Portugal Oct Current Account Balance: €0.6B v €1.2B prior.

- (BE) Belgium Dec Consumer Confidence: -9 v -8 prior.

Fixed income issuance

- None seen.

Looking ahead

- (AR) Argentina Dec Consumer Confidence: No est v 45.02 prior.

- (IL) Israel Dec 12-month CPI Forecast: No est v 2.9% prior.

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (BR) Brazil Central Bank Quarterly Inflation Report (QIR).

- 06:00 (CZ) Czech Republic to sell CZK5.0B in 3-month Bills.

- 06:00 (RO) Romania to sell RON500M in 6.85% July 2030 bonds.

- 07:00 (UK) Bank of England (BoE) Interest Rate Decision: Expected to leave Bank Rate unchanged at 4.75%.

- 07:00 (CA) Canada Dec CFIB Business Barometer: No est v 59.7 prior.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Dec 13th: No est v $614.4B prior.

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

- 08:30 (US) Q3 Final GDP Annualized Q/Q: 2.8%e v 2.8% prelim; Personal Consumption: 3.6%e v 3.5% prelim.

- 08:30 (US) Q3 Final GDP Price Index: 1.9%e v 1.9% prelim; Core PCE Price Index Q/Q: 2.1%e v 2.1% prelim.

- 08:30 (US) Dec Philadelphia Fed Business Outlook: +2.8e v -5.5 prior.

- 08:30 (US) Initial Jobless Claims: 230Ke v 242K prior; Continuing Claims: 1.89Me v 1.886M prior.

- 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave 2-Week Repurchase Rate unchanged at 4.00%.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:45 (CZ) Czech Central Bank (CNB) Gov Michl post rate decision press conference.

- 10:00 (US) Nov Existing Home Sales: 4.09Me v 3.96M prior; M/M: 3.3%e v 3.4% prior.

- 10:00 (US) Nov Leading Index: -0.1%e v -0.4% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) Dec Kansas City Fed Manufacturing Activity: -1e v -2 prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 5 Year Bonds.

- 13:00 (US) Treasury to sell 5-Year TIPS Reopening.

- 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to cut Overnight Rate by 25bps to 10.00%.

- 16:00 (US) Oct Total Net TIC Flows: No est v $398.4B prior; Net Long-term TIC Flows: No est v $216.1B prior.

- 16:00 (KR) South Korea Nov PPI Y/Y: No est v 1.0% prior.

- 16:00 (NZ) New Zealand Dec ANZ Consumer Confidence: No est v 99.8 prior.

- 16:45 (NZ) New Zealand Nov Trade Balance (NZD): No est v -1.5B prior; Exports: No est v 5.8B prior; Imports: No est v 7.3B prior.

- 18:30 (JP) Japan Nov National CPI Y/Y: 2.9%e v 2.3% prior; CPI Ex Fresh Food (Core) Y/Y: 2.6%e v 2.3% prior; CPI Ex Fresh Food, Energy (Core-Core) Y/Y: 2.4%e v 2.3% prior.

- 19:01 (UK) Dec Lloyds Business Barometer: No est v 41 prior; Own Price Expectations: No est v 60 prior.

- 19:30 (AU) Australia Nov Private Sector Credit M/M: 0.5%e v 0.6% prior; Y/Y: No est v 6.1% prior.

- 20:00 (CN) China PBOC Monthly Loan Prime Rate Setting (LPR): Expected to leave both 1-year and 5-year LPR Rates unchanged at 3.10% and 3.60% respectively.

- 20:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years; 3~5 Years; 5~10 Years and 10~25Years.

- 23:00 (MY) Malaysia Nov CPI Y/Y: 2.1%e v 1.9% prior.

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