EU mid-market update: Softer UK inflation re-energizes BOE rate cut expectations; US CPI remains main focus for session as major US banks to report; BOJ looks to hike next week.
Notes/observations
- Markets are bracing for the release of US CPI data, with expectations set for an uptick in headline inflation to 2.9% year-on-year, while core inflation holds steady at 3.3%. Futures trade sideways, waiting on data to trigger session direction, with some analysts predicting reduced dollar strength if core inflation remains unchanged.
- UK inflation unexpectedly dipped to 2.5% in December, below the forecasted 2.6%, leading to a reassessment of Bank of England (BoE) rate cut expectations. This development has alleviated some pressure on gilts, with yields falling. However, looming tax increases and business confidence at a 2-year low introduce cautionary notes. UK Treasury Min Jones stressing no need for emergency budget this spring helps the cable.
- BoJ Gov Ueda's comments injected volatility into markets, with the yen strengthening. Ueda's indication of discussing rate hikes at the next policy meeting has led to a sharp increase in market speculation, with almost 70% chance now priced in for a rate increase next week. This has been further supported by remarks from Japan's Finance Minister about potential government intervention. Traders are now starting to wonder whether Yen Carry Trade is once again setting the stage for another potentially sharp unwind.
- Germany's GDP contracted by 0.2% in 2024, following a contraction in 2023, reflecting ongoing challenges in manufacturing and construction. Meanwhile, the service sector showed slight growth, offset somewhat by stagnation in other areas. 10-Year bund yield eases from 6-month high.
- Arrest of South Korea's suspended President Yoon has not yet significantly impacted Korean markets, indicating investor focus remains on economic fundamentals.
- Upcoming earnings this morning from major US banks like JPMorgan, Wells Fargo, Citigroup, Blackrock and Goldman Sachs.
- Asia closed mixed with NZX50 outperforming +0.5%. EU indices are -0.2% to +0.7%. US futures are +0.1%. Gold +0.3%, DXY -0.1%; Commodity: Brent +0.3%, WTI +0.5%; Crypto: BTC -0.3%, ETH -1.2%.
Asia
- BOJ Gov Ueda reiterated stance to raise rates if economic and price improvements continued; Would make decision over whether to raise rates at next week's policy meeting. Recent branch managers meeting showed encouraging view on wage hikes; There was a lot of "positive talk" on wage hikes at the meeting.
- Japan Fin Min Kato reiterated stance that specifics of monetary policy should be left to BOJ; Alarmed and "deeply concerned" over FX moves, including those driven by speculators.
- China PBoC sold six-month bills in Hong Kong as part of its efforts to defend the CNY currency (Yuan).
- China PBoC Open Market Operation injected CNY960B in the 7-Day Reverse Repo for a net injection of CNY959B (second-highest injection ever, highest since Nov 2024). Amount of injection to offset impact of MLF expiration, peak tax season and offset cash demand before Lunar New Yea.
- South Korea suspended President Yoon arrested over martial law.
Europe
- ECB Chief Lane (Ireland, chief economist): Essentially still in economic recovery mode. If inflation stabilized around 2%, rates to go lower towards neutral.
Energy
- Weekly API Crude Oil Inventories: -2.6M v -4.0M prior.
Speakers/fixed income/FX/commodities/erratum
Equities
Indices [Stoxx600 +0.37% at 510.16, FTSE +0.70% at 8,258.99, DAX +0.53% at 20,368.89, CAC-40 +0.09% at 7,430.11, IBEX-35 +0.23% at 11,779.70, FTSE MIB +0.43% at 35,275.00, SMI -0.17% at 11,681.10, S&P 500 Futures +0.10%].
Market focal points/key themes: European indices open generally higher and advanced through the early part of the session; FTSE 100 outperforming peers following lower than expected CPI print; improved risk appetite tracking with lower yields; better performing sectors include real estate and energy; lagging sectors include consumer discretionary and technology; unofficial start of Q4 earnings season; reportedly Tencent and Ubisoft founders mulling deal; reportedly SGS and Burau Veritas are in merger talks; focus on US CPI to be released later in the day; among earnings expected in the upcoming Americas session are JP Morgan, Wells Fargo, BlackRock and Citigroup.
Equities
- Consumer discretionary: Ubisoft [UBI.FR] +3.5% (reportedly Tencent and Ubisoft's founding Guillemot family mull Ubisoft assets deal and weigh creation of new JV), Currys [CURY.UK] +11.0% (10 week trading update, guides FY24/25), Hays [HAS.UK] +1.5% (H1 trading update), ASOS [ASC.UK] +1.5% (changes to distribution network), Galliford Try [GFRD.UK] +7.5% (H1 trading update).
- Energy: Saipem [SPM.IT] -2.5% (struggling to drill foundations for a wind farm off France’s northwest coast) - Financials: Partners Group [PGHN.CH] -2.0% (reports end 2024 AUM).
- Industrials: Experian [EXPN.UK] +0.5% (trading update), SGS [SGSN.CH] -4.0% (Bureau Veritas: In talks with SGS on potential merger).
- Technology: ASML Holding [ASML.NL] -0.5% (sees no additional impact from new Dutch export curbs).
- Real Estate: Persimmon [PSN.UK] +4.0% (UK yields lower following inflation data).
Speakers
- ECB’s De Guindos (Spain noted that risks had shifted from high inflation to low growth; Reiterated not pre-committing to a particular rate path. Policy direction was clear if baseline case hold and expected to continue reducing restrictiveness as disinflation path was well on track.
- ECB’s Villeroy (France) stated that made sense for rates to reach 2% by summer (Note: Deposit Rate is currently 3%, implying 100bps of cuts).
- UK Treasury Min Jones reiterated stance that govt did not need an emergency budget; Inflation seemed much more stable than two years ago.
- Sweden Central Bank (Riksbank) Bunge: Country is in a mild recession but economy is expected to improve throughout 2025.
- Indonesia Central Bank Polict Statement noted that the decision to cut was consistent with low inflation expectations through 2026 and need to support economic growth. Decision also consistent with exchange rate going along with fundamentals. Focus to be on inflation target and FX stability and continue interventions to stabilize IDR currency.
- IEA Monthly Oil Report (OMR) cut the 2025 global oil demand growth from 1.1Mbpd to 1.05M bpd (demand seen at 104.0M vs. 103.9M prior) and cut the 2025 global oil supply growth from 1.9M bpd to 1.8M bpd (supply seen at 104.7M vs. 104.8M prior).
Currencies/fixed income
- USD was consolidating some of its recent softness with markets on a cautious sentiment ahead of US CPI data for Dec due out later today. The greenback was softer on Tuesday in the aftermath of lower-than-expected US producer prices data.
- GBP/USD was steady around the 1.22 area after UK Dec CPI reading came in below consensus. The moderation in UK inflation kept the door open for a potential BOE rate cut in Feb. Markets pricing almost 50bps of cut during 2025 now, Dealer continued to debate whether the Dec downtick would mark the start of a trend. Soothing budgetary comments from UK Treasury Sec Jones provided support for the pound currency.
- EUR/USD steady around the 1.03 area as ECB speak continued to highlight that the direction of the interest rate path was clear.
- USD/JPY below the 157 level as recent BOJ speak kept the door open for a potential rate hike later this month (Jan). Some analysts have brought forward its call for BOJ rate hike from March to January after BOJ Gov Ueda backed up Dep Gov Himino optimistic view of the economy.
Economic data
- (NL) Netherlands Nov Trade Balance: €12.5B v €11.3B prior; Exports Y/Y: 4.2% v 2.3% prior; Imports Y/Y: +1.8% v -2.9% prior.
- (JP) Japan Dec Preliminary Machine Tool Orders Y/Y: 11.2% v 3.0% prior.
- (FI) Finland Nov GDP Indicator Y/Y: +1.5% v -0.4% prior.
- (SE) Sweden Dec PES Unemployment Rate: 3.9% v 3.7% prior.
- (UK) Dec CPI M/M: 0.3% v 0.4%e; Y/Y: 2.5% v 2.6%e; CPI Core Y/Y: 3.2% v 3.4%e; CPI Services Y/Y: 4.4% v 4.8%e; CPIH Y/Y: 3.5% v 3.6%e.
- (UK) Dec RPI M/M: 0.3% v 0.7%e; Y/Y: 3.5% v 3.8%e; RPI (ex-mortgage payments) Y/Y: 2.9% v 3.0% prior; Retail Price Index: 392.1 v 393.5e.
- (UK) Dec PPI Input M/M: 0.1% v 0.2%e; Y/Y: -1.5% v -1.3%e.
- (UK) Dec PPI Output M/M: 0.1% v 0.1%e; Y/Y: 0.1% v 0.0%e v.
- (DE) Germany Dec Wholesale Price Index M/M: 0.1% v 0.0% prior; Y/Y: +0.1% v -0.6% prior.
- (SE) Sweden Dec Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 0.8% v 0.8% prelim.
- (SE) Sweden Dec Final CPIF M/M: 0.3% v 0.3% prelim; Y/Y: 1.5% v 1.5% prelim.
- (SE) Sweden Dec Final CPIF (ex-energy) M/M: 0.4% v 0.4% prelim; Y/Y: 2.1% v 2.1% prelim; CPI Level: 416.71 v 416.75 prior.
- (NO) Norway Dec Trade Balance (NOK): 83.2 v 74.1B prior.
- (DK) Denmark Dec PPI M/M: 1.3% v 3.5% prior; Y/Y: 14.9 v 12.5% prior.
- (ID) Indonesia Central Bank (BI) cut the Bi-Rate by 25bps to 5.75% (not expected).
- (FR) France Dec Final CPI M/M: 0.2% v 0.2% prelim; Y/Y: 1.3% v 1.3% prelim.
- (FR) France Dec Final CPI EU Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 1.8% v 1.8% prelim; CPI Ex-Tobacco Index: # v 118.93e.
- (ES) Spain Dec Final CPI M/M: 0.5% v 0.4% prelim; Y/Y: 2.8% v 2.8% prelim.
- (ES) Spain Dec Final CPI EU Harmonized M/M: 0.4% v 0.4% prelim; Y/Y: 2.8% v 2.8% prelim.
- (ES) Spain Dec CPI Core M/M: 0.4% v 0.1%e; Y/Y (final): 2.6% v 2.6% prelim.
- (AT) Austria Dec Final CPI M/M: 0.6% v 0.6% prelim; Y/Y: 2.0% v 2.0% prelim.
- (TR) Turkey Dec Central Govt Budget Balance: -829.2B v -16.6B prior.
- (DE) Germany 2024 Annual GDP Y/Y: -0.2% v -0.2%e; Maastricht Budget Deficit to GDP Ratio: -2.6% v -2.3%e.
- (PL) Poland Dec Final CPI M/M: 0.0% v 0.2% prelim; Y/Y: 4.7% v 4.8% prelim.
- (UK) Nov ONS House Price Index Y/Y: 3.3% v 3.0% prior.
- (IT) Italy Nov General Government Debt: €3.005T v €2.981T prior (record level).
- (EU) Euro Zone Nov Industrial Production M/M: 0.2% v 0.2%e; Y/Y: -1.9% v -1.9%e.
Fixed income issuance
- (IN) India sold total INR280B vs. INR280B indicated in 3-month, 6-month and 12-month bills.
- (DK) Denmark sold total DKK400M in 3-month and 6-month Bills.
- (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2026 and 2035 bonds.
- (NO) Norway sold total NOK3.0B vs. NOK3.0B indicated in 2028 and 2032 bonds.
- (UK) DMO sold £4.0B in 4.25% July 2034 Gilts; Avg Yield: 4.808% v 4.332% prior; bid-to-cover: 2.80x v 2.87x prior; Tail: 0.9bps v 1.3bps.
Looking ahead
- (AR) Argentina Dec UTDT Leading Indicator: No est v 1.4% prior.
- (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 6.50%.
- OPEC Monthly Oil Report.
- 05:25 (EU) Daily ECB Liquidity Stats.
- 05:30 (DE) Germany to sell combined €2.5B in 30-year Bunds (2 tranches).
- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 12-month bills.
- 05:30(RU) Russia to sell OFZ Bonds.
- 06:00 (IE) Ireland Nov Trade Balance: No est v €10.0B prior.
- 07:00 (US) MBA Mortgage Applications w/e Jan 10th: No est v -3.7% prior.
- 07:00 (BR) Brazil Nov IBGE Services Volume M/M: -0.5%e v +1.1% prior; Y/Y: 3.3%e v 6.3% prior.
- 07:00 (MX) Mexico Oct Gross Fixed Investment M/M: +0.1%e v -0.8% prior; Y/Y: -2.8%e v -3.3% prior; Private Consumption Y/Y: 1.4%e v 1.0% prior.
- 07:00 (UK) Weekly PM Question time in House.
- 08:00 (RU) Russia Dec Official Reserve Assets: No est v $616.5B prior.
- 08:00 (HU) Hungary Central Bank (MNB) Dec Minutes.
- 08:00 (UK) Daily Baltic Dry Bulk Index.
- 08:30 (US) Jan Empire Manufacturing: 3.0e v 0.2 prior.
- 08:30 (US) Dec CPI M/M: 0.4%e v 0.3% prior; Y/Y: 2.9%e v 2.7% prior.
- 08:30 (US) Dec CPI (Ex Food and Energy) M/M: 0.3%e v 0.3% prior; Y/Y: 3.3%e v 3.3% prior.
- 08:30 (US) Dec CPI Index NSA: 315.615e v 315.493 prior; CPI Core Index: 323.400e v 322.657 prior.
- 08:30 (US) Dec Real Avg Hourly Earning Y/Y: No est v 1.3% prior; Weekly Earnings Y/Y: No est v 1.0% prior.
- 08:30 (CA) Canada Nov Manufacturing Sales M/M: 0.5%e v 2.1% prior; Wholesale Sales (ex-petroleum) M/M: -0.7%e v +1.0% prior.
- 09:00 (CA) Canada Dec Existing Home Sales M/M: -2.2%e v +2.8% prior.
- 09:20 (US) Fed's Barkin.
- 09:30 (SE) Sweden Central Bank (Riksbank) Gov Thedeen.
- 10:00 (PE) Peru Dec Unemployment Rate: 5.8%e v 5.7% prior.
- 10:00 (PE) Peru Nov Economic Activity Index (Monthly GDP) Y/Y: 3.2%e v 3.4% prior.
- 10:00 (US) Fed’s Kashkari.
- 10:30 (US) Weekly DOE Oil Inventories.
- 11:00 (RU) Russia Dec CPI M/M: 1.6%e v 1.4% prior; Y/Y: 9.8%e v 8.9% prior.
- 11:00 (RU) Russia Dec CPI Core M/M: No est v 1.1% prior; Y/Y: No est v 8.3% prior.
- 11:00 (US) Fed’s Williams.
- 11:30 (IL) Israel Dec CPI M/M: -0.1%e v -0.4% prior; Y/Y: 3.4%e v 3.4% prior.
- 11:30 (UK) BOE’s Taylor.
- 11:30 (US) Treasury to sell 17-Week Bills.
- 12:00 (US) Fed’s Goolsbee.
- 12:00 (CA) Canada to sell 5-year Bonds.
- 12:30 (BR) Brazil Nov Central Govt Budget Balance (BRL): -6.5Be v 40.8B prior.
- 16:45 (NZ) New Zealand Dec Food Prices M/M: No est v -0.1% prior.
- 18:50 (JP) Japan Dec PPI (domestic CGPI) M/M: 0.4%e v 0.3% prior; Y/Y: 3.8%e v 3.7% prior.
- 19:00 (AU) Australia Jan Consumer Inflation Expectation: No est v 4.2% prior.
- 19:01 (UK) Dec RICS House Price Balance: 28%e v 25% prior.
- 19:30 (AU) Australia Dec Employment Change: +15.0Ke v +35.6K prior; Unemployment Rate: 4.0%e v 3.9% prior; Full Time Employment Change: No est v 52.6K prior; Part Time Employment Change: No est v -17.0K prior; Participation Rate: 67.0%e v 67.0% prior.
- 20:00 (CN) China Dec Swift Global Payments (CNY-denominated): No est v 3.9% prior.
- 20:00 (KR) Bank of Korea (BOK) Interest Rate Decision: Expected to cut 7-day Repo Rate by 25bps to 2.75%.
- 22:30 (HK) Hong Kong to sell CNY1.0B in 3-year Bonds.
- 22:30 (JP) Japan to sell 12-Month Bills.
- 22:35 (JP) Japan to sell 20-Year JGB Bonds.
- 23:00 (TH) Thailand Central Bank to sell THB35B in 12-month bills.
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