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In focus today

The most important data release today will be the US November Personal Consumption Expenditures (PCE). Consensus expects Core PCE inflation to have remained steady in m/m SA terms at +0.2%. Earlier CPI and retail sales data hinted that private consumption has likely continued growing modestly even in real terms. November durable goods orders and final University of Michigan December consumer survey will also be released for the US.

No key market movers are due for release in Europe, UK November retail sales and French November PPI will be released today.

No ECB or Fed speeches have been scheduled for today.

Danske Morning Mail will be on a holiday break until 2nd of January. We wish all our readers happy holidays!

The 60 second overview

Macro: Overnight, Japan’s November inflation cooled in line with expectations, headline CPI ticked down to 2.8% y/y (from 3.3% y/y) while core CPI moderated to 2.5% y/y (from 2.9%). On the other hand, services inflation continued to pick up speed, which could be a sign of more broad-based price pressures. Nevertheless, JPY weakened modestly vis-à-vis both USD and EUR. Yesterday’s macro releases lifted markets’ hopes of cooling inflation also in the US. While initial jobless claims surprised once again to the downside (205k; from 203k; consensus 215k), Q3 GDP growth was revised down in the final release (4.9%; from 5.2%). Fiscal policy driven structures investments were revised higher, while private consumption accounted for a large share of the downward revision. At the same time, Q3 core PCE inflation was revised lower, even if the Fed likely focuses more on today’s more timely release for November.

Geopolitical radar: An increasing number of shipping companies have announced they are avoiding the Red Sea following hostilities by the Yemen’s Houthi rebels (see Reuters). While global supply challenges have eased markedly since the pandemic, and we do not expect the situation to have strong implications for the macro outlook, we will continue monitoring the situation. This morning, we published our final Gepolitical Radar – What to look out for in 2024, of the year, taking stock of the wide range of disruptions seen in 2023. We also cover the outlook for upcoming key elections in 2024, not least in the US, Taiwan and the European Parliament.

EU fiscal rules: Yesterday, we published a piece on the new fiscal rules in the EU as well as possible implications for growth and market. Compared to the old rules, the new ones are less stringent, outlines more gradual and country-specific fiscal adjustment paths, and protects certain investments and structural reforms. The implications for the growth outlook and markets are yet to be seen as we ultimately need to see the rules being enforced in practice before making firm conclusions. However, all things equal, we will see a tighter fiscal stance given the old fiscal rules have been suspended since COVID. Moreover, assuming the rules are enforced, which is our baseline, we expect tighter sovereign spreads. See Flash: New EU Fiscal Rules – A realistic compromise , 21 December.

Equities: Global equities bounced back yesterday after the largely unexplained late-day selloff on Wednesday. Most focus on zero-day options as the reason for the Wednesday sell-off and it sounds the most plausible as markets basically reversed yesterday. Gains driven out of the US with a little preference for small caps. The fact that VIX is also coming in slightly support the view of a one-off event Wednesday and not the beginning of a shift in narrative. In US yesterday, Dow +0.9%, S&P 500 +1.0%, Nasdaq +1.3% and Russell 2000 +1.7%. Very mixed performance in Asia this morning with tech stocks dragging down China while Asia ex China is mostly in green. Futures in both Europe and US higher this morning.

FI: European rates ended virtually unchanged on the day with limited market volatility in the 10y point heading into the seasonal slowdown in liquidity and market activity. The 10y point recorded a minor rally on the back of the weaker than expected US data (revisions to Q3 GDP, PCE data), albeit that was later reversed. Overall the curve steepened around the 7-10y point on the curve. Following the funding statements from EA debt offices in recent days and ECB’s PEPP announcement last week, we see the net issuance next year, net of ECB bond buying at EUR622bn, which are 20bn higher than this year. Note that this does not include EU (which is projected at EUR150bn net next year.

FX: Broad USD weakness pulled USD/JPY toward 142 and EUR/USD, which has spent this week within 1.09-1.10, toward the upper end of that range. GBP/USD and AUD/USD moved higher while USD/CAD and, in Scandies, especially USD/SEK was under pressure and the latter printed a new year low yesterday. EUR/SEK made a brief visit below 11.10 but ended the US session close to it, while EUR/NOK were relatively stable above 11.30.

Credit: Credit markets were quiet with limited primary and secondary activity. ITraxx Main and iTraxx X-Over were both unchanged compared to the day before. Sydbank raised its guidance for 2023 as loan losses have been lower than expected and market conditions have been slightly better than ecpected. Sydbank is the latest of a number of banks raising 2023 forecasts – underlining the solid earnings momentum in the banking industry currently.

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