PMIs and Riksbank minutes in focus on the first trading day of 2025

In focus today

Happy New Year, everyone, and welcome back to work here in 2025! We are ready with the first Danske Morning Mail of the new year.

Today, we keep an eye on final PMI data for the euro area, the US, Norway, Sweden, and the UK. The flash release came very early in December, so the final release could deviate more than usual, which warrants close monitoring of the release today.

In Sweden, the Riksbank publishes minutes from the December monetary policy meeting.

Economic and market news

What happened overnight

In China, the Caixin manufacturing PMI fell to 50.5 in December, compared to 51.5 in November. The release was disappointing as the consensus expectation was a slight increase to 51.7. The release was in line with the results from the official NBS PMI survey, released earlier this week. New orders fell to a three-month low. Export orders fell to contractionary terrain after declining for the past five months. The release comes after China's President Xi said in his New Year's speech that China would implement more proactive policies to enhance growth in 2025.

What happened yesterday

In Russia, gas exports to Europe via Ukraine came to a halt after Ukraine refused to renew a transit agreement, according to the Russian-owned energy company Gazprom. As the last European countries that still bought Russian gas have arranged alternative supply or upheld buying via other pipelines, the halt will not affect energy prices in Europe.

What happened over Christmas and New Years

In Spain, HICP inflation rose to 2.8% year-on-year in December from 2.4% year-on-year in November, above expectations of a rise to 2.6% by consensus. Core inflation was also higher than expected, rising to 2.6% year-on-year (consensus: 2.4%) in December from 2.4% year-on-year in November. We expect euro area HICP inflation, which is released on 7 January, to show a rise to 2.4% year-on-year in December from 2.2% in November. The increase is mainly expected due to base effects on energy and food inflation, while we expect core inflation to decline from 2.7% year-on-year in November to 2.6% year-on-year.

In Japan, the Tokyo CPI showed that core inflation rose to 2.4% year-on-year in December compared to 2.2% in November. The release was important since it could give some indication of when the Bank of Japan will make its next rate change. At the moment, markets price in around a 40% probability of a rate hike at the January meeting and a 60% probability of the interest rate being left unchanged. We expect the Bank of Japan to leave interest rates unchanged at the January meeting as well.

In the Baltic Sea, NATO said it would increase its presence after a suspected Russian sabotage of an underwater power cable and several internet cables. The suspicion of Russia came after Finland seized a ship carrying Russian oil, which they suspected forced an outage of the Estlink 2 power cable linking Finland and Estonia.

In Denmark, the Novo Nordisk share dropped by nearly 21% on 20 December after their next-gen weight loss product, Cagrisema, failed to live up to the expected effect that Novo Nordisk had communicated to the market. A significant part of the earnings-per-share growth for Novo is linked to a significant market share in the weight loss market. With lower-than-expected weight loss from Novo's next-gen product, it seems to be less effective than their competitor Eli Lilly's weight loss product.

In Turkey, the central bank lowered its key interest rate by 250 basis points from 50.0% to 47.5%. The rate had been held at 50.0% since March and was last lowered at the beginning of 2023. Turkish inflation fell to 47%, still well above the 5% target. The central bank of Turkey expects inflation to come down to around 21% by the end of 2025.

FI: 2024 ended with higher yields and steeper curves driven by the long end as well as a tightening of the ASW-spreads in the US and Europe as the markets still are factoring in rate cuts from both the Federal Reserve and ECB , but investors are requiring a higher "term/risk" premium in the longer-dated bonds due to the significant supply expected in 2025, where we are looking forward to another year with a record high supply and a very busy primary market as described in our issuance outlook for Q1 and 2025, where we look at the potential new deals in January/February in the Euro area. Ireland and Portugal are usually some of the first sovereigns coming to the market and we expect that next week will be very busy.

FX: Since the December FOMC, the USD has remained bid, outperforming across G10 currencies and recording an impressive 8% YTD gain in 2024 - its strongest annual rally since 2015. EUR/USD has been rangebound within the 1.0350-1.0450 range but is currently trading heavy near the lower end of the range. USD/JPY appears to have stabilized below 158 as intervention risks remain elevated. The CHF, AUD, and NZD have underperformed the most against the USD since the holidays, while GBP, NOK, and SEK have seen more muted moves. EUR/NOK and EUR/SEK have trended lower over the past week, with EUR/NOK trading just below 11.80 and EUR/SEK hovering around 11.45.