Futures Flat As Yields Jump And Yen Plunges

US equity futures are flat while global markets posted only modest moves at the start of a busy week of economic data and central bank meetings that will test optimism among investors that interest rates will soon head lower. As of 7:55am ET, S&P500 futures contracts fell just under 0.1%, off the session’s lows, while Nasdaq futures were also modestly lower. The dollar is higher, while 10Y yields are rapidly reversing all recent declines and up again on Monday, hitting a 1-week high of 4.28%; in commodities oil is recovering from the market’s longest weekly losing streak in five years while crypto tokens are swinging violently as Bitcoin drops back toward $40,000. Keep an eye on retailers following the weekend news of an LBO bid for Macy’s: XRT is up almost 16% from its Oct lows and sits about 11% from its 52-week high. Today’s macro data focus is the Fed’s 1-year inflation expectation; it may reflect similar optimism as the Univ of Michigan data which saw 1-year expectations fall from 4.5% to 3.1%.

In premarket trading, cryptocurrency-linked stocks fall on Monday as Bitcoin extends losses for a third consecutive session, its longest losing streak this month. Hive Digital Technologies -7.6%, Cipher Mining -4.1%, Terawulf -7.1%, Bitfarms -6.6%, Cleanspark -5.0%, Marathon Digital -5.0%, Riot Platforms -4.7%, Hut 8 Mining -4.8%, Coinbase Global -3.3% and MicroStrategy -3.2%. Macy’s jumped 22% on reports it had receives a $5.8 billion buyout offer from Arkhouse Management and Brigade Capital Management. Occidental Petroleum dropped after reaching a deal to acquire Texas shale driller CrownRock for about $12 billion. Nike, Snap and Pinterest all rose after analyst upgrades. Here are some other notable premarket movers:

• Cigna shares rise 12% after the US insurer’s plans of an additional $10 billion in buyback after calling off its pursuit of Humana Inc. Analysts were positive on Cigna’s decision and Jefferies upgraded its rating on the stock.
• DoorDash and MongoDB shares rise as the stocks are set to be added to the tech-heavy benchmark Nasdaq 100 Index, among other names. DoorDash +2.0%, MongoDB +1.8%
• HP Inc. shares jump 1.8% as Evercore ISI lifts its recommendation on the computer maker to outperform from inline, citing an expected recovery in the PC market in 2024.
• Pinterest shares rise 3.5% after the social media company is upgraded to outperform from sector perform at RBC Capital Markets on its potential to benefit as it develops ways to better capture the impulse spending chunk of digital advertising.
• Sea ADRs slump 8.9% after ByteDance’s TikTok agreed to combine its Indonesian e-commerce business with GoTo’s Tokopedia and take control of the merged operation, fueling concerns over increased competition for the online market place.
• Alibaba ADRs fall 2.0%; the Chinese internet company owns Lazada, another e-commerce platform that operates in Indonesia. Alibaba’s international e-commerce arm, which includes Lazada, was the company’s fastest-growing unit in quarter ending September.
• Snap shares rise 5.1% after the maker of the Snapchat app is upgraded to overweight from equal-weight at Wells Fargo, with a new Street-high price target. Analysts see a positive growth inflection for Snap as efforts to revamp its advertising business bear fruit.
• Stellantis shares fall 0.3% after the company received its only sell-equivalent rating as Wells Fargo starts coverage of the automaker at underweight, reflecting its cautious sector stance heading into 2024.

The biggest mover in an otherwise quiet Monday came out of Japan, where the currency plunged 1% as traders dialed back bets that the negative-rate holdout would go into positive territory any time soon. That’s after Bloomberg reported citing “people familiar with the matter” that Bank of Japan officials have yet to see enough evidence of wage growth that would support sustainable inflation, just as we said would happen.

Of course, it will come storming right back after the Nikkei leaks that there will be no BOJ rate hike. https://t.co/GWxBlDSsmf

— zerohedge (@zerohedge) December 7, 2023

The Japanese yen has become the worst performing G10 currency this year. Meanwhile, over in China, much of the conversation has been around the weekend’s worse-than-expected deflation numbers, which have deepened fears around whether Beijing can revive demand in the economy. That’s weighing on the outlook for iron ore. Meanwhile,

As mentioned above, Macy’s received a $5.8 billion buyout offer from Arkhouse Management and Brigade Capital Management. The take-private offer of $21 a share is a bet that the troubled retailer can execute its turnaround better away from the scrutiny of public markets. The shares are surging as much 22% in pre-market trading. One deal that’s fallen apart is Cigna’s mega combination with Humana — a deal that would have been one of the largest of the decade. Cigna is walking away from talks after struggling to agree on a price, particularly after a drop in Cigna’s shares. The insurer now plans  a “significant” increase of its stock buybacks, according to a statement on Sunday where it refrained from mentioning the talks with Humana.

Deals aside, it is shaping up as a busy week with traders looking ahead to US inflation figures on Tuesday, a Federal Reserve policy decision Wednesday and retail sales numbers Thursday. Policy decisions at the European Central Bank and Bank of England add to a crowded calendar.

“This should also be the last busy week for the year after which we enter into the holiday illiquidity period,” said Mohit Kumar, chief European economist at Jefferies International. “Even though central banks are likely to push back on rate cuts, we do not see a sharp rise in rates which would derail the upward momentum.”

Oppenheimer CIO John Stoltzfus on Monday joined Fundstrat Global Advisors LLC’s Tom Lee in making the most bullish forecast, predicting a record high of 5,200 points for the US benchmark by the end of 2024. That’s about 13% higher than current levels. A Citigroup Inc. team led by Scott Chronert sees the gauge climbing to around 5,100.

Mark Haefele, chief investment officer at UBS Global Wealth Management, is among those who are more cautious. “US economic data will need to walk a fine line in the coming months to sustain the recent rally,” he said. “While we expect stocks to sustain recent gains and advance modestly higher in 2024, equity markets are already pricing in plenty of good news.” He sees the S&P 500 ending 2024 at 4,700. As a reminder, Wall Street analysts’ forecasts for the coming year are virtually always wrong.

European stocks are little changed, hovering near their highest since February 2022. Industrial, construction and media shares outperform while food & beverage names fall. Here are some of the biggest movers on Monday:

• Schibsted gains as much as 17% after the Norwegian classified advertising and media firm entered a non-binding agreement to sell its news operations to its largest shareholder, a deal described by an analyst as “healthy financially”
• BioArctic rises as much as 16%, hitting a two-month high, after Goldman Sachs initiated coverage on the Swedish biopharma company with a buy rating, calling it “very strongly positioned”
• MorphoSys gains as much as 15% after the German biotech firm said a late-stage study showed its pelabresib drug in combination with ruxolitinib improved all four hallmarks of myelofibrosis
• Ionos shares gain as much as 5.3% after JPMorgan raised its rating on the webhosting firm to overweight, citing signs of stabilization in the cloud industry and potential pricing upside
• ITM Power rises as much as 7.5% after signing a capacity reservation agreement with a subsidiary of Shell. Analysts welcomed the news and said it validates ITM’s technology
• Encavis shares fall as much as 7.1% after Morgan Stanley cut the utilities firm to underweight within its relative rating system.
• Lonza shares fall as much as 4.1% as RBC double-downgraded the Swiss pharmaceutical supplier to underperform, giving the stock its only negative analyst rating. The lack of growth guidance at Lonza’s recent CMD means the broker’s “confidence is knocked”
• Encavis falls as much as 7.1%, ERG drops as much as 4.6% and Endesa slides as much as 1% as Morgan Stanley cuts the European utilities to underweight within its relative rating system

Earlier in the session,  Asian stocks extended declines led by weakness in China following Friday’s Politburo meeting and deflation fears. Japanese stocks rallied, tracking gains in the US last week. The MSCI Asia Pacific Index fell as much as 0.4%, with Alibaba, Tencent and Meituan among the biggest drags. Hong Kong-listed China stocks led the declines, followed by those in the mainland after worse-than-expected inflation data over the weekend and some disappointment over a Politburo meeting. The Philippines benchmark also declined.

• Hang Seng and Shanghai Comp were pressured amid weakness in tech and property, while the data over the weekend showed a larger-than-expected decline in China’s consumer inflation and factory gate prices which suggests weak domestic demand.
• Nikkei 225 gained following a pushback on recent BoJ speculation in which a source report on Friday noted recent comments by BoJ Governor Ueda were taken out of context and there was no intention to signal anything about the timing for a policy change.
• Australia’s ASX 200 just about kept afloat as outperformance in the energy sector atoned for the lacklustre mood in metal miners and tech.
• India stocks closed at a new high as sentiment remained upbeat amid buying from foreign investors and strong economic growth. The S&P BSE Sensex rose 0.1% to 69,928.53 in Mumbai, while the NSE Nifty 50 Index advanced by a similar magnitude. The MSCI Asia Pacific Index was down 0.1%. Gains in the benchmarks were driven by index heavyweights ICICI Bank, ITC and TCS. Resumptions of buying by global funds since beginning of November have driven local shares to record high with net purchases by the cohort surging to over $5 billion in that period.

“Downward momentum is still intact, because there is a gap between the policy and the execution, which is hindering its efficacy, thus no helping to turnaround confidence,” said Raymond Chen, fund manager at ZiZhou Investment Asset management. “With the pessimism prevailing, any negative such as the CPI drop will lead to further losses.”

In FX, the Japanese yen extended declines on reports the Bank of Japan see little need to rush into scrapping negative rates. USD/JPY rises over 1% to trade around 146.50. The Bloomberg Dollar Spot Index rose 0.1%.

In rates, treasuries declined, pushing US 10-year yields up 4bp to 4.27%, extending an 8 bps rise Friday on a stronger-than-expected US jobs report. Swaps traders scaled back bets on how much the Fed will cut rates next year, pricing in about 110 bps of easing, down from more than 120 bps. US inflation data is due Tuesday followed by the Federal Reserve’s policy meeting Wednesday and retail sales numbers Thursday.

In commodities, oil prices reversed an earlier gain to trade lower. WTI falls 0.8% to trade near $70.60. Spot gold is down 0.6%. Bitcoin drops 3.2%.

It is a busy week, with several central banks announcing their last decision for 2023 as well as CPI and retail sales data in the US, not to mention a triple witching opex this friday, but the US Calendar is relatively quiet to start the week with just the NY Fed consumer survey’s 1-Yr Inflation Expectations on deck.

Market Snapshot

• S&P 500 futures little changed at 4,608.50
• MXAP down 0.1% to 160.91
• MXAPJ down 0.3% to 499.39
• Nikkei up 1.5% to 32,791.80
• Topix up 1.5% to 2,358.55
• Hang Seng Index down 0.8% to 16,201.49
• Shanghai Composite up 0.7% to 2,991.44
• Sensex up 0.2% to 69,942.05
• Australia S&P/ASX 200 little changed at 7,199.04
• Kospi up 0.3% to 2,525.36
• STOXX Europe 600 little changed at 472.70
• German 10Y yield little changed at 2.26%
• Euro little changed at $1.0763
• Brent Futures little changed at $75.85/bbl
• Gold spot down 0.5% to $1,994.02
• US Dollar Index little changed at 104.10

Top Overnight News

• China’s consumer prices fell 0.5% year on year in November, the sharpest decline in three years as the world’s second-largest economy grapples with worsening deflation. Consumer prices dropped by more than the 0.2% decline forecast by a Bloomberg survey of economists and exceeded October’s fall of 0.2%. FT
• China’s state health insurance system has lost tens of millions of subscribers, as higher costs have put one of the world’s largest healthcare schemes out of reach for many people already struggling in a post-pandemic economic downturn. FT
• BOJ officials see little need to rush into scrapping the world’s last negative interest rate this month as they have yet to see enough evidence of wage growth that would support sustainable inflation, according to people familiar with the matter. BBG
• Israel’s national security adviser has warned that Israel “can no longer accept” the presence of Hizbollah forces on its northern border, and said it will have to “act” if they continue to pose a threat. Tensions between Israel and the powerful Iran-backed Lebanese militant group have been running high since the war between Israel and Hamas erupted two months ago, with repeated bouts of cross-border fire. FT
• Supply-chain constraints have eased and manufacturers’ staffing has improved, executives and economists say, helping get production lines humming again and helping push down prices. Overall, prices for durable goods—long-lasting items such as consumer electronics—have fallen on a year-over-year basis for five straight months, according to the Commerce Department. For some product categories such as televisions, prices are lower now than before the pandemic, according to Circana, a firm that tracks consumer goods. Grocery and clothing prices have continued to move higher, the Commerce Department data show. WSJ
• Recent inflation data have been an encouraging surprise even to our optimistic expectations, and our forecast path for year-on-year core PCE inflation has fallen somewhat as a result. Healthy growth and labor market data suggest that insurance cuts are not imminent, and with core CPI likely to print near 27bp on Tuesday and wage growth still too high we do not think that normalization cuts in response to a decline in inflation are either. But the better inflation news does suggest that normalization cuts could come a bit earlier than our previous forecast of 2024Q4. We are therefore pulling our forecast of the first cut forward to 2024Q3. GIR
• OpenAI leaders warned of abusive behavior before Sam Altman’s ouster. The senior employees described Altman as psychologically abusive, creating chaos at the artificial-intelligence start-up — complaints that were a major factor in the board’s abrupt decision to fire the CEO. WaPo
• Google’s new Gemini AI model is getting a mixed reception after its big debut, but users may have less confidence in the company’s tech or integrity after finding out that the most impressive demo of Gemini was pretty much faked. Tech Crunch
• Cigna abandoned its pursuit of a tie-up with Humana that would have created a roughly $140 billion giant in the health-insurance industry (CI instead will add $10B to its buyback authorization, taking the total to $11.3B). WSJ

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed after recent data releases including stronger-than-expected jobs data from the US and worsening deflation in China, while this week’s upcoming risk events, including US CPI data and a slew of central bank updates, added to the cautious mood. ASX 200 just about kept afloat as outperformance in the energy sector atoned for the lacklustre mood in metal miners and tech. Nikkei 225 gained following a pushback on recent BoJ speculation in which a source report on Friday noted recent comments by BoJ Governor Ueda were taken out of context and there was  no intention to signal anything about the timing for a policy change. Hang Seng and Shanghai Comp were pressured amid weakness in tech and property, while the data over the weekend showed a larger-than-expected decline in China’s consumer inflation and factory gate prices which suggests weak domestic demand. US equity futures were lacklustre was participants braced for the looming risk events. European equity futures are indicative of a flat/firmer open with Euro Stoxx 50 future +0.1% after the cash market closed up 1.1% on Friday.

Top Asian News

• China’s Industry Minister met with the Saudi Investment Minister and said that China is willing to cooperate with Saudi Arabia on new energy vehicles, aviation, photovoltaics and AI, according to Reuters.
• Japanese PM Kishida plans to replace Industry Minister Nishimura, Chief Cabinet Secretary Matsuno and ruling party policy chief Haguida, while it was later reported that PM Kishida said he wants to consider appropriate measures at an appropriate time when asked about a cabinet reshuffle, according to Reuters.
• China’s Industry Ministry says over 90% of existing NEV models would continue to enjoy purchase tax breaks as part of new technical requirements

European equities are mixed, Eurostoxx50 (U/C) with the FTSE 100 (-0.4%) the clear underperformer, hampered by losses in Basic Resources after Chinese inflation metrics on Saturday, which showed deeper deflation in both CPI and PPI. European sectors are mixed with the breadth of the market to the upside fairly narrow. Healthcare is lifted by Roche (+3.2%). US equity futures are flat/mixed, with markets ultimately lacking direction as markets await US CPI tomorrow ahead of the FOMC meeting on Wednesday; NQ (-0.2%) marginally lags with fresh fundamentals light.

Top European News

• A split within the UK government regarding migration policy widened as PM Sunak braces for a crucial week ahead which includes a vote on the Rwanda bill and a grilling in the UK Covid inquiry, according to FT.
• Goldman Sachs sees the first BoE rate cut in August 2024, with the pace of reductions faster than previously forecast, according to Bloomberg.
• Public sector workers in Germany’s federal states agreed on a wage deal with employers, according to Reuters citing the Verdi union.
• German government spokesperson says budget talks are at an advance stage, have cleared many issues

FX

• DXY is off to a strong start to the week, with the index holding above 104.00 for most of the European session after edging higher from a 103.92 APAC low, before seeing a boost via JPY weakness following BoJ sources.
• The JPY is the marked laggard this morning following reports that the BoJ is said to see little need to end negative rates in December, according to Bloomberg citing sources; which took USD/JPY to a 146.45 peak.
• GBP & EUR stand as the very modest G10 outperformers, with specifics light ahead of their policy announcements on Thursday.
• AUD, NZD, CAD are also modestly softer but to varying degrees amid the overall cautious mood in markets, whilst the Antipodeans feel some headwinds from Chinese inflation data.
• BoJ said to see little need to end negative rates in December, via Bloomberg citing sources; intends to come to a decision based on data up to the last minute. Lacks proof of sustainable inflation. Not yet seen sufficient evidence of wage growth which would support sustainable inflation; officials view the potential cost of waiting for more data as not very high.
• PBoC set USD/CNY mid-point at 7.1163 vs exp. 7.1690 (prev. 7.1123).

Fixed Income

• Core benchmarks began the morning under modest pressure, with catalysts in European hours somewhat limited initially and the follow-through from Chinese deflation dissipating and only a short-lived boost from BoJ sources.
• USTs are contained, but with a slight negative bias and modest upside at the short end of the curve – action which occurs without US-specific catalysts, but with participants cognisant of early US supply given Wednesday’s FOMC.
• Bunds are holding around 134.70 with nothing specific on the agenda today but domestic participants are focused on German fiscal talks as weekend negotiations on the 2024 budget ended without agreement.
• Once again, Gilts are the standout laggard as expectations continue to trim from dovish extremes ahead of Thursday’s BoE announcement.

Commodities

• WTI and Brent futures edged higher overnight with the momentum somewhat petering out in early European hours, despite a lack of pertinent newsflow. As such, benchmarks are now in the red by circa. USD 0.50/bbl, but well within recent parameters.
• Spot gold is on a softer footing amid a firmer Dollar and in a week littered with G10 central bank events; base metals are mixed amid the broader cautious tone coupled with the downbeat Chinese inflation data over the weekend.
• OPEC Secretary General Al-Ghais said at COP28 that they need an all-energies and all-technologies approach, while he added that realistic approaches are needed to tackle emissions, according to Reuters.
• UN climate chief Stiell said at COP28 that the areas where options need negotiating have narrowed and they must clear blockages to get a deal, while Stiell added everything is on the table and everyone is focused on getting an outcome in the next 24 hours.
• Sellers of sanctioned oil from Iran and Russia are said to be hiking prices to China after Venezuelan crude spiked following the suspension of US sanctions, according to trade sources cited by Reuters

Geopolitics: Israel/Hamas/Middle East

• Israeli PM Netanyahu said Israel will continue the war to eliminate Hamas and achieve its objectives, while he added that countries cannot both support Israel’s elimination of Hamas whilst pressing it to end the Gaza war prematurely, according to Reuters.
• Israeli PM Netanyahu spoke with Russian President Putin on Sunday and voiced disapproval of Russian statements against Israel at the UN and Russia’s dangerous cooperation with Iran, while he also told Putin that any country would have responded as Israel has to the Hamas attack, according to Reuters.
• Israel’s National Security Adviser Hanegbi suggested Israel may have to go to war against Hezbollah once Hamas is defeated and said it could no longer dare to tolerate the danger of the prevailing situation in the north with Hezbollah’s forces at the border, according to The Times of Israel.
• Al Jazeera reported heavy Israeli raids and artillery shelling on Khan Younis in the southern Gaza Strip, via social media platform X.
• Israeli national security advisor says the country ‘can no longer accept’ Hezbollah’s presence on the northern border, according to The Spectator Index.
• Hezbollah lawmaker Fadallah said Israeli air strikes in south Lebanon mark a new escalation and Israeli escalation will not deter Hezbollah from continuing to defend Lebanon and supporting Gaza. Furthermore, Hezbollah is said to be responding to Israeli escalation with new types of attacks whether in the nature of weapons or targeted sites, according to Reuters.
• US Secretary of State Blinken said it is imperative that Israeli military operations protect Palestinian civilians and that durable, sustainable peace must follow the military operations. Blinken also said durable peace must lead to a Palestinian state, according to CNN.
• Qatar’s PM said talks for a fresh Gaza pause are ongoing and Qatar will continue to pressure Israel and Hamas to continue a truce despite narrowing chances, while he added that the entire generation in the Middle East is at risk of being radicalised because of the Gaza war.
• Yemen’s Houthi military spokesman said they warn all shipping companies against cooperating with Israel and said if Gaza does not receive the food and medicine it needs, all ships in the Red Sea bound for Israel ports will become a target for their armed forces regardless of their nationality, according to Reuters.
• Jordan’s Foreign Minister said Israel is implementing a systematic policy to push Gazans out of the enclave beyond eliminating Hamas, while an Israeli government spokesperson called Jordan’s allegation that Israel wants to expel Gazans ’outrageous and false’.
• UN General Assembly is likely to vote on Tuesday on demanding an immediate humanitarian ceasefire in Gaza, according to diplomats cited by Reuters.
• Iraqi Kataeb Hezbollah militia said jihad operations against US forces will continue until the last US soldiers exit Iraq, while the Iran-aligned group added that an attack on US interests on Friday was just the beginning of a new engagement although they didn’t claim responsibility for the attack.
• Syria’s air defence intercepted Israeli rockets fired on Damascus surroundings, according to state media.
• A Swede jailed in Iran faces charges of acts against national security and spying for Israel, while the Swede also faces the charge of corruption on earth which can carry the death penalty, according to ISNA news agency.

Geopolitics: Other

• US President Biden invited Ukrainian President Zelensky to the White House for a meeting on Tuesday and Zelensky was also invited to address US Senators on Tuesday at 14:00GMT/09:00EST, while Zelensky’s office said he will concentrate on defence cooperation and unity in his US visit, according to Reuters.
• Russian Foreign Minister Lavrov said the West’s 500-year domination of the world is coming to an and that the West has ignored everything that happened in Ukraine before February 2022, while he added that Russia has become stronger due to the conflict in Ukraine.
• Philippines Coast Guard said supply vessels were water cannoned and rammed by Chinese Coast Guard vessels in the South China Sea. Furthermore, Philippines President Marcos said aggression and provocations by China’s coastguard and maritime militia have only further steeled determination to defend and protect the nation’s sovereignty, while Philippines Foreign Ministry spokesperson said they are utilising all forms of diplomatic actions available and the Chinese ambassador had been summoned, according to Reuters.
• US State Department said China interfered with lawful Philippine maritime operations and China has no lawful maritime claims to waters around the Second Thomas Shoal. US State Department said it stands with Philippine allies in the face of these dangerous and unlawful actions, as well as reaffirmed Article IV of the 1951 US-Philippines Defense Treaty.
• China’s Coast Guard said Japanese ships intruded into the territorial waters of the Senkaku/Diaoyu Islands on December 9th.
• White House National Security Adviser Sullivan travelled to South Korea to meet with Japanese and South Korean counterparts and had an extended discussion on deepening ties between Russia and North Korea, while the US has confidence shared by Japan and South Korea that North Korea is supplying weapons to Russia being used in the battlefield in Ukraine. Sullivan also commented that North Korea is irresponsible to walk away from the inter-Korean agreement and that the US and South Korea are preparing for all scenarios. Furthermore, it was reported that the US, Japan and South Korea reached an agreement on expanding their security partnership, according to Reuters.
• A US fighter jet crashed in South Korea during drills, while North Korea denounced South Korea and the US for staging joint military drills and called it a “futile” provocative act that will only hasten the South’s destruction, according to Yonhap.

US Event Calendar

• 11:00: Nov. NY Fed 1-Yr Inflation Expectations, prior 3.57%

DB’s Jim Reid concludes the overnight wrap

In the first half of my career, this week would have been a full week of client Xmas lunches that would have started around midday and with no fixed end point. That really does feel like a different lifetime ago now. Anyway, I wouldn’t have been very good company this week as I’m currently suffering from ear infections in both ears and I can’t hear a thing out of either side. I’m almost totally deaf. It’s been a bit of a brutal few days with no signs that it’s over yet.

There’ll be no resting place in markets either, as it’s hard to see how the week could be much busier given we have the following highlights. Today sees a 3yr and 10yr US Treasury auction plus the NY Fed’s Survey of Consumer Expectations. Tomorrow sees the all-important US CPI and a 30yr Treasury auction (after a very bad one last month). Wednesday sees a fascinating FOMC meeting and US PPI. Thursday sees US Retail Sales and policy meetings from the ECB, SNB and BoE. Finally, Friday brings the latest global flash PMIs and China’s main monthly data dump. There are plenty of other releases but these are likely to be the primary market moving events. For a full list, see the day-by-day calendar of events at the end as usual.

It’s a toss up as to whether the FOMC or the US CPI will be the most important event of the week. Given that CPI tomorrow could shape the FOMC, let’s start there. For headline, the consensus thinks we’ll be flat MoM, the same as last month (DB expect +0.07%), helped by gas prices being down -8% since October. For core, the consensus is at +0.3% MoM with DB at +0.27% (last month +0.23%). All these estimates would lead YoY to be 3.1% (-0.1pp) for the headline and 4.0% (unch) for core. For core, that would push the 3m and 6m annualised rate down one-tenth and three-tenths respectively to 3.3% and 2.8%. Our economists point out this would be the first time that the 6m measure has been below 3% for since March 2021 .

That will then set up the FOMC the following day and it will be interesting to see how Powell and the committee play it. Markets have got way ahead of the Fed in terms of pricing cuts for next year, so do they try to rein them in or acknowledge the direction of travel? The Fed is still likely to be more of a slow oil tanker than a speedboat but will probably acknowledge that barring a unexpected surprise, the hiking cycle is over but will conclude that it’s premature to talk about cuts at the moment. The dot plot will likely show 50bps of cuts by YE 24, which would leave the end-2024 dot 25bps lower than it was in September. See our US economist’s preview here, where they go through their expectations for the growth, unemployment and inflation forecasts in the SEP as well.

Central banks will stay in focus on Thursday, since the ECB will be making their latest policy decision that day. Our European economics team expect them to hold rates, but their preview note here highlights several factors that might tilt the ECB in a more dovish direction going forward. They now see the central bank cutting rates from April, with a risk of an earlier cut in March. They currently expect 150bps of cuts in 2024. The BoE are also expected to hold on Thursday with our economist’s preview here. Ahead of the decision, there will be the labour market data (tomorrow) and the monthly UK GDP report (Wednesday). Finally, our strategists see the SNB shifting to a dovish policy bias and expect the first rate cut in March (more here).

Over the weekend, Chinese CPI came in at -0.5% for November, which was below the -0.2% expected and is the biggest year-on-year decline in the CPI for three years. PPI also fell to -3% (vs. -2.8% expected). As a result, Chinese equities are struggling this morning, with the CSI 300 (-0.59%) and the Shanghai Comp (-0.26%) both losing ground. Moreover, the Hang Seng (-1.72%) has continued to underperform, and is currently at a 13-month low, having now lost -18.84% on a YTD basis. That said, other equity indices in Asia have managed to advance, with the KOSPI (+0.12%) posting a modest increase, whilst the Nikkei (+1.47%) has seen a strong bounceback. That comes as i nvestors have downgraded the likelihood of a policy adjustment from the BoJ at next week’s meeting, with markets only pricing an 8% chance that they end their negative interest rate policy (down from a peak of 45% last Thursday) .

Elsewhere, US equity futures are indicating a negative start with those on the S&P 500 (-0.09%) and the NASDAQ 100 (-0.30%) both lower. Meanwhile, yields on the 10yr USTs (+1.5bps) have slightly pulled upwards, standing at 4.24% as we go to print.

Looking back at last week, the S&P 500 posted a 6th consecutive weekly gain for the first time since the pandemic, after US jobs report cemented the soft landing narrative, although it did push back on the growing speculation about rate cuts. The headlines showed nonfarm payrolls were up by +199k (vs +185k expected) and the unemployment rate fell back to 3.7% (vs 3.9% expected). The average hourly earnings did rise to a monthly 0.4% (vs 0.3% expected) for the first time since July however, so that’ll be one to keep an eye on in terms of its implications for inflation. Nevertheless, there was more good inflation news on Friday from the University of Michigan’s survey for December. It showed both 1yr and 5-10yr inflation expectations surprising to the downside, falling to 3.1% (vs 4.3% expected) and 2.8% (vs 3.1% expected) respectively.

That resilience in the jobs report was very positive for risk assets, helping the S&P 500 to rise +0.41% on Friday, and leaving the index with a 6th consecutive weekly advance, with a +0.21% gain. The NASADQ just outperformed over the week, up +0.69% (and +0.45% on Friday), led by megacap tech stocks. In the meantime, US HY spreads tightened for a 7th consecutive week, falling -14bps (-4bps Friday) to their tightest level in over 18 months, at 360bps .

One effect of the jobs report was it raised the bar for a dovish pivot by the Fed, and expectations for rate cuts next year were dialled back. For instance, Fed funds futures pared back the cuts expected by the December 2024 meeting to 111bps, down from 134bps at the beginning of the week (and 125bps as of Thursday). In turn, that helped US 10yr Treasury yields jump +7.7bps on Friday, erasing their earlier declines to finish the week up +3.0bps. 2 yr yields saw the larger rise, up +18.2bps on the week (and +12.5bps on Friday), whilst the 30yr yield was up +4.8bps on Friday but were down -8.5bps over the five days. So a sizeable curve inversion playing out as investors remain more sanguine on long-term inflation prospects, but with data questioning the prospects for imminent cuts. And as investors priced out cuts for next year, the US Dollar index also rallied +0.45% on Friday, and +0.72% on the week .

Over in Europe, sovereign bonds followed the US market on Friday, with 10yr bund yields up +8.6bps but down -8.5bps for the week. There were several milestones for equities too, and the German DAX hit another record high, up +2.21% on the week (+0.78% on Friday), as a more sanguine inflation outlook continues to support investor sentiment. The STOXX 600 rose +1.30% last week (+0.74% on Friday).

In Japan, speculation mounted last week that the BoJ could soon be ending its negative interest rate policy following recent comments from central bank officials. That helped the Japanese yen strengthened +1.29% against the US dollar last week, although it trimmed those gains on Friday (-1.16%) as that speculation diminished again. The Nikkei fell -3.36% last week, and -1.68% on Friday, with matters not helped by weak growth data that showed that GDP contracted at an annualised pace of -2.9% in Q3.

Finally in commodities, oil gained on Friday, with the broader risk-on sentiment added to by news of the US government purchasing another 3m barrels for the Strategic Petroleum Reserve and by calls from Russia and Saudi Arabia on all OPEC+ members to join the voluntary cuts announced at the November OPEC+ meeting. Brent climbed +2.42% on Friday to $75.84/bbl, but still posted a 7th consecutive weekly decline (-3.85%) as supply remains strong and scepticism remained over the nature of the OPEC+ voluntary cuts. WTI crude rose +2.73% on Friday to $71.23/bbl (but was -3.83% on the week).