Markets

The week ended with a bang. December US payrolls beat consensus by a wide margin (256k vs 165k) while October and November data barely faced a revision (-8k combined). Big contributors were health care (+46k), leisure & hospitality (+43k) and government (+33k). Today’s numbers strongly add to the feeling that the Fed’s momentum to lower policy rates is rapidly fading. US money markets barely take into account one additional 25 bps rate cut by the end of 2025. The best payrolls report since March was accompanied by a good household survey (+478k), resulting in an unexpected tick lower in the unemployment rate (4.1% from 4.2%). Average hourly earnings increased by 0.3% M/M (& 3.9% Y/Y), in line with consensus. Markets reacted strongly to the US labour market figures. US Treasuries extend their sell-off with US yields rising by 5.9 bps (30-yr) to 8.5 bps (5-yr). The US 30-yr yield temporarily breached 5%. Together with a brief spell in the second half of October 2022, that’s the only the second time since July 2007. The US 10-yr yield took out the 2024 top at 4.73%, paving the way to test the 2023 top at the similar 5% mark. Imagine next week’s US December CPI numbers (release on Wednesday) beating consensus expectations… Markets are currently looking at 0.3% M/M rise for headline inflation (2.9% Y/Y from 2.7%) and 0.2% M/M pace for underlying core inflation (steady at 3.3% Y/Y). Global bonds follow US Treasuries lower with German yields adding 2.6 bps (30-yr) to 4.3 bps (5-yr) and UK yields rising another 3.1 bps to 4.9 bps. The dollar strengthened with EUR/USD testing the sell-off low at 1.0226. The trade-weighted dollar touched 110 for the first time since November 2022. Cable (GBP/USD) touched 1.22 for the first time since November 2023. USD/JPY set a minor new short term high around 158.85, erasing earlier JPY-gains following rumours that the BoJ could raise its inflation outlook at the policy meeting later this month, bringing it closer to a next rate hike. The BoJ currently sees underlying inflation rising by 2% this fiscal year, 1.9% next year, and 2.1% the year after. Upgrades would bring the forecasts consistently at or above the 2% inflation target. US stock markets took the higher for longer perspective badly with the S&P and Nasdaq opening respectively 0.75% and 1% lower. Brent crude prices hit $80/b (from $77/b) after Reuters reported that the US would impose sanctions on Russian’s oil fleet.

News & Views

Norwegian inflation in December came in on the softer side of expectations. Headline prices fell by 0.1% m/m to be at 2.2% on a yearly basis. That’s an unexpected deceleration from the 2.4% in November. A core gauge (excluding taxes and energy) dropped a monthly 0.1% too, allowing the y/y reading to wipe out November’s uptick to 3% back to 2.7% again. The inflation numbers strengthen the central bank’s case to finally start its easing cycle after having kept rates steady at 4.5% since December 2023. It clearly hinted at a pivot to come in early 2025. While the central bank meets later this month, we think it’ll wait until the March meeting when it has updated forecasts at its disposal to substantiate the decision. The Norwegian krone barely budged on the eco news, hovering around EUR/NOK 11.76. The currency has been trading relatively weak in a broader perspective though for the last two years. It was (and still is) one of the major reasons the Norges Bank resisted rate cuts for so long.

Canadian payrolls growth in December picked up sharply from the 50.5k in November. Employment grew by 90.9k, the quickest pace since January 2023, well beyond the 25k consensus estimate. Full-time jobs increased by 57.5k, part-times by 33.5k. It made the employment rate rise for the first time since January 2023 by 0.2 ppt to 60.8%. The unemployment rate ticked lower to 6.7% as did average hourly wages, from 4.1% to 3.8% y/y. The overall stronger-than-expected labour market report helps the Canadian Loonie fend off outright payroll-driven USD strength. USD/CAD trades little changed around 1.441. The Bank of Canada since its last meeting of 2024 is eying more gradual rate cuts after slashing them by 50 bps back to back. Money markets pared easing bets in the wake of the release but still assume two 25 bps reductions throughout 2025 (to 2.75%).