In focus today

In the UK, focus turns to the December inflation print. While price pressures have eased recently, paving the way for potential Bank of England rate cuts, core inflation remains elevated at 3.2% y/y.

In Denmark, November payroll data will be released. Payrolls rose by 3,500 in October, slightly lower than September's increase but still indicating solid progress in the Danish labour market.

In the US, the Supreme Court will hear arguments on whether President Trump can remove Fed Governor Lisa Cook for cause over alleged mortgage fraud. The case has reignited tensions around Fed independence, particularly after last week's issuance of grand jury subpoenas to the Fed related to Fed Chair Powell. Oral arguments begin at 16.00 CET, with the timing of the ruling uncertain, potentially arriving in February or as late as the end of the term in June.

We will also look to developments from the World Economic Forum in Davos. Among the speakers are ECB's Lagarde and President Trump. Trump is scheduled to deliver a special address from 14.30-15.15 CET and has plans to discuss the Greenland dispute with various parties at the forum.

Economic and market news

What happened overnight

In the US, President Trump signed an executive order aimed at boosting home-ownership by restricting large institutional investors from purchasing single-family homes. The order also directs federal agencies, including the DOJ and FTC, to review investor acquisitions for anti-competitive practices in the single-family rental market, while promoting home sales to individual buyers. These measures come as Trump faces pressure to address housing affordability ahead of congressional elections.

What happened yesterday

In Germany, the January ZEW index rose more than expected, with the assessment of the current situation at -72.7 (cons: -76.0, prior: -81.0) and expectations at 59.6 (cons: 50.0, prior: 45.8). This marks the highest levels since August and summer 2021, respectively. With the infrastructure package now "live," we expect the growth momentum from Q4 2025 to continue into 2026, forecasting a 1.2% y/y rise in GDP as consumers also benefit from an increase in real incomes. However, President Trump's recent tariff threats pose a clear downside risk if implemented, as Germany's economy is more exposed to the US than other major euro area countries, with exports accounting for 4% of GDP.

In France, PM Lecornu invoked Article 49.3 of the French constitution to pass the revenue side of the 2026 budget without a parliamentary vote, exposing his government to no-confidence motions on Friday. Socialist Party leader Olivier Faure confirmed his party would not back efforts by far-left and far-right parties to topple the government, ensuring Lecornu's survival and increasing the likelihood of the budget passing before February. Following the vote on Friday, Lecornu is expected to trigger Article 49.3 immediately again to pass the spending side of the budget, triggering another vote next week, and finally a third activation and vote to pass the full budget. The new budget aims to cut France's deficit to 5% of GDP, which, all else equal, should be supportive for French government bonds.

In the UK, the December/November labour market report came in close to expectations. Payrolls declined by 43K in December, indicating a renewed acceleration in job losses. However, revisions to the October/November job loss makes up for the poorer December. Private sector wage growth (3M rolling average) slowed to 3.6% y/y in November (prior: 3.9%). Average earnings excluding bonus were 4.5%, as expected. The unemployment rate held steady at 5.1% in November.

Equities: Global equities sold off sharply yesterday, led by the US and cyclicals. However, the internal market dynamics are more nuanced than the headline suggests. Small caps outperformed large caps, value outperformed growth, and in Europe there was virtually no difference between cyclical and defensive performance. This is a key point for the current investment narrative. The rotation away from US growth/tech/AI leadership started well before the Greenland headlines and the renewed tariff threats against eight countries. What has changed more recently is the framing. As geopolitical tensions escalate, the story is increasingly morphing into a sell-America/de-dollarization narrative. We flagged this already in yesterday's Morning Espresso, but it became materially clearer throughout the session. This dynamic is also politically relevant: it does little to strengthen the US president's leverage in his Greenland project. Overnight, Asian equities are lower. European futures point down, while US futures are marginally higher.

FI and FX: After a violent, record sell-off in Japanese bonds yesterday that weighed also on global fixed income markets, things have stabilised somewhat overnight with 30Y Japanese yields coming 6-7bp lower. This has contributed to improving global risk appetite with the large equity futures modestly in green this morning. In FX markets the JPY has been remarkably stable despite both higher Japanese yields and risk-off. The GBP and USD have done poorly with market attention returning to the "Sell US"-narrative while the SEK and CHF have made for a quite unusual pair of winners in Majors space. This likely reflects the CHF safe-haven status on the one hand and the SEK's reverse "Sell US" properties. The NOK FX price action has mirrored global risk appetite closely while EUR/DKK declined yesterday likely reflecting rebalancing flows countering the usual upward pressure on the cross during periods of equity sell-offs. Finally, EUR/USD xCCY basis markets exhibited a slight widening pressure yesterday.

Source: Danske Bank