Fra Danske Bank:
August Hyldgaard, [email protected] , Assistant Analyst
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Over Christmas, markets have focused on geopolitical developments and the FOMC minutes released the day before New Year’s Eve. Otherwise, markets have remained relatively calm ahead of the critical US and euro area figures set for release over the coming days.
For today, December manufacturing PMIs are set to be released for the US, euro area, Norway, UK and Canada. In the euro area, the flash estimate of 49.2 was released in very early December due to the holidays, so there could be a larger-than-usual revision.
Economic calendar
In geopolitics , US President Trump said the US has struck a facility inside Venezuela, significantly escalating the campaign against alleged drug trafficking operations. Additionally, the US struck vessels allegedly carrying drugs in international waters and imposed sanctions on four oil traders.
Following the meeting between US President Trump and Israeli President Netanyahu, Trump said that the United States would back Israeli strikes on Iran if Iran continued with its ballistic missile and nuclear weapon program. The president said he has heard Iran is “behaving badly” and is looking to restart its nuclear program, but he declined to provide additional details. Leading up to the meeting, Iranian President Pezeshkian said that Iran was in an “all-out war” with the US, Israel and Europe.
China launched large-scale military drills around Taiwan at the start of the week. Taiwanese markets reacted very calmly as the drills appear similar to what we have seen several times in the past. The drills followed a pattern of China ‘retaliating’ to events it deems as provocation, as they began less than two weeks after US announced USD 11.1bn arms sale to Taiwan. For the first time, China publicly stated that the goal of the drills is to serve as a warning not only to ‘separatist forces’ within Taiwan, but also for ‘external interference forces.
In the US , the FOMC December minutes offered no big surprises and the participants’ views remained divided on the outlook for interest rates. If anything, the tone was slightly dovish, given that the discussion on risks was mostly focused on the downside risks to labour markets. To quote, upside risks to inflation ‘remain elevated’ but downside risks to labour markets ‘were elevated and had increased since mid-2025’.
Regarding the balance sheet, nothing was too striking either. The minutes emphasized flexibility for conducting reserve management purchases e.g. allowing the purchase amounts to vary depending on fluctuations of non-reserve liabilities (so around tax dates, debt ceiling debates etc.). The discussion specifically highlighted maintaining purchase amounts at elevated levels until the mid-April tax date and then cutting back thereafter as we have expected.
In the euro area , the flash estimate of December inflation in Spain was released in line with expectations at 2.9% y/y. Spain HICP inflation was at 3% y/y for December and is an early release ahead of the euro area data next week. We expect euro area HICP inflation to decline to 2.0% y/y in December from 2.1% y/y in November. Energy prices have declined since November due to the warm weather in Europe which is the main reason for the expected decline in headline inflation. We expect core inflation to remain steady at 2.4% y/y showing a similar momentum as previous months. Services inflation should remain elevated at 3.4% y/y due to the still strong wage growth.
In Sweden , the Riksbank minutes contained few surprises overall. All members agreed on holding steady the policy rate of 1.75% and the policy rate is expected to be on hold for the next quarters. Governor of the Riksbank Erik Thedéen said that he has confidence in the Riksbank’s forecasts and emphasised that the Riksbank will be forward-looking this year and look through temporary declines in inflation from the VAT reduction on food. Thedéen also saw little room for a policy rate cut unless both the economy and inflation surprise on the downside.
In China , the private manufacturing PMI released in positive territory of 50.1, beating expectations of 49.8. Stronger factory activity and a modest uptick in domestic demand offset a decline in export sales. Business sentiment weakened as input cost inflation increased and employment declined.
Equities: Global equities recorded slight negative performance towards the end of the year, with the defensive sector beating the cyclicals by about 1% in the holiday season trading. The overall equity performance for 2025 ended at about 20% for MSCI world. Looking ahead, estimates for 2026 performance is concentrated in the range of 10% return (for the S&P500).
FI and FX: The EUR and the USD were outperformed by among others the Scandi currencies over the holiday season. The latter were aided by a rebound in stock prices with EUR/SEK falling to around 10.80 and EUR/NOK to around 11.80. EUR/USD hovered above 1.17. The 10Y US Treasury yield held steady with the FOMC minutes showing a committee split over what to do next. There was pressure on the US repo markets with SOFR fixing rising outside the Fed’s target range before year-end. That prompted dealers to borrow USD75bn on the Fed’s standing repo facility – a record amount. Oil prices were stable in the final weeks of December despite a lot of focus on geopolitics, including Russia-Ukraine peace talks.
See also our in-depth FI and FX morning comment *
Riksbank Minutes , 30 December
The Editorial – It’s not a sin to be optimistic , 28 December
European Government Bond Rating Calendar and Outlook for 2026 , 22 December
FX Forecast Update – Weaker USD, GBP and NOK in 2026 , 19 December
Reading the Markets EUR , 19 December
Global Inflation Watch – Diverging inflation trends , 18 December
ECB Review – In an even better place , 18 December
Report completed: 2 January 2026, 07:00 CEST
Report first disseminated: 2 January 2026, 07:30 CEST
Disclosures/disclaimer
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