GGMA Morning Brief: Risk sentiment improves sharply after Greenland deal, Strong AU labour market report, ECB succession, Norges Bank rate decision, US PCE & GDP reports, NZ CPI in focus
Good morning,
I hope all is well.
Here are the main overnight news and market movers:
Markets: Risk sentiment improves sharply after Greenland deal
Risk sentiment improved dramatically yesterday afternoon after US President Trump said he would not impose tariffs on European allies following a deal on Greenland. Bond and stock markets, cryptocurrencies and commodities rallied.
The Australian Dollar rallied after a stronger-than-expected labour market report.
In Japan, government bonds recorded gains for the second consecutive session, with super-long maturities leading the recovery as market sentiment stabilised following a significant selloff earlier in the week prompted by Prime Minister Sanae Takaichi’s election commitment to tax reductions. The 30-year yield fell 10 basis points at one stage to 3.62%, while 20- and 10-year yields also declined to 3.185% and 2.23%, respectively. (BBG)
Australia’s unemployment surprisingly drops to 4.1% In December
Australian unemployment unexpectedly fell in December as the economy added more jobs than anticipated, prompting traders to boost bets that the Reserve Bank will be forced to raise interest rates as early as next month. The jobless rate dropped to 4.1% from 4.3%, beating economists’ estimate of 4.3%, government data showed Thursday. Employment advanced by 65,200, led by full-time roles, and more than double the expected 27,000 gain. (BBG) The main source of the surprise, though, was labour force participation, which edged lower. Westpac thinks that the strong labour market, combined with a strengthening consumer-led upswing and rising inflation components, reinforces a hawkish stance from the RBA. The upcoming inflation data will be the deciding factor for the February policy decision.
Trump: Won’t impose tariffs; reached Greenland deal ‘framework’
President Donald Trump said he’s reached an agreement with NATO on a Greenland framework and will not be imposing planned tariffs on European allies. The president said in a social media post that the deal “will be a great one” for both the U.S. and NATO allies, but did not elaborate on the agreement's details with NATO Secretary General Mark Rutte. “Based upon this understanding, I will not be imposing the Tariffs that were scheduled to go into effect on February 1st,” Trump wrote. (Politico)
Trump signals favourite for Fed Chair: ‘Down to maybe one’
President Donald Trump said Wednesday he is nearing the end of a search to replace Federal Reserve Chair Jerome Powell and hinted he has his candidate in mind. In a CNBC interview at the World Economic Forum in Davos, Switzerland, the president said a search that began in September and once included as many as 11 candidates is nearly over. “I’d say we’re down to three, but we’re down to two. And I probably can tell you, we’re down to maybe one, in my mind,” the president said to CNBC’s Joe Kernen. Still, Trump declined to name the one. (CNBC)
President Donald Trump also suggested that Jerome Powell would not enjoy his tenure if he stayed on the Federal Reserve’s Board of Governors after his term as chair expired, in the latest broadside against the central bank chief, Bloomberg reports.
During arguments concerning President Donald Trump’s attempt to dismiss Federal Reserve Governor Lisa Cook, U.S. Supreme Court justices appeared to support the principle of maintaining the central bank’s independence in setting monetary policy, emphasising that undermining this autonomy could create tangible economic risks. (Reuters)
European governments opt for short-term debt amid rising borrowing costs
European governments are reducing their issuance of long-term sovereign bonds, instead relying more on short-term funding to minimise the impact of rising borrowing costs. According to a Barclays forecast that analyses government issuance patterns, the average maturity of debt sold in major Eurozone countries such as Germany, France, and Italy is set to drop below 10 years this year for the first time since 2015. In the UK, the bank expects the average bond maturity to be around 8.8 years, the lowest level seen this century. (FT)
Knot is most likely heir to Lagarde at ECB, survey shows
A Bloomberg survey of economists found that Dutchman Klaas Knot is a leading candidate to succeed Christine Lagarde as president of the European Central Bank. Respondents noted Isabel Schnabel has the strongest qualifications, followed by Pablo Hernandez de Cos and Knot. The survey highlights that an economics degree and central bank experience are viewed as most important for the role, while gender is among the least significant factors.
A small but growing opposition party cautions that the BOJ is increasing rates too quickly
Sohei Kamiya, leader of the Sanseito party, warned that the Bank of Japan's rapid interest rate hikes could harm the fragile economy ahead of next month's general election. He called for tax cuts, especially on consumption, and loose fiscal policy to boost growth, urging caution from the central bank. (Reuters)
Meanwhile, more Japanese companies expect rising interest rates to hurt their businesses, highlighting challenges for the Bank of Japan as it ends its ultra-low-rate policy, Bloomberg reports.
Study finds U.S. consumers shoulder the cost of tariffs
A study from the Kiel Institute for the World Economy shows that Americans pay 96% of U.S. tariff costs, with only 4% absorbed by foreign exporters through lower prices. Tariffs act as a consumption tax on Americans, raising $200 billion in revenue last year. They cut Indian exports to the U.S. by 18%-24% and may reduce eurozone economic output by 0.2%-0.5%. (WSJ)
Today’s Macro Roadmap: Norges Bank rate decision, US PCE & GDP reports, NZ CPI in focus
Wells Fargo believes inflation will continue its gradual decline, though some persistence is expected in the first half of 2026. Distortions from the government shutdown have partly driven recent drops in the Consumer Price Index (CPI). Alternative methods and data sources indicate less progress in Personal Consumption Expenditure (PCE) inflation. The bank projects headline rates of 2.8% for both October and November, with core inflation matching these figures. If these estimates are accurate, they would signal inflation remaining steady. Wells Fargo expects stronger, more consistent disinflation to pick up in the latter half of 2026, once the effects of tariffs are fully reflected in prices.
Also, final GDP and jobless claims will be published:
For the New Zealand CPI, Westpac predicts consumer prices increased by 0.5% in the December quarter, with the annual inflation rate likely to remain at 3.0%. The main drivers behind the price rise in December were higher petrol costs and typical seasonal jumps in travel and accommodation expenses. However, these increases were partially offset by a usual seasonal drop in food prices. Meanwhile, core inflation measures have generally declined over the past year, settling at around 2 to 3%. Westpac’s forecast is higher than the Reserve Bank of New Zealand's, which projected a 0.2% quarterly increase and a 2.7% annual inflation rate in its November Monetary Policy Statement.
Good luck today!
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