EGBS: Outperform Gilts and USTs Following Trump Reciprocal Tariff Threat

The NFIB Small Business Optimism index rose to the highest level since October 2018 in December, up 3.4 points at 105.1. The improvement in optimism appears to be largely driven by the November election result (we saw a similar surge in December 2016 after Donald Trump's first election as president). Of note, "the net percent of owners expecting the economy to improve rose 16 points from November to a net 52% (seasonally adjusted), the highest since the fourth quarter of 1983."

• That included the highest percent of respondents seeing it as a good time to expand their business since Feb 2020, with multiyear highs for other readings including real sales volume expectations (Jan 2020) and inventory investment (Dec 2021).
• The "hard" components of the Optimism index (NFIB defines as: Job Creation Plans, Job Openings, Inventory Plans, Earnings, Capital Expenditure Plans) were more mixed than the surging "soft" categories (Expected Business Conditions, Outlook for Expansion, Expected Real Sales, Expected Credit Conditions, Inventory Satisfaction), though. Actual earnings and sales remained unchanged from a soft November.
• In the closely-watched employment categories, the survey showed that the net percent of owners raising worker compensation fell to the lowest since March 2021 (the % planning to raise compensation in the next 3 months was down 4 points from November). However, hiring plans hit the highest since May 2023. The inflation categories (actual changes and plans) were unchanged vs November.
• It's hard to get a gauge on the underlying signal on economic activity and inflation from the survey given the post-election exuberance, though overall this is a solid  if mixed report.

(MNI) London - Chinese state media reporting on a call between President Xi Jinping and European Council President Antonio Costa. On the call, Xi told Costa "China and Europe are partners [and] have no fundamental conflicts of interest or geopolitical disputes." Xi: "China has confidence in the EU, [and] hopes the EU can become a partner that China can trust." 

• Xi: "As long as China and Europe respect each other, treat each other as equals and engage in sincere dialogue, they can advance cooperation and achieve great things."
• Xi: "China and Europe should strengthen strategic cooperation [and] enhance strategic mutual trust as the international situation becomes more severe and complex."
• Earlier the EU published a report relating to a probe into whether the Chinese gov't is discriminating against EU firms in its medical devices procurement tender process.
• As Bloomberg notes, the report "confirmed the bloc’s concerns that the Asian country discriminates against foreign firms, opening the door to potential measures that could curb Beijing’s access to public tenders in future. [...] The move risks further raising tensions between the EU and China..."
• Trade Commissioner Maroš Šefčovič: “[EU] openness needs to be reciprocal: government contracts in the EU are open to non-EU countries, and we expect other countries to treat our companies with similar fairness. We have found that China is discriminating against EU medical devices producers in bids for public contracts, and while we continue to prioritise dialogue as a first step to finding solutions, we stand ready to take decisive action to defend the level playing field, ....”

• USDJPY breaks through its intraday high, as just pointed taking its cue from the push lower in US Treasuries, US 10yr Yield is close to test the 4.80% level that held Yesterday.
• There isn't much in terms of resistance in the USDJPY at current prices, and we are seeing instead 158.87 High Jan 10  next.
• GBP, CAD, NOK, AUD are all testing their session lows, with broader offers also emerging against the NOK, CNH, NZD, CZK, and CHF.