Morning from Copenhagen.

While we await the FOMC meeting later today, which is set to be the final tailwind for risk assets this year, we’ve spent time analyzing where the US cycle is heading next. December’s macro data has been somewhat mixed—payrolls were weak(ish) but haven’t completely rolled over, while survey data from the S&P PMIs, NFIB survey, and others has looked relatively upbeat. So, what’s next in macro from here?

Judging from economic surprises, we remain firm in our view that the cycle is turning once again and that we’re in for more negative than positive surprises in economic data as we enter the new year. The labor market surprise index has weakened, alongside manufacturing and retail trade surprises. The only area holding up better-than-expected numbers in the US is household spending/personal income.

Given that private consumption makes up two-thirds of the economy, this is likely the factor to watch in 2025, especially as everything else—employment, housing, and so on—is weakening relative to expectations.

The US cycle is turning from an economic surprise perspective, and markets are heavily positioned with ultra-long equities and net-short bonds. Risks of a January melt-down in risk assets are increasing.

Chart 1: Economic Surprise Indices, Overview