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Core bonds marginally gained at the beginning of the new week. In super quiet trading (already starting in Asia as Japan and China kept their doors shut), US yields pared initial drops between 1.5 and 2.6 bps. German rates ease a little more, changes ranging between -0.6 and -2.4 bps. The European swap yield curve shifts lower similarly. Moves are technically inspired. Both US and German bond yields trade just shy of the first technical resistance zones (YtD highs) after recovering some ground last week. Investors took the opportunity of an empty economic calendar today to scoop up some of those beaten-up bonds. With important data scheduled for release later this week, they had an additional argument to do so today. The US and the UK take center stage, beginning with January inflation numbers in the former and the labour market report for the latter tomorrow. Equity markets took a guarded start. The EuroStoxx50 still ekes out a tiny gain, extending its recent winning streak. From a technical point of view, there are basically no resistance levels worth mentioning that lie between the current level (4723) and the nillies all-time high of 5522. Wall Street’s runner’s high is fading with the major indices treading water.

The dollar gains against most G10 peers, including the euro. EUR/USD snaps a four-day winning streak by testing but failing to overcome the 1.0793/1.08 big figure resistance. The pair is currently changing hands at 1.077. The trade-weighted dollar index (DXY) bounced off the 104 mirror support. Sterling holds steady against the euro and eases against an overall stronger USD. GBP/USD remains above 1.26 though – the level that marked the lower bound of a recent sideways trading range. The kiwi dollar underperforms despite the governor of the central bank saying before parliament that inflation remains too high. Deputy governor Hawkesby (what’s in a name) doesn’t seem to be in a hurry to cut rates, noting that the financial system can handle the current higher interest levels. It’s probably some profit-taking in NZD after a boost last week from an influential New Zealand bank airing expectations for the RBNZ to resume hiking. This compares to most, if not all, advanced central banks, be it slowly, pivoting towards monetary easing.

News & Views

The Chartered Institute of Personal and Development published its quarterly survey (winter 2023-24) today. There are signs that UK labour market tightness appears to be reducing and CIPD sees evidence there will be further easing in the coming months, as fewer employers are expecting significant problems filling vacancies. At the start of the new year, hiring freezes also seem more apparent, particularly among SMEs. The net employment balance, measuring the difference between employers expecting to increase staff levels in the next three months and those expecting to decrease staff levels – remains positive but has fallen from +26 last quarter to +22 this quarter. 9% of private sector employers plan to decrease staff levels in the next three months. In the public sector this even amounts to 18%. The expected basic pay increase has fallen from 5% last quarter to 4% this quarter, matching the December Y/Y CPI level. Expected pay awards in the public sector fell further than in the private sector from 5.0% to 3%. CIPD expects this to continue as inflation falls further. The CIPD survey evidence will meet a reality check of the official UK labour market data to be published tomorrow morning.

Price adjustments in the German property market continued in Q4 2023. Property prices were down by 2.2% Q/Q and 7.2% Y/Y, the VDP association of German Pfandbrief Banks revealed. The index dropped 10% off the peak level reached in Q2 2022. Residential property prices declined 1.6% Q/Q and 6.1% Y/Y. However, markets currently are in particular worried on potential impact of a further deterioration in the commercial property markets on banks’ balance sheets. In this respect, VDP saw the Q4 2023 decline in commercial property prices at 4.9% Q/Q and 12.1% Y/Y. This was especially due to office property prices. VDP doesn’t see a material improvement anytime soon as ‘their returns have thus far generally failed to meet investors’ expectations. On top of this, demand for offices remains subdued due to the uncertain economic growth in Germany and the still unclear impact of the working from home trend on office space needed, leading to further price decreases. VDP’s Jens Tolckmitt sees prices in residential property stabilizing summer, but not before the end of the year in the commercial segment.

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