Markets
Regional inflation figures for North Rhine Westphalia wrongfooted investors at the very onset of today’s trading session. Prices fell by 0.1% M/M in Germany’s most populous state with the Y/Y-figure rising from 3% to 3.5%. That was less than what markets expected for the national German reading which was only published during afternoon. The Bund rallied from the start with the German 10-yr yield temporarily dipping below 2%, but the move rapidly lacked momentum. Other German regional figures showed that the NRW-release was the (soft) exemption while final figures showed upward revisions to December services (48.8 from 48.1) and composite (47.6 from 47) EMU PMI’s. French inflation rose by 0.1% M/M (vs 0.3% expected) and 4.1% Y/Y (from 3.9% Y/Y; mainly because of energy base effects) with services inflation accelerating (especially travel-related). German inflation eventually printed at 0.2% M/M (vs 0.3% expected) and 3.8% Y/Y (from 2.3%). A detailed breakdown isn’t available but energy base effects are definitely at play. Today’s (European) market reaction is more telling about positioning than about effective figures. Exactly the same data set would have started a huge Bund rally only a month ago, coming on the heels of the Fed-pivot and the ECB’s hold. It suggests that the bottom below yields is becoming firmer with markets already discounting too much policy rate cuts for 2024 (up to 150 bps both in Europe and the US). The proof of the pudding will be in tomorrow’s aggregate EMU number and US payrolls. German yields at the time of writing add 8 bps to 10 bps with the belly of the curve underperforming the wings. The German 10-yr yield is currently testing the recent high at 2.12%, trying to escape the steep downward trend channel in place since end November. US yields follow the move higher, erasing yesterday’s setback. They currently rise by 5.6 bps to 7.5 bps, the belly equally outperforming. The US 10-yr yield is trying to recapture the psychologic 4% mark. Today’s US eco data weigh on US Treasuries as well with ADP employment change showing 164k net job gains in December (vs 125k consensus) and weekly jobless claims dropping back to the historically low level of 202k (from 220k vs 216k forecast). The euro holds a slight edge over the dollar. EUR/USD moves up from 1.0922 to 1.0940. EUR/GBP erases part of yesterday losses, moving back in the direction of 0.8640. Stock markets hold steady despite the uptick in core bond yields with key European indices around 0.25% higher and US benchmarks opening mixed. News & Views
The Czech Ministry of Finance published its 2024 funding and debt management strategy today. Financing needs for this year amount to CZK 468.8 bn, or about 6.1% of GDP. That’s down CZK 191.2 bn from last year, mainly on a lower state budget deficit (CZK 252bn, minus CZK 36.5 bn) as well as lower redemptions (CZK 212.4 bn, minus CZK 159.1 bn). Gross issue of CZK-denominated medium term and long-term government bonds (at least two new ones) on the domestic primary market will be carried out in a total minimum nominal value of CZK 300 to 400 bn, down from CZK 520.0 bn in 2023, and with maturities along the whole yield curve. Issuance in the bucket up to 10 years is capped at CZK 300bn while the segment beyond that holds a maximum of CZK 150 bn. The Finance Ministry retains the possibility of a new issue of government EUR-bond under Czech law through an auction organised by the Czech National Bank or using a syndicated form of sale in cooperation with primary dealers and the Czech National Bank, possibly also in an ESG format. The Bank of England released its most recent Decision Maker Panel, surveying CFO’s of companies spanning all sizes. Firms reported that their output prices rose at an annual rate of 5.9% in the three months to December, down from 6.6% in the November report. The year-ahead gauge remained unchanged at 4.4%. CPI inflation expectations for the year ahead fell from a three-month moving average of 4.6% in November to 4.3% last month. The one looking three years into the future also fell, though by a marginal 0.1% to 3.1%. Annual employment trended lower to 2.8% but the forward-looking indicator strengthened 0.1% to 1.5%. Consequently, expected wage growth increased to 5.2% over the same horizon. The DMP noted slightly reduced uncertainty among British companies. 51% of them reported high or very high levels of uncertainty in December, compared to 53% the month before.
