Markets
It’s another stoic trading day where market driving news was scant. A Spanish bumper syndication was a sign of bond markets for the time being absorbing supply with ease The country racked in a record €137bn of bids for a sale with a rumoured size of €15bn. The US tests the market later today with its monthly 10-y auction ($37 bn). It’s not unusual for this time of the year that investors flock into the bond market as they typically begin shaping their portfolios. The expected upcoming monetary easing cycle is perhaps squeezing markets as well as it could lead to less juicy bond offers later this year. German bond yields lose some territory today, with net daily changes ranging from flat (2-y) to -2.6 bps (30-y). ECB Vice-President de Guindos and board member Schnabel were the latest in a series of central bank (including from the Fed) officials warning for a sharp and fast U-turn in monetary policy. The Spaniard’s approach was a more indirect one. He said that the ECB remains data-dependent before noting that the rapid disinflation we’ve seen so far will slow in 2024 and even pause at the beginning of the year. Schnabel pointed out that sentiment indicators are bottoming out and that financial conditions have loosened more than thought. Not that it mattered for markets though. They stick to discounting 150 bps of cuts this year. US Treasuries outperform going into tonight’s sale with declines of 2-3.2 bps across the curve. The US 10-y yield specifically is struggling to retain the 4% mark. UK gilts join the global trend by losing less than 2 bps. Bank of England governor Bailey in the meantime is appearing before parliament to talk about financial stability.
FX markets barely move today. The Japanese yen is the exception to the rule. JPY greatly underperforms all G10 peers following disappointing wage data this morning. Markets see the BoJ’s window of opportunity to normalize/escape from negative rates disappearing in front of their eyes. USD/JPY is on track for a close above 145 for the first time since early December. EUR/JPY is rising towards 159 with resistance at around 160 the only reference left before returning to the previous multi-year high of 164+. We’re keen to find out whether a weak yen can do what inflation numbers above the 2% target for months couldn’t: force the BoJ’s hand.
News & Views
Norwegian inflation rose by 0.1% M/M in December, slightly less than expected (0.2%). The Y/Y-print stabilized at 4.8% (vs 4.9% consensus). Underlying core inflation rose by 0.2% M/M with the core reading falling from 5.8% Y/Y to 5.5% (vs 5.6%). The latter was the lowest since September 2022. Significant declines in food and non-alcoholic beverages (-2% M/M), clothing and footwear (-1.7%) and transport (-0.4%) balanced increases in furnishings, household equipment and routine maintenance (+3.6%), miscellaneous goods and services (+0.4%) and housing, water, electricity, gas and other fuels (+0.2%). The Norwegian krone didn’t respond to the near consensus data (EUR/NOK 11.31). At its previous policy meeting, the Norges Bank suggest a wait-and-see approach with a first policy rate cut towards year-end. The disinflationary process and a slightly stronger krone suggests that risks, if any, are tilted to a slightly faster move. Norwegian money market discount almost 50 bps of rate cuts by the June meeting. National Bank of Poland governor Glapinski holds a press conference following yesterday’s policy rate status quo (5.75%). He says that headline CPI may fall below 3% or even 2.5% in coming months on the back of frozen energy prices, a stronger zloty and subdued demand pressure. He fears a new acceleration though in H2 2024 amongst others because of return of the 5% VAT rate after March. Polish core CPI is the main focus. The Polish zloty trades volatile in a first reaction near EUR/PLN 4.34. Polish (short term) swap rates have a tendency to rise. If any, Glapinski doesn’t seem to be in a hurry to rapidly slash policy rates. The next key meeting is the March one, including new policy forecasts.
