The course of monetary policy tightening remains a key driver for bond markets
Remarks / Observations
– Germany Dec. Inflation readings stable but close to post-reunification highs.
– German factory orders posted a solid month in November.
– Fed members see the need to raise rates sooner or at a faster pace than many anticipated. Focus on upcoming payroll data (Friday) and December CPI (next Wednesday).
– FOMC Falcon Minutes are boosting selling in most asset classes, with risky stocks, commodities and currencies falling.
– China Dec Caixin PMI Services recorded its 4th month of expansion (53.1 vs. 51.9e).
– Final PMI services in Australia in December: no est v 55.1prelim (confirmed 3rd consecutive month of expansion).
– Japan final PMI services in December: No est v 51.1 prelim (confirmed 3rd consecutive month of expansion).
– BOJ offered to buy 2.0T yen in JGB under buyback agreements [unscheduled operation and a large cash injection after JGB yields hit the highest level since Nov.
– PM Johnson said to be under pressure to halt a £12B rise in national insurance as people struggle with rising inflation and energy bills.
– France took over the presidency of the Council of the EU in 2022. President Macron looking to loosen the euro zone’s fiscal rules. Such a move could cause a major clash with conservatives in Germany.
– FOMC Dec Minutes some participants judged that rates could rise before maximum employment was reached. A less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures. Noted that inflation readings had been higher and were more persistent and widespread than previously anticipated.
Indices [Stoxx600 -1.16% at 488.64, FTSE -0.73% at 7,461.65, DAX -1.17% at 16,081.29, CAC-40 -1.24% at 7,284.59, IBEX-35 -1.09% at 8,695.58, FTSE MIB -1.34% at 27,786.00, SMI -0.88% at 12,792.94, S&P 500 Futures -0.11%].
Market focal points / Key themes: European indices open lower in all areas and slide more into the red as the session progresses; all sectors are moving in the red, but the least badly off are materials and financials; sectors leading to the decline include technology and consumer discretionary; the banking sub-sector was supported after reports that Crédit Agricole could make an offer for Carige; ALG-SocGen JV acquires LeasePlan; M&C Saatchi Receives Interim Approach From AdvancedAdvT; earnings expected in the next US session include Walgreens-Boots Alliance.
– Consumer discretionary: Next [NXT.UK] -1% (trading update; outlook raised), Dr Martens [DOCS.UK] -10% (placement), Gregg [GRG.UK] -1.5% (trading update; new CEO), Sodexo Alliance [DW.FR] -1% (sales).
– Consumer goods: B&M European Value Retail [BME.UK] + 1% (trading update).
– Technology: Team17 [TM17.UK] + 4% (trading update; acquisitions).
– Fitch confirmed New Zealand’s foreign currency sovereign rating to AA.
Currencies / Fixed Income
– The USD held steady against the majors after the FOMC’s December minutes on Wednesday highlighted that members saw the need to raise rates sooner or at a faster pace than many anticipated. The March FOMC is now a live meeting.
– EUR / USD stable in the 1.13 area as various EU inflation data has remained high, stabilizing for the time being.
– GBP / USD retreating to the lower end of the 1.35 handle as the pair gave up some of its recent gains as risk appetite deteriorated.
– Tightening monetary policy remained a key driver for bond markets, with global yields continuing to rise. German 10-year yield at -0.07% (** Note: German 10-year Bund was last positive in April 2019).
– (DE) Germany Dec. CPI North Rhine-Westphalia M / M: +0.5 against -0.3% before; Y / Y: 5.2% against 5.1% previously.
– (DE) Germany Nov. Factory orders H / M: 3.7% vs. 2.2% e; Y / Y: +1.3% v -1.1% e.
– (HU) Hungary Nov PPI M / M: 2.7% vs. 4.5% previously; Y / Y: 21.6% against 18.3% previously.
– (TW) Taiwan Dec. CPI Y / Y: 2.6% against 2.7% e; CPI Core Y / Y: 1.8% vs. 1.6% e; WPI Y / Y: 12.3% vs. 13.4% e.
– (BR) Brazil Dec. FIPE CPI (Sao Paulo) M / M: No is v 0.7% before.
– (HU) The central bank of Hungary left the one-week deposit rate unchanged at 4.00% (1st break in 8 weeks).
– (DE) Germany Dec Construction PMI: 48.2 against 47.9 previously.
– (DE) Germany Dec. CPI Brandenburg M / M: + 0.6% vs. -0.2% previously; Y / Y: 5.7% against 5.7% previously.
– (DE) Germany Dec. CPI Hesse M / M: + 0.7% vs. -0.2% previously; Y / Y: 5.4% against 5.3% previously.
– (United Kingdom) Dec. New car registrations Y / Y: -18.2% against 1.7% previously.
– (United Kingdom) Dec. Final Services PMI: 53.6 v 53.2 preliminary (confirms the 10th month of expansion); Composite PMI: 53.6 v 53.2 prelim.
– (United Kingdom) Changes in official reserves for December: + $ 0.3 M against -1.4 M $ previously.
– (DE) Germany Dec. CPI Saxony M / M: + 0.5% against -0.2% previously; Y / Y: 5.1% against 5.0% previously.
– (EU) Euro Zone Nov PPI M / M: 1.8% vs. 1.5% e; Y / Y: 23.7% against 23.2% e.
Issue of fixed income securities
– (FR) The French Debt Agency (AFT) sold a total of € 10.997bn against an indicated range of € 10.0bn to 11.0bn for the 2032, 2040 and 2053 Bonds.
– Sold 5.870 billion euros in 0.00% oats in May 2032; Average return: 0.30% against 0.16% previously; Bid-to-cover: 2.12xv 1.78x front.
– Sold € 1.796bn in 0.50% Oats in May 2040; Average return: 0.69% against 0.62% previously; bid to cover: 2.29 xv 2.33 x front.
– Sold 3.331 billion euros in oats 0.75% May 2053; Average return: 0.99% against 0.83% previously; Bid-to-cover: 1.57xv 2.56x front.
– (DE) Germany Dec. CPI Bavaria H / M: no is v -0.2% before; Y / Y: No is v 5.3% before.
– (DE) Germany Dec. CPI Baden Wuerttemberg M / M: No is v -0.1% before; Y / Y: No is v 4.9% before.
– 5:25 am (EU) Daily liquidity statistics from the ECB.
– 05:30 (HU) Hungarian Debt Agency (AKK) to sell 12 month bonds.
– 06h00 (BR) Brazil Dec FGV IGP-DI M / M inflation: 1.6% ev -0.6% before; Y / Y: 18.1% ev 17.2% before.
– 6:45 am (US) Correction of the daily Libor.
– 07:00 (MX) Mexico Nov Leading indicators M / M: No is v -0.08 before.
– 07:00 (BR) Brazil Nov Industrial Production M / M: + 0.1% ev -0.6% before; Y / Y: -4.1% ev -7.8% before.
– 7:30 a.m. (United States) Dec. Job cuts at Challenger: No is v -14.9K before; Y / Y: No is v -77.0% before.
– 08:00 (DE) Germany Dec. Preliminary CPI M / M: + 0.4% ev -0.2% before; Y / Y: 5.1% ev 5.2% before.
– 08h00 (DE) Germany Dec EU Preliminary Harmonized CPI M / M: + 0.2% ev 0.3% before; Y / Y: 5.6% ev 6.0% before.
– 08h00 (UK) Daily Baltic Dry Bulk Index.
– 8:30 a.m. (United States) November Trade balance: – $ 80.9 against – $ 67.1 million before.
– 8:30 am (US) Initial jobless claims: 195Ke v 198.0K before; Continuing claims: 1.68MB vs. 1.716M before.
– 8:30 am (CA) Canada Nov International Merchandise Trade (CAD): 2.0Be v 2.1B before.
– 8:30 a.m. (US) USDA Weekly Net Export Sales.
– 10:00 a.m. (US) Dec. ISM Services Index: 67.0ev 69.1 before.
– 10:00 am (US) Nov Factory orders: 1.5% ev 1.0% forward; Factory orders (excluding transport): 1.1% compared to 1.6% before.
– 10:00 am (US) Nov Final durable goods orders: no estimate v 2.5% preliminary; Durable goods (excluding transport): No est v 0.8% prelim; Capital goods orders (excluding defense / excluding aircraft): No est v -0.1% prelim; Shipments of capital goods (excluding defense / excluding aircraft): No est v 0.3% prelim.
– 10:00 a.m. (MX) December minutes from the Central Bank of Mexico (Banxico).
– 10:30 am (US) Weekly EIA natural gas inventories.
– 2:00 p.m. (AR) Argentina Nov. Industrial production Y / Y: Not estimated against 4.3% before; Y / Y construction activity: No is 8.3% v before.
– 6:00 p.m. (PE) Interest rate decision from the Central Bank of Peru (BCRP); Should increase the benchmark rate by 50 basis points to 3.00%.
– 6.30 p.m. (JP) Japan Dec Tokyo CPI Y / Y: 0.7% ev 0.5% forward; CPI (excluding fresh products) Y / Y: 0.5% ev 0.3% before; CPI (excluding fresh food / energy) Y / Y: -0.3% ev -0.4% previously (revised from -0.3%).
– 6.30 p.m. (JP) Japan Nov Labor Cash Earnings Y / Y: 0.5% ev 0.2% before; Real cash earnings Y / Y: -0.5% ev -0.7% before.
– 18:30 (JP) Japan Nov Household expenditure Y / Y: + 1.2% ev -0.6% previously.
– 8:00 pm (PH) Philippines Nov Unemployment rate: no estimate of 7.4% previously.
– 22:00 (ID) Indonesia Dec Foreign reserves: No estimate against 145.9 billion dollars before.
– 10:30 p.m. (JP) Japan will sell 3-month coupons.
– 10:35 p.m. (JP) Japan will sell 30-year JGB bonds.