RATINGS: A Mix Of Stable & Positive Outlooks Up For Review Later

Citi note that “data out at the end of last week completes the picture of who bought all the gilts in ‘24. 45% of ’24 net gilt supply was absorbed overseas, 34% was taken by private domestic investors and 22% was taken by domestic banks.”

• They note that “this was the fifth time in the last six years that overseas investors have taken the greatest share (‘23 the exception), largely thanks to a strong pick-up in demand in the last quarter, a period in which cable depreciated by over 6% and gilts underperformed sharply vs. Bunds.”
• Elsewhere, Citi observe that “net buying by UK banks also had a late surge to the fastest 3-month pace on record, perhaps responding to cheaper ASW levels. In contrast, non-bank domestic demand fell away in late ‘24 to the slowest 3-month pace since early ‘22, despite higher outright yields, perhaps put off by the domestic uncertainty created by the Budget.”
• They conclude with “this highlights the efficiency of the gilt market in offering RV to entice one investor group whenever another one may be stepping back.”

The Spanish services PMI was a little weaker-than-expected at 54.9 (vs 56.8 cons, 57.3 prior). Taken alongside a lower-than-expected manufacturing PMI on Monday, the composite index ticked down to 54.0 (vs 55.9 cons, 56.8 prior). The composite index has nonetheless been in expansionary territory since November 2023, notably outperforming other major Eurozone economies.

We highlight that input price increases were passed through to output charges in January. A similar dynamic was also seen in the manufacturing PMI. 

Key notes from the release:

• “The rate of growth in new business in January was rapid, rising to its highest level since April 2023. Panellists noted that demand for their services was strong, and that commercial activities had helped to support new business gains”…. “Latest data did however suggest that growth was centred on domestic markets”
• “In response to higher overall workloads, service providers chose to take on additional staff at a rapid and accelerated pace”.
• “Panellists also noted an upturn in typical labour expenses during January”… “Suppliers were also reported to have increased their prices”… “firms increased their output charges in response to higher operating expenses”.

• While most of the calls for Cash Equities were on the downside and into negative territory, Banking index should again be watched, this is one of the most interesting chart at the start of 2025, SX7E is now breaking through 163.66, was not only last Week's high but its highest level since July 2011.
• Next upside is now seen at 166.10, the July 2011 high.