POWER: EdF Expects FID on EPR 2 Programme in 2H 2026

Citi note that “EGB supply pressure has likely peaked. There also seems little EGB supply indigestion so far. While these concerns remain, we find the overall risk-reward tilted supportive towards EMU periphery vs swaps.”

• They “especially like PGBs for this given we don’t expect the next syndication until April and today’s buyback absorbs some of the duration. This informed our recommendation last week to buy 20yr PGBs vs. swaps following the underperformance of the sector on the curve.”

Not much market moving in Lagarde's remarks to CNBC. She re-iterates that futures cuts will depend on data and that "gradual" steps remain reasonable (which aligns with a 25bp cutting pace).

On inflation, she provides a little direction on what the ECB will be focusing on within the services basket at the start of 2025:

• “We will be looking very carefully at services, at wages, what we call the late comers like insurance and things like that to see whether the early months of 2025 deliver the reduction in services prices that we anticipate”.
• “We are now confident that the target is in sight, that the disinflationary process continues, and that we are not overly concerned by the inflation export to Europe from the US”.
• “There will be interesting phenomenon to watch, the exchange for example, may have consequences. But we are certainly interested to see the US grow, because growth in the US has always been a favourable factor for the rest of the world”.

Gilts little changed early today, with spill over from a bid in Bunds countering the higher-than-expected UK PSNB reading.

• Futures +3 at 92.26, 92.12-26 range.
• Yields flat across the curve.
• 10-Year spread to Bunds 1bp wider on the day, last ~209bp.
• Strong demand at yesterday’s syndicated tap of the Jan-40 gilt and GEMM preferences to reduce duration of supply in FY25/26 resulted in the first sub-210bp close for the spread since November on Tuesday.
• Chancellor Reeves’ early morning comments to BBG failed to offer anything new. She will speak to CEOs later in the day.
• SONIA futures off lows as core global FI stabilises, last flat to +1.5.
• BoE-dated OIS shows 65bp of cuts through year-end.
• Little else of note on the UK calendar.