POWER: EEX EU Power Volumes Climb 37% On Year

Italian December flash HICP was 1.4% Y/Y, two tenths below consensus and down from 1.5% in November. The lower-than-expected print combined with Franch undershooting estimates was a large reason for the Eurozone-wide inflation print tilting back in line with consensus at 2.4% Y/Y after upside risks from the German and Spanish data that had already been released (yesterday and Dec 30 respectively).

The decrease in Italian headline HICP reflected Y/Y moderation in most of the main sub-components:

• Services slowed to 2.9% Y/Y from 3.2% in Nov, ending the year with a notable moderation having stabilised between 3.1-3.4% Y/Y through Jan-Nov 2024. It should however still be viewed against pre-pandemic averages close to 1.0%.
• Non-energy industrial goods (core goods) were estimated to be flat on an annual basis in December after 0.4% Y/Y in Nov.
• Food, alcohol, and tobacco HICP slowed to 2.4% Y/Y from 2.8% in November.
• Energy deflation meanwhile continued but to less extent, with -2.9% Y/Y after -5.4% Y/Y in Nov, helping limit the decline seen in headline HICP inflation compared to November's Y/Y.  

Watch the Gilt, again testing that 4.65% mark in Yield, printed a 4.649% high right here vs a 4.651% high in December, its highest since late October 2023.

Looking further out for the 10yr Yield, today, reference 91.71:

• 4.700% = 91.13.
• 4.752% = 90.63 (Aug 2023 high and highest since Oct 2008).

The longer end in US, UK and Europe remain under pressures.

Swelling €IG supply and EGB syndications continue to weigh on EGBs, with the halt of the ECB’s PEPP reinvestments also a background negative in early ‘25.

• Softer-than-expected French and Italian CPI meant that Eurozone CPI data matched expectations, negating the upside risks provided by Monday’s German reading.
• Bund futures -4 at 132.22 vs. lows of 123.13, yesterday’s range intact.
• German yields flat to 3bp higher, curve steepens. 2s10s and 5s30s remain below cycle highs.
• EGB spreads to Bunds little changed to ~1bp wider in the main, OATs under the most pressure.
• The exception comes via GGBs, which continue their run of early ’25 outperformance. GGB spreads to Bunds and OATs on for fresh cycle closing lows (~75bp and -5bp, respectively).
• A conservative PDMA issuance target factors into early ’25 GGB tightening.
• ECB-dated OIS little changed to a couple of bp more dovish, showing 101.5bp of cuts for ’25, with a 25bp cut later this month near fully discounted.
• Gilt futures -25 at 91.70 vs. lows of 91.68. Initial support at 91.64 untested.
• Yields 2-3bp higher, curve steeper.
• 10s as high as 4.645%, Dec high at 4.651%. Spread to Bunds 2bp wider at 218bp.
• The presence of 30-Year gilt supply weighed on gilts in early trade.
• 30-Year gilt yields hit the highest level seen since 1998 ahead of the auction.
• The auction was taken down smoothly, which allowed UK paper to stabilise.
• Issuance should dominate locally, with no major European & UK risk events scheduled through the close.
• Elsewhere, U.S. ISM services & JOLTS data due later, Fedspeak from Barkin also slated.