POWER: EU Midday Power Summary: FR-DE April Discount Narrows

• In the FI space, Bund futures are trading below their recent highs. The pullback appears corrective and a S/T bull cycle is in play. The Jan 15 rally highlighted a reversal signal - a bullish engulfing candle. It continues to suggest scope for a corrective phase that is allowing an oversold trend condition to unwind. Sights are on 132.04, the 20-day EMA. A clear breach of the average would strengthen the bullish theme. The bear trigger is 130.28, the Jan 15 low. Initial support lies at 131.00, the Jan 16 / 24 low.
• The medium-term trend condition in Gilt futures is unchanged, it remains bearish. However, recent gains continue to highlight a corrective phase and signal scope for a continuation higher near-term. The contract has traded through the 20-day EMA and the focus is on 92.75, the 50.0% retracement of the Dec 3 - Jan 13 bear leg. Initial support is at 91.10, the Jan 20 low.

The Spanish GDP deflator softened notably in Q4, with the flash release indicating growth of 2.3% Y/Y (vs 3.3% in Q3). Unit labour cost growth was strong at 4.0% Y/Y (vs 3.6% prior). However, this was offset by a 2.0% Y/Y fall in unit profits (vs growth of 2.6% prior). 

• Unit labour costs contributed 1.9pp to annual deflator growth, while unit profits subtracted 0.8pp. Unit taxes and subsidies contributed the remaining 1.2pp.
• Looking a little closer at unit labour costs, compensation growth was strong at 7.6% Y/Y (vs 7.2% prior). While this was partially offset by an acceleration in hours worked (2.8% Y/Y vs 1.4% prior), real productivity per hour worked softened to 0.7% Y/Y (vs 2.1% prior).
• Information on the GDP deflator and labour productivity will not be available for other major Eurozone countries (or the region as a whole) until the final releases in late February/early March. The ECB expects moderating wage growth to ease labour cost pressures in 2025, while productivity growth is forecast to pickup owing to "the cyclical adjustment of the economy over the projection horizon and a slowdown in employment growth". 

• MBA composite mortgage applications dipped 2% last week (sa) after a flat week that consolidated a previous 33% jump at the start of the year.
• The latest decline was driven by refis (-6.8% after -2.9%) whilst new purchase applications only inched lower (-0.4% after 0.6%).
• New purchase applications stand at 63% of 2019 averages for some of their highest levels since mid-2023 vs just 30% for refis.
• The recent moves came as the regular 30Y mortgage rate held steady at 7.02%, broadly consolidating its recent rise to 7.09% for highs since Mar 2024.