STIR: Fed Rate Path Pares Weekly Decline, Waller On The Docket

Looking at the details of the Swiss December inflation data shows a solid slowdown in the services CPI contribution (-0.126pp vs November) which, however, was almost exclusively driven by transport services; core inflation almost rounded down to 0.6%, making up for an overall soft release.

• Transport service inflation declined sharply to -1.4% Y/Y (3.3% prior), its lowest value since June 2021. Its contribution to headline decreased by 0.120pp vs November. Higher car fuel inflation could not outweigh that in the overall transport category.
• This means that the mid-term trend of lower services ex-rents contributions to headline remains intact - see the dark blue bars in the chart below.
• Further details see table.
• Also note that the consensus estimate was upwardly skewed (0.6% median but a number of analysts expecting a higher headline figure), so even though headline came in in line with consensus, it remained below the mean estimate (0.63% vs 0.65% mean est).
• The Swiss Franc saw some weakness on the back of the release, most notable in EURCHF, which is approaching the Nov 04 high of 0.9447 in a move further underpinned by strength for the single currency today. A continuation of the EURCHF rally would place the technical focus on a cluster of September highs around the 0.95 handle.

Swelling € & $ IG supply continues to weigh on bonds, alongside an uptick in crude oil futures.

• Elsewhere, a bid in European equities may be applying further pressure.
• Global core FI curves bear/twist steepen on the day.
• Gilts continue to lead the sell off, with 30-Year yields trading to fresh multi-decade highs and 10s threatening a clean break of their December high (technicals for 10s and 30s detailed in earlier posts).
• Gilts also falling afoul of fiscal/issuance risks, adding to broader global FI pressure, with the move higher in yields continuing to erode already narrow fiscal headroom in the UK.
• Solid reception of the latest 30-Year gilt auction did little to counter the sell off.
• Bears fail to retest yesterday’s lows in TY & Bund futures as of yet.

SX7E (17th Jan) 143/151RR, bought the call for 0.25 in 10k.