FRANCE DATA: France IP Disappoints Again; Manufacturing Decline Driven Ex Autos

J.P.Morgan recommend 10-Year swap spread wideners.

• They suggest that relative narrowness in the “10-Year swap spread on valuation frameworks likely reflects a combination of: 1) upcoming 10Y syndicated gilt supply in February with a new gilt Mar35 planned for w/c 10 February, and 2) markets pricing in some uncertainty around increased gilt supply at the March OBR forecast update and DMO remit announcements.”
• However, they stress that this is “very much a tactical short-term view as the ongoing BoE APF reduction and likely upward skew to gilt issuance expectations should put narrowing pressure on 10Y swap spreads over the medium term.”

The Eurozone manufacturing PMI saw a five tenth upward revision to 46.6 (vs 46.1 flash, 45.1 prior), driven by a notable upward revision in Germany to 45.0 (vs 44.1 flash).

• Both new orders and production saw smaller declines than in December, helping the EZ aggregate tick higher.  Spain and Greece continued to outperform Eurozone peers.
• Downticks in industrial employment were noted across the four major Eurozone economies. From the EZ release: “Employment levels were cut further at the start of 2025, with the rate of job shedding accelerating fractionally. This marked a twentieth successive month that factory staffing numbers have declined”.
• There was an acceleration in input cost price pressures in January, and business “refrained from passing on higher costs to their customers”, bringing a “four-month sequence of discounting to an end”.
• December industrial production data is due from France (Weds), Germany (Fri) and Spain (Fri) this week.

The dovish repricing linked to tariff-related growth worry promotes bull steepening on the German curve this morning.

• 2s10s within 0.5bp of the October 21 ’22 high (36.7bp).
• 5s20s ~3bp off the ’24 treble top area (~51.1bp).
• Levels above are based on closing prices.