GILTS: Lower As Tariff Risks Rise
Gilts follow peers lower at the open, with increased U.S. tariff risk (detailed earlier) seemingly driving price action today.
- Futures comfortably within yesterday’s range, leaving initial support and resistance (92.31/94.35) untouched, with the bull cycle remaining in play in the contract.
- Modest flattening of the curve, yields ~2-3bp higher.
- 10-Year spread to Bunds flat, as gilts match weakness in German peers.
- GBP STIRs extend on modest hawkish repricing seen at the open given higher for longer BoE risks that tariffs could present (if the Bank focuses on inflation, not economic growth), showing ~54bp of cuts through year-end vs. ~58bp early today.
- Expect macro and cross-market cues to dominate ahead of the weekend.
- Little of note on the UK calendar today, with labour market (Tuesday) & inflation (Wednesday) data headlining next week.
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EGBS: /SWAPS: Commerzbank Remain Short Long End German & French ASWs
Commerzbank note that “repo specialness continues to erode out of year-end, but exclusively due to the rich, seasoned Bunds. Recent issues and GC remain floored around depo, suggesting that the collateral floor continues to hold.”
- “Swap spreads stay tense as the renewed pressure on (ultra-)longs offsets the collateral-driven resilience in Schatz-spreads. As fiscal fears continue to dominate, U.S. Tsy and Gilt spread-structures signal further downside even if the collateral floor remains in place. We therefore stay short (ultra-)long Bund ASW spreads outright and vs. the curve, as well as 30y OAT spreads.”
- “As the specialness differential between seasoned, low-free-float Bunds and high-free-float ones continues to compress we see value in switching out of seasoned, rich DBRs into the active peers. EGB-spreads should continue to consolidate as fiscal fears stays in focus.”
EUROPEAN INFLATION: French CPI Inflation Momentum Rebounded In December
French final December HICP inflation was unrevised from the flash print on a rounded basis at 1.8% Y/Y (vs 1.68% in November) and 0.2% M/M (vs -0.15% prior). On a unrounded basis HICP inflation was 1.75% Y/Y, 1 hundredth softer than the flash reading. CPI inflation was also unrevised from flash at 1.3%. On an unrounded basis, CPI was 3 hundredths softer than the flash estimate at 1.32% Y/Y.
- Core CPI softened to 1.3% Y/Y (from 1.5% in November).
- Services was revised down 1 tenth from flash to 2.2% Y/Y (2.3% in Nov) while core services also softened to 2.6% (vs 2.8% in Nov - there is no flash for this series). The slowdown in services was in part due to prices of communication services falling 14.7% (vs -12.2% prior).
- The broad "manufactured products" component was unrevised from the flash print at -0.4% Y/Y (vs -0.3% prior). Core manufactured products fell at a steeper rate 0.4% Y/Y (from -0.2% in Nov).
- The softening in services and manufactured products is offset by energy rebounding between November and December; it was unrevised from flash at 1.2% Y/Y (vs -0.7% in Nov).
- INSEE's seasonally adjusted CPI series highlights momentum rebounding after having eased for the previous few months. CPI rose 0.4% M/M seasonally adjusted (SA), after a flat reading in November. The 3m/3m SA annualised rate rose 0.18% in December (vs a fall of 0.71 in Nov), and the 3m annualised rate rose a solid 2.63% (from -1.45% in November) - the firmest since August 2024.
- There was a marginal decrease in the proportion of subcomponents with annual inflation rates above 2% in December (34% vs 35% prior), with the proportion of components with annual inflation rates above 6% also falling marginally to 10% from 11% in November.
EQUITIES: Big names are reporting Today
US Earnings kicks off today, big names are reporting all pre Markets, notable ones:
- Pre Markets: Blackrock, BoNY, Citi, GS, JPM, Wells.
