US DATA: Philly Fed Points To Strong Activity, But Rising Prices And Uncertainty

Commerzbank:

• CBK (21st Feb) 17/15.8ps, bought for 0.18 in 4k.

Deutsche Bank

• DBK (19th Dec) 13p, bought for 0.40 and 0.41 in 5k.

Characteristically cautious signals from Bundesbank President Nagel, who notes a “certain probability” of a cut in January in an interview with Bloomberg. Signals beyond the January decision were limited, with Nagel expressing a preference for the ECB to maintain its “meeting-by-meeting” approach through the first half of 2025. 

• His comments on inflation appear consistent with prior interviews. He sees inflation close to the 2% target by the middle of next year - a view already highlighted in an interview with the FT on December 4.
• Nagel has previously expressed worries around sticky services inflation. While this was echoed in the latest remarks, he concedes that moderating wage growth should drive some further disinflation in the coming months. 

Spillover from CAD CPI data, an extension of the rally in gilts and headlines pointing to record demand at today’s 15-Year OAT syndication underpin broader core global FI markets.

• Gilt futures to fresh session highs above 92.00, through initial resistance at 91.96. Next bullish target located at the January 6 high (92.27).
• The move takes 10-Year gilt/Bunds below 210bp, spread nearly 4bp tighter on the day. A close here would be the lowest since November 18.
• 10-Year OATs now ~0.5bp tighter vs. Bunds, aided by the aforementioned demand at the syndication, which comes despite the fiscal and political headwinds France faces. Still, OAT bulls are unable to test 75bp in the spread, given those medium-term risks.