FED: Pre-Minutes FOMC Communications: Doves Lean Increasingly Cautious (2/3)

The ECB’s December 2024 SESFOD survey (Survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets) reports a tightening in credit terms and conditions between September and November 2024 “as general market liquidity deteriorated”.

• “A small net percentage of survey respondents expected overall terms to tighten further across all counterparty types in the three months ahead (i.e. in the period from December 2024 to February 2025)”.
• “A significant net percentage of survey respondents reported that financing rates/spreads had increased for funding secured against all collateral types”.
• “Survey respondents also reported increased demand for funding across all collateral types. Moreover, they reported a slight deterioration in the liquidity and functioning of collateral markets”.
• A reminder that German paper saw a notable cheapening against swaps through the Autumn, with the Bund ASW (vs 3-month Euribor) tightening from over 25bps at the end of September to below 0bps by mid-November (an all-time/cycle low).
• Despite retracing a portion of those moves in the second half of November, long-end spreads have re-approached those record levels this month. Analysts have highlighted increased free-float from ECB balance sheet run-off and heavy sovereign supply as fundamental drivers of swap spread narrowing in 2025.
• Press release: https://www.ecb.europa.eu/press/pr/date/2025/html/ecb.pr250120~9384966317.en.html

• EUR/USD: $1.0300(E2.0bln), $1.0325(E3.3bln), $1.0400(E2.2bln), $1.0415-20(E1.3bln), $1.0450(E921mln), $1.0490-00(E1.4bln)
• USD/JPY: Y153.00($1.5bln), Y156.00-05($2.2bln)
• EUR/JPY: Y159.40(E1.3bln), Y166.20($1.2bln)
• AUD/USD: $0.6200(A$775mln), $0.6245-50(A$939mln)
• USD/CAD: C$1.4285($703mln)

• The importance of UK labour market data may have fallen a little for the MPC, but it is still incredibly important for the market, despite growth concerns having picked up recently and activity and PMI data increasingly watched.
• The scope for further revisions make this month’s print even more unpredictable.
• Rounded to 1dp, the majority (6/8) of analyst forecasts we have seen for private sector regular AWE look for a 5.8%Y/Y print in the 3months to November, up from 5.37%Y/Y in the 3-months to the end of October. The other two forecasts we have seen look for 5.7%.
• In terms of the “headline” whole economy AWE numbers, ex-bonus forecasts are generally 5.5%Y/Y in the 3-months to November (from 5.19%Y/Y in the 3-months to October) while the total (including bonus) whole economy AWE forecasts are split between 5.6-5.7%Y/Y in the 3-months to November (with one analyst looking for 5.5%).

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