IRELAND: Risks From Potential US Tariffs - Corporate Tax Vulnerability (1/3)

Since the turn of the year, ECB speakers have generally re-iterated that the case for further rate cuts is solid. ECB implied rates have nonetheless been dragged higher by USD and GBP counterparts, with OIS now pricing 89bps of cuts through year-end (down from around 115bps on December 31). 25bp cuts are still essentially fully priced through the January and March meetings, but implied odds of a larger 50bp move have been removed. 

• Since Jan 1, Stournaras, Villeroy, Lane, Rehn and Vujcic have supported the case for further policy easing, with the hawkish Holzmann unsurprisingly presenting a more cautious view.
• The recent surge in crude oil and natural gas prices may present a fresh upside risk to the inflation outlook, though Executive Board member Cipollone noted on Jan 9 that the “December projections already assume gas prices in 2025 will be 25% higher than the average for 2024”.
• Meanwhile, Lane and Vujcic commented that more progress is still needed on services inflation. For MNI’s recap of the December flash inflation data, see here.
• The ECB projects a consumption-led economic recovery to take hold in 2025, but US trade policy remains a key source of uncertainty. Markets and policymakers await US President-elect Trump’s inauguration on Jan 20 for further developments on that front.
• In the following, we provide a summary of ECB-speak during the first two weeks of 2025: 250114 - Weekly ECB Speak Wrap.pdf

• Date $MM Issuer (Priced *, Launch #)
• 01/14 $2.5B #BNG Bank 5Y SOFR+47
• 01/14 $2.5B #CADES 5Y SOFR+68, upsized from $2B
• 01/14 $3B KFW +5Y +40
• 01/14 $2B IFC 3Y SOFR+29
• 01/14 $2B CAF 5Y SOFR+82
• 01/14 $Benchmark Blackstone Private Cr Fund 7Y +190a
• 01/14 $Benchmark LifePoint Health 7NC3 
• 01/14 $Benchmark Adobe 3Y +50a, 5Y +60a, 10Y +80a
• 01/14 $Benchmark British Colombia 3Y SOFR+45
• 01/14 $Benchmark BFCM 5Y +120a, 5Y SOFR
• 01/14 $Benchmark Hyundai 3Y +100a

December's PPI report showed softer sequential price pressures than had been expected: headline final demand PPI came in at 0.2% M/M (0.4% expected, 0.4% prior), with the "core" ex-food/energy/trade category printing 0.1% (0.3% expected, 0.1% prior). From a broader perspective for this volatile series, pipeline inflation remains uncomfortably elevated. But this was not a particularly worrisome report in its own right and core PPI - while still elevated - does not appear to be accelerating.

• This left the Y/Y figures higher vs November but lower than expected: headline at a 22-month high 3.3% (3.5% expected, 3.0% prior), with ex-food/energy/trade actually decelerating to 3.3% (no consensus, 3.5% prior).
• So on the one hand, headline PPI has been steadily accelerating Y/Y since bottoming at 0.8% in Nov 2023 and is now at a 22-month high, but Core PPI prices have settling in at above 3.0% Y/Y, where it has been for 9 consecutive months. That lends further credence to the idea that the prolonged period of Y/Y core goods deflation is over - but likewise there are no obvious signs of a pronounced resurgence in pipeline inflation outside of food and energy.
• Indeed, as the headline figures suggest, food (+6.4% Y/Y after +6.7%) and energy (-2.0% Y/Y after -6.1%) prices have been more inflationary/less deflationary, respectively, on an annual basis.
• But we interpret the "core" reading to imply that pipeline price momentum has continued to slow: at 1.9%, the 3-month annualized moving average fell to 1.9% from 2.1% prior, well down from over 5% earlier in 2024 for the lowest since December 2023. The 6-month m.a. likewise pulled back to the softest since November 2023.
• For the two major subcategories of final demand PPI, services inflation was flat, vs 0.3% M/M prior for the weakest since July, while goods inflation came in at 0.6% (after 0.7%).
• As we noted separately following the release, the PCE-relevant categories were mixed, with a jump in airfares the standout but fairly benign readings in other areas.