ENERGY: Russia Comments Following Tuesday Meeting with U.S.

German PPI rose to 0.8%% Y/Y in December, up from November's +0.1% Y/Y, but remains lower than consensus expectations of +1.1% Y/Y. Sequentially, PPI fell -0.1% M/M (vs +0.3% cons; +0.5% prior).

• Consistent with German CPI in December, energy deflation was less prominent than before, at -0.2% Y/Y (vs -2.4% November). This is the highest Y/Y rate since May 2023.
• That leaves ex-energy PPI broadly unchanged vs November, at 1.2% Y/Y - the rate has been hovering around that level for five months now.
• Looking at the non-energy categories, a deceleration in intermediate goods inflation stands out the most, at +0.1% Y/Y vs +0.4% in November. This comes as the trend of an acceleration in the category started to stall in September, and should, on the margin, be a positive sign regarding contained mid-term core goods CPI inflation in Germany.
• For further details see table.

Gilts little changed early today.

• Futures -12 at 91.55, trading in a 91.45-66 range.
• The structural trend condition in futures remains bearish, although the recent break above the 20-day EMA increases the threat to the overarching technical theme.
• Initial support and resistance at 90.68/91.96.
• Yields little changed to 1.5bp lower, front end outperforms.
• GBP STIRs still roughly in line with pre-gilt open levels, ~64bp of cuts priced through year-end.
• On the lookout for the syndicated tap of the 4.375% Jan-40 gilt. Bookrunners have indicated this will likely be tomorrow’s business, in line with our own expectation.
• Much of the weekend domestic headline flow centred on political posturing ahead of U.S. President Trump’s inauguration.
• That event dominates the macro calendar today.
• UK labour market data is due tomorrow, our full preview will be out later today, greater colour available in the pre-gilt open STIR bullet.

Goldman Sachs have recommended ERM5/Z5 flatteners, with an entry at -13.0, targeting a move to -30.0, with a stop set at -5.0.

• They think “the trimmed risk of 50bp cut odds is reasonable given the modest upside surprises to recent inflation data in Europe and expect terminal rate pricing in H225 to lead any further rally from here.”