RUSSIA: Russia’s Shoigu Arrives in Beijing to Meet Xi Jinping

Gilts catch up to the rally in U.S. Tsys that followed yesterday’s well-received 7-Year auction.

• Futures trade as high as 92.45.
• Short-term bullish correction within the longer run bearish technical theme remains intact.
• Initial support and resistance 91.10/92. 68.
• Yields 2.5-3.5bp lower, 10s lead the rally.
• Spread to Bunds continues to hover around 204bp, which represents the early November closing low. A break (on a closing basis) would expose the psychological 200bp marker.
• GBP STIRs roughly in line with levels we flagged earlier. SONIA futures flat to +4.0, BoE-dated OIS showing ~71bp of cuts through year-end.
• Comments from UK Chancellor Reeves due from just after 10:00 London. We provided greater colour in an earlier bullet. It is unlikely to be a market moving speech based on the already-released excerpts.
• As a result, macro and cross-market cues will be eyed today, with the UK data calendar subdued through the end of the week.
• Supply-wise, the DMO will come to market with 3.0bln of the 0875% Jul-33 green gilt this morning.

Spain Q4 flash GDP was stronger than consensus at 0.8% Q/Q (vs 0.6% consensus, 0.8% prior) and 3.5% Y/Y (vs 3.2% consensus, 3.5% revised prior from 3.3%). Spanish outperformance versus other key Eurozone countries has been highlighted in survey evidence, with the December composite PMI the highest since March 2023.

• Growth continued to be driven by domestic demand, which contributed 1.2pp to the Q/Q print (vs 1.0pp in Q3). External demand contributed negatively 0.4pp.
• Household consumption grew 1.0%Q/Q while gross fixed capital formation was very strong, increasing 3.4%Q/Q and more than offsetting the 1.4%Q/Q fall seen in Q3. Within this, tangible fixed assets (ex-housing and ex-construction) grew 7.6%Q/Q.
• Export growth was 0.1% Q/Q (vs 0.4% in Q3), whilst imports grew 1.3% Q/Q  (vs 0.9% in Q3).
• Gross valued added was positive in all major sectors (industrial, construction and services), but negative in the primary sector.

10-year EGB spreads to Bunds are generally biased tighter, driven by this morning’s ASML-led rally in European equities.

• The 10-year BTP/Bund spread has fully retraced the widening seen into yesterday’s close, now 2bps tighter at ~107.5bps. Yesterday’s widening came on news that PM Meloni has been placed under investigation in a case relating to the repatriation of a Libyan police officer.
• OAT/Bund has also tightened ~0.5bps to ~72.5bps, despite reports of a fresh rift between the Socialists and the Government following comments from PM Bayrou on migration. A deterioration of relations between the groups may threaten the chances of Bayrou getting his 2025 budget through the National Assembly.
• Spanish flash Q4 GDP was stronger-than-expected at 0.8% Q/Q (vs  0.6% cons, 0.8% prior), but did not generate any material outperformance in the Spanish curve relative to peers.