GILTS: /SWAPS: Spreads tYghten Alongside German Peers

• Ahead of the 10:00GMT / 11:00CET Italian inflation release, Istat has released the provisional weights for 2025 with upward revisions for services & energy and downward revisions for core goods.
• The main changes to the HICP ECOICOP divisions weights (see table below) are greater weight for housing and utilities ("Housing, water, electricity, gas and other fuels" revised +0.7pps), and less importance for recreation and culture (-1.0pps). See the table below.
• The inflation weights are usually revised alongside the final release on 21 February 2025.
• The 2025 CPI NIC weights for the main special aggregates:
  • Services 44.0918% (vs 43.3978% in 2024)
  • Inflation ex energy, food, alcohol and tobacco 69.1245% (vs 69.5454% in 2024 i.e. the HICP definition of core)
  • Core inflation using the NIC definition (i.e. ex energy and unprocessed food): 82.5648% (vs 82.8803% in 2024)
  • NEIG 25.0327% (vs 26.1476% in 2024), Energy 10.7690% (vs 10.3568% in 2024)
• Main products added to the basket to represent the changes in the household spending patterns or to improve the coverage of expenditure aggregates already represented in the basket, are: Speck, Women’s shorts, Ceiling lamp, Mattress topper, Bicycle inner tube, Windshield Wiper Blades, Dog waste bags, Pet bowls, and Ice cream cone.
• COVID-19 antibody serological test and COVID-19 molecular swab test have been removed from the basket.

J.P.Morgan recommend 10-Year swap spread wideners.

• They suggest that relative narrowness in the “10-Year swap spread on valuation frameworks likely reflects a combination of: 1) upcoming 10Y syndicated gilt supply in February with a new gilt Mar35 planned for w/c 10 February, and 2) markets pricing in some uncertainty around increased gilt supply at the March OBR forecast update and DMO remit announcements.”
• However, they stress that this is “very much a tactical short-term view as the ongoing BoE APF reduction and likely upward skew to gilt issuance expectations should put narrowing pressure on 10Y swap spreads over the medium term.”

The Eurozone manufacturing PMI saw a five tenth upward revision to 46.6 (vs 46.1 flash, 45.1 prior), driven by a notable upward revision in Germany to 45.0 (vs 44.1 flash).

• Both new orders and production saw smaller declines than in December, helping the EZ aggregate tick higher.  Spain and Greece continued to outperform Eurozone peers.
• Downticks in industrial employment were noted across the four major Eurozone economies. From the EZ release: “Employment levels were cut further at the start of 2025, with the rate of job shedding accelerating fractionally. This marked a twentieth successive month that factory staffing numbers have declined”.
• There was an acceleration in input cost price pressures in January, and business “refrained from passing on higher costs to their customers”, bringing a “four-month sequence of discounting to an end”.
• December industrial production data is due from France (Weds), Germany (Fri) and Spain (Fri) this week.