EM CEEMEA CREDIT: Ukrain: Spreads tighter

A quick turnaround for Bund, after initially gaining few Ticks on the US PPI miss, the German 10yr Yield is again eyeing a test to the July high of 2.642%, would need a test towards ~130.47, so far just tested a 130.53 low.

Mixed developments in key categories from a PCE perspective, all figures % M/M:

• Airfares +7.2% (after -1.6%), highest since March 2022
• Auto insurance -0.2% (after +0.20%), lowest since Feb 2023
• Portfolio management 0.2% (after -0.6%)
• Medical care 0.2% (after 0.3%)
• Healthcare services 0.0% (after 0.0%)
• If anything it looks as though most PCE components are on the soft side with the notable exception of airfares, which typically jump in December. Note these figures are not seasonally adjusted, but the airfares figure is still very high.
• We would take this chart with a grain of salt given there will be a sizeable downward seasonal adjustment to the airfares figure, but it illustrates that apart from that volatile category, the PPI report was fairly benign from a PCE translation perspective. (One of the few PPI airfare estimates we saw was from Nomura, which saw +1.8%, vs the +7.2% actual.)
• We await updated December PCE estimates which came into today centered on 0.20% M/M.

Fed Funds pricing sees a modest dovish reaction to the PPI data, moving away from initial post-data knee-jerk extremes.

• Unrounded PPI numbers look soft vs. expectations, with mixed implications for PCE (see previous bullet for more there).
• Also, the market may be scarred by last week’s hawkish NFP outcome and more focused on tomorrow’s CPI release.
• ~29bp of cuts priced through year-end, with the first cut not fully discounted until the end of the October meeting (18bp of cuts priced through June, 20.5bp priced through July, 24.5bp showing through September and 27bp through October).
• Levels little changed to 2bp more dovish vs. what prevailed into the release.
• Market briefly spiked to price ~31.5bp of cuts through year-end following the data.