Markets
It’s another news thin trading session with huge central bank meetings behind us and counting down to Thursday US inflation print. Underlying dynamics on bond markets doesn’t change though with persisting selling pressure. The US yield curve bear steepens ahead of 10-yr and 30-yr bond sales by the US Treasury. US yields add 3 bps (2-yr) to 4.6 bps (10-yr). The US 10-yr yield trades at 1.96%, eyeballing the psychologic 2% barrier for the first time since early 2019. The German yield curve moves in similar fashion with very long Bunds even underperforming US Treasuries. Obviously, there’s quiet some catching up to do assuming that net asset purchases could already end somewhere early H2 2022 while the ECB’s reinvestment pledge (at least 2024 for PEPP) probably also looks unsustainable given normalization paths of the BoE (natural balance sheet run-off to start now) and the Fed (run-off somewhere in June?). German yields add up to 6.7 bps for the 30-yr. The German 30-yr yield closes in on 0.50% resistance which is the 2021 top. 10-yr yield spreads vs Germany face more widening pressure especially for Italy (+6 bps). The Italian spread moves north of 160 bps for the first time since July 2020. The Kingdom of Spain announced a new 30-yr syndicated deal (likely to be launched tomorrow) before the window of opportunity really closes. UK Gilts underperform both Bunds and US Treasuries, rising by 7.1 bps (2-yr) to 8.8 bps (30-yr) across the curve. The UK National Institute of Economic and Social Research (NIESR) took a swipe at Bank of England governor Bailey. He last week urged pay restraint in order to avoid a wage-price spiral. NIESR deputy director Mortimer-Lee stressed that it’s not an individual employee’s job to the do the BoE’s job for it. He thinks that the BoE has fallen behind the curve by 6 to 9 months and has to play catch-up. The MPC left too much fuel around and all it needed was an inflationary spark to light it up. NIESR raised its inflation forecast for UK inflation to 5.9% in 2022 and 3.3% in 2023. Sterling can’t really profit from this rising (ST) yield differential with EUR/GBP sliding gently from 0.8450 towards 0.8420. It’s a more or less parallel move with EUR/USD. The pair changes hands in the low 1.14 area from an 1.1442 open. Stock markets manage to keep their composure despite the new bond sell off with most European and US equities currently trading with minor losses. In other markets, Brent crude declines from $92.5/b to $91/b after French President Macron said that he got assurances from Russian president Putin that the Ukrainian conflict won’t escalate further. News Headlines
The European Union today announced that it intends to invest €43bn via its Chips act. The initiative will enable €15bn in additional private and public investment by 2030. This comes on top of €30bn of public investments that were already in the NextGeneration EU budget. The Plan intends to support the building of new semiconductor factories in order to reduce the EU’s dependency from Asian and US markets. In this context, the EU also will adapt its state aid rules under strict conditions to ‘allow – for the first time – public support for European ‘first-of-a-kind’ production facilities, which benefit all of Europe’. The EU wants to double in market share in semiconductors to 20% in 2030. The US government also already announced a $52bn plan to support the national chips production
According to data published by the Czech Statistical Office, retail sales in December slowed quite substantially. Seasonally adjusted real sales printed at 2.1% Y/Y from 9.9% in November. Sales excluding motor vehicles even eased from 13.0% to 3.3%. For both series a substantially higher figure was expected. The jury is still out on the reason for the weaker than expected performance. Higher inflation eroding purchasing power might be part of the explanation. In a different report, the December unemployment rate rose from 3.5% from 3.6%.The Czech koruna was little affected by the data and trades stable near EUR/CZK 24.30.
