Markets
US yields enforced a slight comeback after tanking on Friday following slower-than-expected wage growth and a sharp retreat in the non-manufacturing December ISM. Advances in early European trading amounted to 5-6 bps across the curve but lacked strong-enough legs in a session without any news to retain all gains. The upcoming December CPI release (due Thursday) probably also caps the potential of market moves in the run-up. Net daily changes currently vary between flat at the short end and about 2 bps for maturities from 10y on. European yields were caught in the US slipstream end of last week. German yields lost about 10 bps but recoup more than half today, adding 4.5-6.4 bps across all maturities and underperforming US Treasuries. Peripheral spread changes vs Germany’s 10y are limited to +1 bp, with the exception of Greece (+5 bps). In terms of supply, the Kingdom of Belgium intends to issue a new syndicated benchmark bond (see headline below). Oil catches the eye in commodity markets. By adding about 3%, Brent settles back above $80/b. Some refer to ongoing China-related optimism. The country has issued a huge quota for crude imports today, which is taken as a hopeful demand signal. It has also unveiled some other supportive measures, including temporary VAT cuts for SMEs. That other closely watched energy commodity, gas, is stabilizing around levels seen just before the Russian invasion (€71.4/MWh) as a persistently mild winter keeps demand in check still. Equity markets join the risk-on. The EuroStoxx50 extends gains by 0.75%. The European gauge is creeping further north of the 4k barrier and has surpassed the previous recovery high (4035.15 in mid-December). US stocks add less than a percent.
The weekend hasn’t brought any relief for the dollar. The greenback slides against all G10 peers, including the yen – which is in bad shape too. DXY (trade-weighted index) is closing in on the 102.98 support level (post-pandemic panic surge higher in March 2020). USD/JPY loses a few ticks to 131.94. EUR/USD is testing the mid-December recovery high at around 1.072. To put things in perspective: the couple traded below 1.05 on Friday afternoon just before the payrolls release. Central-European currencies remain in a sweet spot, especially the Czech koruna. EUR/CZK hit a 15-y low after temporarily dipping below the 2011 support level at 23.93. A hawkish turn by the CNB (“rates may rise if demand pressures grow”) also helps. EUR/HUF stabilizes sub 400 and EUR/PLN holds ground below 4.70. Sterling’s attempt for a return back below EUR/GBP 0.88 ended almost as soon as it started. The pair (0.8806) is currently trading close to unchanged.
News Headlines
The Kingdom of Belgium (rated Aa3/AA/AA-; outlook all stable) announced that it intends to issue a new 10-yr syndicated OLO benchmark (OLO 97 Jun 2033) in the near future, subject to market conditions. It’s the first of three new expected benchmark deals in 2023 which serve to help complete a €45bn OLO funding need. In 2022, the Belgian debt agency raised €44.1bn in long term funding. OLO issuance is the lion share to cover this year’s €51.07bn gross borrowing requirement of the federal government, mainly consisting of a €27.54bn net financing requirement and €21.13bn worth of OLO redemptions.
The ECB published its economic bulletin. In one box they zoom in on wage developments and their determinants since the start of the pandemic. Looking ahead, wage growth over the next few quarters is expected to be very strong compared with historical patterns. This reflects robust labour markets that so far have not been substantially affected by the slowing of the economy, increases in national minimum wages and some catch-up between wages and high rates of inflation. Beyond the near term, the expected economic slowdown in the euro area and uncertainty about the economic outlook are likely to put downward pressure on wage growth.
