Markets
This week’s opening session had little to offer, especially not coming on the heels of last week’s spectacular opening week including US activity/labour data and EMU inflation numbers. Their outcome and the market reaction to them suggests that the bullish bond correction since the early November FOMC meeting is over, making way for more neutral, sideways action ahead. EMU EC confidence data for December were today’s sole economic highlight. Sentiment improved unexpectedly (96.4 from 94; highest since May) on the back of a rebound in services confidence. Central bank comments were scarce with ECB Vujcic the sole on the wire. He expects inflation to slow gradually and believes that the ECB probably won’t be discussing rate cuts before Summer. That contrasts sharply with money markets discounting a first 25 bps rate cut as soon as April, taking the cumulative amount of rate cuts as high as 150 bps by year-end. German Bunds underperform US Treasuries today. German yields add 3.5 bps to 4 bps across the curve whereas daily US yield changes are broadly flat at the moment. The US Treasury’s mid-month refinancing operation (including 10y & 30y sales) and CPI inflation numbers (Thursday) are this week’s key talking points across the Atlantic. EUR/USD is currently changing hands near 1.0960 after spending most of the day just below 1.0950. Key European and US stock benchmarks record gains of up to 0.50%.
The Kingdom of Belgium is expected to launch its 100th OLO benchmark via syndication tomorrow. The bond will have a 10yr maturity (Oct2034) and is the debt agency’s first initiative to fund this year’s €52.92bn gross financing requirement. This covers a €21.48bn deficit (net financing), €29.27bn maturing debt and €1.50bn of planned pre-funding. Gross borrowing is €5.62bn higher than last year. A €4bn decline in the cash deficit is more than offset by an €8bn uptick in debt redemptions. The bulk of this year’s funding will be raised through OLOs for an amount of €41.00bn with the option to fund another €2bn under EMTN & Schuldscheine programmes. The debt agency expects to raise €2bn through retail State Notes, of which the maturities vary between 3, 5, 8 and 10 year. Doing so, the Belgian debt agency realizes a long-term funding comparable to 2023. To fill the remaining gap, the agency turns to short term debt instruments. The outstanding stock of Treasury Certificates is expected to increase by €4.72bn (to €25bn) while there will made almost full use of the structurally higher cash surpluses for an amount of €11.60bn. The anticipated issuance of a new €13.5bn 1-yr State Note compensates for the sharp outflow when the September 2023 one (€21.9bn) expires later this year. The Note needs to be launched before June 30 if the preferential fiscal regime is retained.
News & Views
Swiss inflation stagnated month-on-month in December. In defying expectations for a minor 0.1% decline, the yearly figure accelerated slightly more than anticipated, from 1.4% to 1.7%. The speedier price rises are no major surprise and are in part the result of ongoing rent hikes after the key reference rate rose twice. Electricity and gas prices also added. Inflation is seen higher for some months to come, also supported by a VAT boost in force since January this year. That said, it’s still comfortably within the Swiss National Bank’s 0-2% target. Together with a historically strong CHF dampening (imported) prices, there’s probably little need for the central bank to move from the sidelines. It has hit the pause button at a policy rate of 1.75% since September last year. EUR/CHF marginally loses ground today. The pair has been extensively testing the 0.93 big figure over the past few days and trades around the strongest CHF levels since the huge spike higher following the removal of the price cap in January 2015.
Brent oil declines more than $2/b today, trading around $76. The drop was triggered by Saudi Arabia announcing a bigger-than-expected reduction for its Middle Eastern flagship Arab light crude supplies. The move underscores the soft nature of the physical market, which in this case also includes China. The fact that it’s the de facto OPEC+ leader doing so carries great signaling power. One of the assets suffering collateral damage from the oil price drop is the Norwegian krone. EUR/NOK extends a bottoming out process that started end 2023 with a 0.8% advance today to 11.365. The EUR/NOK 11.40 area serves as a first resistance before 11.60 pops up as the more daunting test.
