Sunset Market Commentary

Markets

Economic data were few today. Still core bond yields continued the bottoming out process that started last week, with Europe this time taking the lead. German yields are rising between 5-6 bps across the curve. Supply obviously was the name of the game today. According to Bloomberg analyses, a record of at least (probably more) than €43 bln of bonds (financials corporates and government related paper) was to be priced today. The sale of a dual Italian 7-y (€10 bln, new syndication 2031 bond) and 30-y tap (€5 bln) enjoyed ample investor buying interest, with books of the 30-y sale reported at a record of over €91 bln. The spread on the 10-y BTP even eased marginally in a daily perspective (-2 bps). Belgium also successfully launched the new 10-y October 2034 OLO 100 bond. The Belgian debt agency sold €7 bln at MS +24 bps with investor demand said to have been in excess of €72 bln. US yields for now outperform Bunds with yields easing between 1.5 bps (2-y) and 2.5 bps (30-y) The US Treasury will start its monthly refinancing with the sale $52 bln of 3-y notes later today. For now, investors apparently didn’t ask big price concessions going into the sale. Market resilience, amongst others, probably suggests that investors prepare for rather soft US December CPI data, to be published on Thursday. Even so, investors’ appetite for credit didn’t positively inspire broader risk sentiment. On the contrary, European equities failed to build on yesterday’s quite impressive US tech rally. The EuroStoxx 50 is ceding 0.75%. US indices also open up to 0.70% at the open (Nasdaq) as investors take a more cautious approach going into the start of the earnings season. Yesterday’s setback in the oil price is partially reversed with Brent oil again trading north of $77 p/b.

On FX markets, the dollar wins in on points (DXY 102.38), but the picture remains unchanged/indecisive. EUR/USD also declines marginally (1.094), but even first minor support (1.0877) stays out of reach. The yen slightly outperforms (USD/JPY 143.85). EUR/GBP after yesterday’s decline tried to sustain below the 0.86 big figure, but further sterling gains for now are running into resistance. Poor BRC retail sales data this morning questioned more positive news from the December PMI’s.

News & Views

French President Macron named Gabriel Attal, currently education minister, as new Prime Minister in a high profile government reshuffle to boost his party’s dwindling support ratings ahead of European elections later this year. A 10-point polling gap recently opened up with Marine Le Pen’s far-right party (RN). Macron’s government was also dealt a humiliating defeat back in December on long-promised immigration reforms. Lacking a parliamentary majority since 2022 elections, opposition parties initially united to block the reforms. Macron had to toughen his proposal to eventually win the backing of Le Pen’s RN. Gabriel Attal will be the youngest French PM (34y), replacing Elisabeth Borne. He is widely considered to be Macron’s heir in 2027 presidential elections when Macron hits his term limit.

Hungary’s full-year budget deficit was 4.59tn forint in 2023. The Finance Ministry initially targeted 2.28tn HUF, but the Orban government gradually raised the target from 3.9% of GDP via 5.2% of GDP to eventually 5.9%. Economy minister Nagy already questioned whether this year’s deficit target of 2.9% of GDP was reasonable given the size of the adjustment it would require. Rating agency Fitch in December suggested that a deficit narrowing up to 4.2% of GDP was a more likely scenario given that the Ministry of National Economy plans to keep the investment rate above 25% of GDP and wants to increase the employment rate to 85% via direct government programs. The Hungarian forint trades in the defensive today with EUR/HUF rising from 377.50 to 379. Separately, the Hungarian statistical office announced that industrial production declined by 5.6% Y/Y in November. In the first eleven months of the year industrial production was 4.8% lower than in the same period of 2022.