The moderately constructive Asian sentiment ran out of vigor going into European dealings. Equity markets did manage to shake off most intraday losses during a rather choppy trading session. Bond and currency markets on their turn awaited US CPI data. The December reading however, 0.2% m/m (0.1%) or 2.3% (2.3%) for headline (core) inflation, was pretty close to consensus and failed to trigger a market reaction. Core bonds held on to their marginal opening gains with US Treasuries slightly outperforming Bunds as US investors entered. US yield changes are limited to 2 bp. The German yield curve bull flattens with yields declining 1 bps at the long(er) end. Peripheral spreads vs. the German 10y yield widen slightly with Italy and Greece (both +2 bps) underperforming. Spain’s 10y edges slightly lower after having received a record bid exceeding €53 bn euros for its (ongoing) 10y auction. Belgium announcing the issuance of a new benchmark 10y bond had little impact on its bond yield (0.05% at the time of writing). Turning to FX markets, we mainly witnessed some euro weakness. EUR/USD, now trading at 1.111 from 1.114 this morning, turned south after a gentle two-day rise. USD/JPY treads water just an inch above the 110 level.

Sterling lost ground over the past few days as bets on a rate cut by the Bank of England (January, 30) increased dramatically. A shift in tone by several BoE members and unconvincing data were the main reason for EUR/GBP’s move north. The currency pair initially eked out further gains during technically inspired European dealings but met with resistance close at the 0.86 handle (December post-election high). The intraday trend then reversed but the sterling “comeback” lacked strong legs. EUR/GBP eventually trades slightly lower vs. opening levels at around 0.855. Cable mirrored moves in EUR/GBP. It is now changing hands just below 1.30. Tomorrow’s CPI data might trigger more market attention than usual given the recent central bank talk.

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News Headlines:

The Kingdom of Belgium intends to issue a new syndicated EURO benchmark bond maturing June 22nd, 2030 (OLO 89) in the near future (likely tomorrow), subject to market conditions. There is currently no debt outstanding at this tenor (2030). The Belgian debt agency earlier stated the intention to launch two fixed-rate OLO benchmarks this year, the other preferably having a 15-20y maturity. The Belgian gross borrowing requirement amounts to €31.46bn (vs €35.67bn last year), mainly covering net financing requirements (€9.6bn) and maturing debt (€18.46bn). The lion share of this amount will be raised by OLO issuance (€28bn vs €29.74bn in 2019).

US December CPI inflation printed close to expectations. Headline CPI rose 0.2% M/M and 2.3% Y/Y, compared to 2.1% Y/Y in November. The market expected a rise to 2.4%. Core inflation (ex food and energy) printed unchanged at 2.3% Y/Y. On a monthly basis, price rises in transportation, apparel, gasoline, medical care and prescription drugs were mitigated by price declines in household furnishings, used motor vehicles and airline fares.

The US earnings season kicked off today with amongst others a series of major US banks reporting Q4 results. JP Morgan and Citigroup beat market expectations, with fixed income trading supporting the Q4 performance. Wells Fargo missed expectations as legal costs weighed on the Q4 result. For now, the reported US earnings failed to extend the overall equity rally.


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