Markets
The minor return action lower in core bond yields over the past couple of days turned to a halt today. The long end of the curve underperformed, both in Europe, where yields rise up to 3 bps, and the US (2.2-3.4 bps). We haven’t seen a particular trigger but do note the enormous supply this week so far, resulting in the busiest-ever start to the year. Italy and Portugal are adding to the flush with a dual (7-yr and 20-yr) offering of €20bn and a 10-yr €4bn sale respectively today. Such heavy and frontloaded issuance suggests governments and corporates are keen to lock in funding before something (geopolitics, upcoming earnings season …) breaks the current benign market conditions. Market’s healthy risk appetite is perhaps most visible in stock markets. The EuroStoxx50 and US indices, despite edging marginally lower today, are all hovering near record highs. At the same time, though, large-scale bond issue volumes won’t be one-offs in times of semi-permanent huge fiscal deficits. Gilts again outperform Bunds and Treasuries. Long-term yields barely recover from yesterday’s 7 bps hit. Currency markets barely make a dent in the intraday charts. EUR/USD trades an extremely tight sideways pattern between 1.167 and 1.168. DXY holds steady around 98.75. EUR/GBP posts gains for a third day straight with the pair moving back towards the 0.87 barrier (and re-entering the downward sloping trading short-term trading range).
Today’s economic calendar was second-tier, in particular ahead of tomorrow’s December payrolls, but nevertheless had a few prints in store. US jobless claims for example rose from 200k to 208k but remain low from a historical point of view. An unexpected drop in the October trade deficit, the smallest since 2009, triggered some buzz. The numbers, delayed by the government shutdown, showed imports dropping 3.2% (nonmonetary gold, medication reversing an earlier surge amid tariff uncertainty) and exports rising 2.6%. The EC’s economic confidence indicator in Europe came in to the weak side of expectations (96.7 from 97.1), owing to an unexpected drop registered in the services sector (5.6 from 5.8) and lower (final) consumer confidence, but remained among the highest levels of the last two years. The ECB’s consumer inflation expectations survey showed those for the 1-yr, 3-yr and 5-yr staying unchanged at 2.8%, 2.5% and 2.2%. One data point that perhaps deserved more attention than it got were German factory orders surging a consensus-crushing 5.6% m/m (10.5% y/y, fastest since 2011 excluding Covid). It’s the defense buildup (metal products, transport equipment) at play, but even excluding for these large-scale orders, they were still up by 0.7% m/m, the statistics agency reported.
News & Views
Overall Swiss prices were unchanged in December, to be 0.1% higher Y/Y (from 0% Y/Y in November). Average annual Swiss inflation reached 0.2% in 2025. On a monthly basis, lower prices for international package holidays, medicines and several types of vegetables balanced out higher prices for hotels and supplementary accommodation and the hire of private means of transport. Core inflation, excluding fresh and seasonal products, energy and fuel, came in at 0% M/M and 0.5% Y/Y. Both measures remain within the Swiss National Bank’s 0%-2% inflation target band. Goods price deflation (-0.6% M/M & -1.7% Y/Y) contrasted with higher services prices (+0.4% M/M & +1.2% Y/Y). Apart from inflation date, the SNB today released Minutes of the December policy meeting. The governing board found that there was currently no need for monetary policy action. “Neither a tightening nor a further easing would be appropriate at this juncture”. This duality marks a shift from September when the SNB opted not to ease further. EUR/CHF sits comfortably near the middle of the 0.92-0.9450 trading range in place since mid-April.
The Bank of England’s monthly Decision Maker Panel survey showed price and wage growth expectations slightly easing in December while employment remains negative but less severe than before. CFO’s from surveyed firms see year-ahead 1- and 3-yr expected CPI inflation stable at respectively 3.4% and 2.9%. Realized annual own-price growth and year-ahead expected own-price inflation both notched 0.1 ppt lower to 3.7% (in the three months to December) and 3.6%. Realized annual wage growth and expected year-ahead wage growth both declined by the same margin to 4.4% and 3.7%. Firms reported that realized annual employment growth was -0.4% in the three months to December, up from -0.7%. Expectations for employment growth over the next year weakened slightly, falling by 0.2 ppt to -0.4% in the three months to December.
.){kind=link}