Markets
Distorted or not, that’s the question. It’s anyone’s guess at the moment which specific items in the CPI basket still face an impact from the US government shutdown which led the Bureau of Labour Statistics to skip the November CPI report. So markets simply responded Pavlov-style. Headline December inflation printed bang in line with consensus at 0.3% M/M and stabilizing at 2.7% Y/Y, but core CPI was marginally more benign than feared at 0.2% M/M and 2.6% Y/Y (unchanged). Consensus expected the core print similar to the headline one. Monthly details showed lower prices for gas (-0.5%), used cars & trucks (-1.1%) and education (-1%) being compensated by amongst others higher prices for rent (+0.4%), recreation (+1.2%) and airline fares (+5.2%). Overall services prices increased by 0.3% M/M and 3.3% Y/Y. US Treasuries and US equity futures spiked higher on the lower core CPI move but the move doesn’t really stick. Daily changes on the US yield curve are currently near unchanged. We continue to keep a close eye on the US 10-yr yield which seems on the verge of breaking through 4.2% resistance. The same goes for a very temporary dip in the US dollar. Focus for US investors now turns to US President Trump’s scheduled address at the Detroit Economic Club’s annual “Michigan Economic Outlook” session (8pm CET) where he might double down on (populist) proposals to boost affordability going into this year’s mid-term elections. JPMorgan Chase today warned already that Trump’s call for a 10% cap on credit card rates threatens to significantly change its business. They pushed back against the proposal when publishing robust Q4 2025 results. Bank of America, Wells Fargo and Citi report tomorrow.
USD/JPY rose just above the 2025 top (158.87) as the Takaichi trade gathers steam. The Japanese PM seems willing to exploit her popularity by calling snap elections in the lower house. The LDP currently lacks an outright majority but Takaichi hopes to secure that, helping to enroll her (stimulative) fiscal agenda. JPY weakens prompting first minor FX intervention warnings. USD/JPY 160(+) levels proved to be a trigger back in April-July 2024. The Japanese Nikkei rallied over 3% in a combination (with FI & FX) you don’t see that often. The Japanese yield curve bear steepened with yields rising by up to 8.7 bps at the 30-yr tenor which now surpasses the level of the German one (3.5% vs 3.46%). There are modest spillover effects to Europe and the UK as well though. Rising oil prices are at play as well at the long end of the curve with Brent crude topping $65/b for the first time since early October over rising geopolitical risks. US President Trump warned that Iran will pay a big price for killing protesters and cancelling all meeting with Iranian officials until the killing ends.
News & Views
Hungarian inflation in December slightly surprised to the upside with a 0.1% m/m increase and 3.3% annual print. The latter nevertheless marks a slowdown from 3.8% in November and in doing so closes in on the central bank’s 3% (+/- 1ppt) midpoint target. Central bank (MNB) measures of core inflation varied between 3.6% and 5.2% with most of them showing a deceleration from November as well. With favorable base effects kicking in these next few months and the central bank at the December meeting dialing back its hawkish tone, chances for additional rate cuts in the near future are growing. Markets, however, were running a bit ahead of themselves lately in terms of MNB expectations with the likes of the 2-yr swap hitting the lowest levels since October 2024 just yesterday. This stretched positioning helps explain today’s 7 bps increase at the short end of the curve. The forint swapped earlier losses from EUR/HUF 388+ to 386.7 currently.
Final Czech CPI confirmed the preliminary release at -0.3% m/m and 2.1% for December, bringing the average annual rate at 2.5% (slightly up from 2.4% in 2024). The numbers were accompanied by the central bank’s (CNB) core measure, which showed the monthly series rising by 0.2% to be up 2.8% in yearly terms. Within the core basket, goods price rises picked up from 0.2% in November to 0.4%, as did services from 4.3% to 4.5%. The CNB described services inflation as “elevated” and closely monitors the cost of owner-occupied housing (5% from 4.8% in the previous months). The CNB is forecasting a headline CPI drop below 2% this year, perhaps even for a longer period, but added that core inflation would remain broadly unchanged, at least at the start of 2026. The latter, mainly driven through services, shows that “price developments in the domestic economy have not yet fully stabilized and require tight monetary conditions.” The Czech koruna strengthens a tad to EUR/CZK 24.23. Swap yields rise 2.5 bps at the front.
.){kind=link}