Markets
(Bear) steepening is name of the game today with UK Gilts underperforming. UK yields add up to 8.2 bps at the 30-yr tenor, lifting it to the highest level (5.4%) since mid-November of last year. UK PM Starmer’s chief of staff McSweeney offered his resignation this weekend, taking “full responsibility” for his advice in hiring Peter Mandelson as UK ambassador in the US. It doesn’t take pressure off the PM though with several Labour members suggesting that Starmer should quit his job. McSweeney was credited with taking Labour policy away from the hard-left to a more centrist approach. Markets fear that the (fiscal) credibility of whoever, if any, comes next will be tested. If Starmer stays on, his political mandate will also be significantly weakened. Apart from UK Gilt yields, the higher risk premium is visible in sterling as well. EUR/GBP moves from 0.8682 to 0.8720.
Changes on the US yield curve range between -1.8 bps (2-yr) and +1.5 bps (30-yr). The long end of the curve responded this morning to news that China urged banks to curb US Treasuries exposure in the context of diversifying market risk, but that move didn’t really stick. The front end of the curve will continue to (out)perform, we believe, in the run-up to January non-farm payrolls which are up for release on Wednesday. Last week, some disappointing second tier labour data caused a US jobs recession scare and added to Thursday’s risk-off move. US National Economic Council Director Hassett, long frontrunner to succeed Fed Chair Powell, warned to expect slightly smaller job numbers but that those are consistent with high GDP growth this year because population growth is going down and productivity growth is skyrocketing. It’s unsure whether animal spirits will take into account that disclaimer in case of disappointing data. Today, markets ignored the “lower jobs numbers shouldn’t trigger panic” part of his story. Intraday dollar weakness became more pronounced after the Hassett remarks with EUR/USD starting the week at 1.1816 but currently clearing the 1.19-handle.
USD/JPY (155.50 from 157) moved away from potential FX intervention territory after the landslide LDP-victory in lower house elections. PM Takaichi gets the strong mandate she was looking for with a 2/3rd constitutional majority. Markets take it from the political stability point of view rather than the fiscally irresponsible one. The very long end of the Japanese yield curve erased an initial increase of around 5 bps, unlike the <=10y part of the curve.
News & Views
Norwegian GDP (excluding the offshore energy and shipping industry) grew by 0.4% in the final quarter of last year. The outcome was close to expectations. The Norges Bank (NB) in its Q4 monetary policy report forecasted growth of 0.5%. GDP growth for the mainland economy over 2025 was 1.8% (0.6% in 2024). Growth was driven by solid domestic demand including a 1% Q/Q rise in household consumption and 0.4% Q/Q rise in government consumption. Gross capital formation rose by 7.2% Q/Q. External trade components were reported at 3.6% volume growth for both exports and imports in Q4. Today’s data should confirm the assessment of the Norges Bank that a restrictive policy is needed as inflation is still too high. The NB guided that the policy rate might be reduced later this year, if the economy evolves as expected. The Q4 data release today suggests that there is no need for the NB to rush to rate cuts to support economic activity, as growth is holding up fairly well. The Norwegian krone gains marginally. After the recent (USD & commodity driven) rebound of the krone, EUR/NOK at 11.43 is coming closer to a MT-range bottom in the 11.26 area (2025/2024 lows).
Bank of France governor Francois Villeroy de Galhau announced that he will resign from his job as Bdf head in June of this year. The resignation was due to personal reasons as Villeroy said he will take the opportunity to lead a foundation supporting vulnerable youth and families. His (second) full term was only scheduled to expire end of October 2027. In this respect, it is now up to French president Macron to propose a new candidate for the job. The new candidate will be subject to hearings at the financial committees of the Senate and the National Assembly. They can block the presidents’ choice by a combined overall negative vote of three-fifths over the two Committees. Villeroy was one of the more dovish, heavy-weight, governors at the ECB.
