EUROPEAN FIXED UPDATE: Benchmarks bid post-Powell, pushing ECB pricing towards 50bp for Dec.

Analysis details (10:50)

• EGBs are bid across the board as participants react to the commentary from Chair Powell on Wednesday. Currently, Bund Dec’22 is posting upside of over 110 ticks on the session and is around 10-15 ticks from the 142.32 peak, a level that is shy of touted resistance at 142.46 and 142.60. Even though they have had the opportunity to react to Powell in full on Wednesday, USTs have continued to climb with yields lower across the curve and particularly at the long-end given Powell stressing they do not want to overtighten and ahead of key data including October’s PCE. In his remarks, Powell suggested the headline could fall to 6.0% Y/Y in October from 6.2%, while the core measure could ease back to 5.0% Y/Y from 5.1%


• In wake of the pronounced post-Powell price action, market pricing for the ECB has seen a notable dovish shift with just under 55bp now priced for December vs 60bp+ yesterday around the EZ CPI release. As such, this dovish move appears to be more of a mechanical shift given the read-across from the Fed, particularly as pricing remained divided between 50bp/75bp around the mentioned inflation print and key officials at the ECB, particularly Lagarde and Schnabel, have erred on the hawkish side of things. The next potential key input on this will be remarks via a slide release from Chief Economist Lane today at 16:45GMT, particularly if he gives any insight around the CPI release. As a reminder, Lane has spoken extensively recently reiterating a meeting-by-meeting approach and stressing that the eventual rate is what is important, with the exact meeting allocation a “secondary issue”.


• Fed aside, the European morning has digested a substantial amount of supply with over EUR 11bln taken down between France, Spain and the UK; overall, the issuance was well received and marks the last outings for France and Spain this year, while the UK’s DMO returns next week. Reaction across EGBs/Gilts to the auctions was limited given broader price action.


• For the UK explicitly, drivers have been limited with the complex deriving direction from peers as Gilts post upside of circa. 60 ticks having faded an equal amount from the initial 106.19 peak. From a yield perspective, the 10y has dipped a touch to 3.10%, but remains well within recent parameters as pricing for December remains centred around a 50bp hike.

01 Dec 2022 - 10:48- Research Sheet- Source: Newsquawk