EUROPEAN FIXED UPDATE: Core bonds dented as core inflation fails to decline

Analysis details (10:50)

• EGB’s came under pressure on the morning’s French inflation metrics, with a moderately hawkish reaction seen in Bunds which took them to the current low of 140.50. Downside which stemmed from the release defying the easing of price pressures exhibited in other nations in recent sessions metrics ahead of the all-important EZ release. The Eurozone metrics showed a greater-than-expected easing of headline inflation pressure to (the still very hot) 10.00%. Despite this, a marked hawkish reaction took place in EGBs and filtered through into USTs given the core (ex-Food/Energy) metric unexpectedly increased to 6.6%. Specifically, Bund Dec’22 slipped from 141.24 to 140.70, as such above the earlier 140.50 trough and away from yesterday’s pre-regional CPI 140.25 mark and thereafter the WTD 139.78 trough. Amidst this, pricing for the December ECB is little changed with around 60bp of tightening implied and thus the 50/75bp debate remains finely balanced from a market perspective.


• For reference, today's Bund outing, the last 10yr from Germany this year, passed without marked reaction.


• Elsewhere, both Gilts and USTs have been deriving directional impetus from the above data points. Gilts are lower by circa 40 ticks on the session in sympathy and were unphased by largely familiar remarks from Chief Economist Pill with no Tier 1 data due either. Technically, if the downside persists, the November 25th low resides at 105.03 with little of note thereafter until sub-104.00.


• Stateside, USTs are clinging on to upside of a handful of ticks, despite EGB read-across, as post-EZ CPI market focus is very much on US data points and thereafter Fed Chair Powell who is due to speak for around 1hr at 18:30 on the Economic Outlook, Inflation & the Labour Market. The Fed Chair is expected to reiterate that the central bank is focused on bringing inflation under control. ING's analysts said the Powell speech is more likely to push rate expectations higher rather than endorsing dovish speculation. As a reminder, officials have begun to endorse the idea of a 50bp move in December, framing this as still significant – though, post-Powell as we enter the blackout period November’s US CPI will become increasingly pivotal.

30 Nov 2022 - 10:45- Research Sheet- Source: Newsquawk