EUROPEAN FIXED UPDATE: Dismal PMIs bolster rate cut bets, US metrics up next

Bunds: +71 ticks, 133.20

• Came under modest pressure just before the European cash equity open, though drivers were light at the time, pressure which was sufficient to print a 132.14 trough. Prior to this, a downward revision to Q3 German GDP saw modest two-way action with a technical recession avoided but Germany on track for a winter stagnation.


• Thereafter, the morning’s Flash PMIs hit with French numbers softer across the board lifting EGBs generally and OATs specifically from 124.68 to 125.00. Internal commentary highlighted the impact from both domestic and international crises with the outlook for the future “particularly alarming”.


• Germany followed with Composite and Services soft though Manufacturing picked up incrementally, but remained well in contraction. A release which added to existing upside in Bunds, sending them above 133.00. Internal commentary focussed on the pressure in Services but did highlight a modest uptick in the future output index, potentially ahead of expected political changes.


• Finally, the EZ-wide Flash figures were soft across the board and saw Services unexpectedly fall into a contraction. Overall, HCOB described the release by saying “Things could hardly have turned out much worse…”. Following the data, market pricing for the ECB has risen to favour a 50bps cut at the December meeting (55% probability), a shift which along with the growth implications of the data has influenced equity and FX action extensively (see other wraps for specifics).


• Overall, the data leaves Bunds and OATs near highs of 133.32 and 125.52 respectively. As a reminder, the data collection period for the ECB’s December meeting is expected to close in the next few days; ahead of Flash HICP next week.

Gilts: +58 ticks, 94.60

• Opened lower by a handful of ticks and printed a 93.88 trough before then climbing as participants digested the morning’s retail data. With the initial pressure potentially a function of the underlying trend remaining strong, though its more likely Gilts were accounting for modest pressure seen in EGBs just before their open.


• On the Retail Sales, the metrics came in softer than expected across the board. Pressure which was primarily a function of consumer caution around the budget, with trends around the data still constructive and the upcoming shopping season coupled with declining inflation likely to bolster activity once again in the next few months. Overall, the release will have little/no bearing on the BoE; pricing was unreactive.


• Thereafter, picked up in tandem with peers on French, German and EZ Flash PMIs. The UK’s release saw came in softer across the board with Manufacturing moving further into a contraction and Composite unexpectedly falling into one. A release which was pressured by the budget but with forward indicators and the loss of confidence hinting “at worse to come”.


• For the BoE, the release has seen the odds of a December cut tick up modestly but only back to a c. 20% chance of a 25bps move. With the dismal economic performance/outlook being countered somewhat by “still-elevated rates of wage-related price and cost growth are being recorded in the service sector".


• Action which saw Gilts spike higher from 94.58 to a 94.90 peak before fading essentially all of the move in the ~30-minutes since. Docket ahead for the UK is light.

USTs: +7+ ticks, 109-23

• Firmer, moving in tandem with the above thus far. Rose to a 109-25 peak on the morning’s flash PMIs from the bloc and France/Germany beforehand.


• Action which has left yields lower across the curve with the long-end taking the brunt of it and as such the curve is modestly flatter.


• For the session ahead, USTs await their own PMIs with the Fed docket very light today until Bowman after hours.

22 Nov 2024 - 10:05- Fixed IncomeData- Source: Newsquawk