EUROPEAN FIXED UPDATE: PMIs push EGBs to near contract best, Gilts give back initial gains on Services strength

Analysis details (10:31)

• EGBs are bid across the board with initial contained performance giving way to a marked bid after the morning’s Flash PMI data for December. Details and analysis available here for the EZ piece. But, in short, the release adds to concerns around a technical recession and, alongside the Q3 wage figure, speaks to the additional line from December’s ECB meeting around "strong growth in unit labour costs".


• The French figures came first and lifted Bund Mar’24 from 136.27 to 136.55, a move which then extended to 136.95 after the German data. Thereafter, the pan-EZ release sparked little move but the grinding bid continues with Bunds now at a 137.18 high which itself is just shy of Thursday’s 137.28 contract peak. Given the scale of action, focus remains on yields as the German 10yr eyes 2.00% to the downside after testing but holding the point on Thursday.


• Moving to Gilts, the subsequent UK Flash PMIs, details/analysis here, spoke to the concern outlined in December’s BoE that it is "too early to conclude that services price inflation and pay growth were on a firmly downward path". A release which pressured Gilts down from their 100.91 peak (a move in sympathy with EGBs) to 100.65, before then paring much of the move; as such, the benchmark remains comfortably in Thursday’s parameters with no real follow-through seen in BoE pricing.


• Finally, USTs are a touch firmer on the session having moved in tandem with the EGB reaction and only paring slightly from their 112.22 peak, which itself is 6 ticks shy of the contract best. For today, Fed’s Williams on CNBC is the keynote event and will as it stands be the first post-FOMC speaker. Thereafter, the US will digest its own Flash PMIs for December for any fresh insight into when the first cut will occur; currently, 90% chance for the easing cycle beginning in March with 45bp implied thereafter in May.

15 Dec 2023 - 10:31- Research Sheet- Source: Newsquawk