EUROPEAN FIXED UPDATE: Ueda spurs JGB action while PMIs weigh

JGBs: +3 ticks, 140.70

• Came under modest pressure on the BoJ announcement which saw a hike, 8-1 vote split, and upgrades to the inflation forecasts.


• Thereafter, a more pronounced move was seen at Governor Ueda’s press conference with his initial remarks around the spring wage talks weighing on JGBs which slipped from 140.72 to 140.61 over the course of six minutes.


• Following this, JGBs lifted from 140.62 to 140.78, echoing the upward move in USD/JPY, as Ueda said they have no preset idea on future adjustments.


• Overall, the press conference pointed towards further tightening occurring this year, though Ueda gave nothing away on the timing for a hike. As such, given the remarks around spring negotiations and the inflation forecasts, the meetings towards the midpoint of the year are perhaps the key ones and thereafter we look to May. However, a March move can of course not be ruled out.

Bunds: -31 ticks, 131.26

• Initial action modestly influenced by JGBs. Thereafter, no move on the French Flash PMIs (beats, ex-Services). Thereafter, the German figures printed firmer than forecast with Composite surprisingly returning to expansionary territory.


• A print that weighed on Bunds to the tune of 20 ticks with the contract slipping further to a 131.29 low just before the pan-EZ figure. Thereafter, the UK numbers (see Gilts) added to this and a 131.12 trough printed.


• The EZ figures came in firmer than expected across the board, Composite also returned to expansion with the commentary highlighting that this was driven by a recovery in Germany. No move on this release.


• For the ECB next week, HCOB points out numerous hawkish inflationary/price points in the release with services sector cost inflation and selling prices rising, while “worryingly” input prices in the manufacturing sector have increased. On services, this appears wage driven. For Lagarde and Co., HCOB believes the ECB will “likely stick to its gradual pace of cutting interest rates, for the time being.”


• As a side note, reports in Handelsblatt indicate that Germany is to sharply downgrade its 2025 growth view next week, to 0.3% from 1.1%. As a reminder, Germany posted contractions for both 2023 and 2024.

Gilts: -14 ticks, 91.75

• Followed the above into their own data releases, however Gilts were initially outperforming after gapping higher by a handful of ticks and thereafter hit a 92.25 session high.


• Outperformance which came without driver at the time and was likely a function of catchup to the bias from USTs (see below) and also perhaps on the pro-growth and similar comments that UK press is running after Reeves’ Davos appearances; though, there is nothing fresh in these reports, they are largely wraps of the Chancellor’s recent language.


• Thereafter, the session’s main move came on the Flash PMI release for January which beat across the board and weighed on Gilts by 20 ticks in an immediate move, taking it below 92.00 and thereafter extended further to a 91.55 session low.


• Within the PMIs, S&P writes that the stagflationary environment “poses a growing policy quandary for the BoE” with the release showing a reigniting in inflationary pressures while growth risks remain tilted to the downside.

USTs: +2 ticks, 108-14

• Moving in tandem with JGBs, Bunds and Gilts thus far.


• However, USTs remain just about in the green at the low end of a 108-09+ to 108-19+ band.US specifics so far on the lighter side after the extensive remarks from Trump overnight and yesterday, remarks which are propping up USTs as POTUS was constructive on US-China, wants lower energy prices and is willing to tell the Fed what he wants. Remarks which all serve to stem inflationary concerns from a Trump presidency.

24 Jan 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk