STIR: /BASIS: Bar For ECB Move High, Steady EUR In X-ccy Despite Repo Line News
Feb-06 09:51
With various front end Euribor calendar spreads trading close to year-to-date lows we reaffirm our view that that the bar to a near-term ECB rate change is set relatively high, particularly in light of the steady tone in yesterday’s post-decision communique.
- In truth, the major point of discussion since the meeting has been centred on the impending reworking of the of the ECB’s repo line framework.
- The lines run between the ECB and non-systemic central banks in Europe to provide EUR liquidity when required (against EUR denominated HQLA collateral).
- RTRS sources noted that “the ECB is working on opening up access to euro liquidity to more countries, making it cheaper and easier to obtain as part of efforts to bolster the international role of the single currency. ECB President Christine Lagarde has long seen these liquidity lines as a key tool to boost the euro's global reach, particularly at a time when investors are reassessing the dollar's status due to the unpredictable nature of U.S. President Donald Trump's economic policy”.
- In terms of existing use, Commerzbank note that “the liquidity lines with other central banks have in the past mainly been used over year-end, by single digit billion € amounts”.
- In times gone by you may have expected such news/speculation to trigger some (at least marginal) cheapening of EUR vs. USD in x-ccy basis markets, but the ongoing questions surrounding the independence of U.S. institutions, current differentiation in net Fed & ECB liquidity management practices & U.S. trade policy provide structural headwinds for the USD, allowing EUR to trade at a premium to USD out to 5s in x-ccy (vs. the more normal/familiar EUR discount), making for no tangible movement in the market following the news.
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EUROPEAN INFLATION: HICP Tracking Remains Around 0.1pp Below Consensus
Jan-07 09:48
- Incorporating Dutch (2.48% Y/Y) and Austrian (3.9%) December HICP into our tracking estimate for Eurozone headline HICP, we still see risks skewed to the downside to the 2.0%Y/Y consensus (our unrounded tracking is currently at 1.92%), with Germany's surprisingly soft 2.0% Y/Y yesterday vs consensus 2.2% playing a sizeable role.
- Italian figures are the main remaining piece and can surprise in both directions, to be released simultaneously alongside the bloc-wide reading.
- A more material downside would be needed over the coming months to put any ECB cut discussions back on the table again.
EGB SYNDICATION: Belgium 10-year Jun-36 OLO: Spread set
Jan-07 09:46
- Spread set: MS+54bp (guidance was MS+56 area)
- Size: EUR benchmark (MNI expects E7-8bln)
- Books in excess of E80bln (ex JLM interest)
- Settlement: Jan. 14, 2026 (t+5)
- ISIN: BE0000366758
- Coupon: Short first
- Bookrunners: BARC (DM/B&D) / BNPP / CACIB / HSBC / JPM
- Timing: Books to close 10:15GMT / 11:15CET
Details as per market source, with MNI colour.
AUD: AUDUSD Extends Rally Overnight, AUDNZD Reaches Fresh 12-Year Highs
Jan-07 09:44
- Following yesterday’s clearance of the bull trigger at 0.6728, AUDUSD extended its recent bullish wave overnight, reaching a high of 0.6767. Topside levels of 0.6795 and 0.6858 are the next chart points of note, projection levels of the Nov 21 - Dec 10 - 18 price swing.
- Price action came in the aftermath of Australian CPI data for November, which despite moving in the right direction for the RBA to prolong its pause (headline CPI below expectations at 3.4% Y/y), caution remains as underlying 3-month momentum remains elevated. As a reminder, the complete monthly series is new with little track record and so the RBA will focus on the quarterly data for now with Q4 printing on Jan 28 before the Feb 03 rate decision.
- Bullish Aussie conditions have been underpinned by a hawkish leaning RBA and a shift in tone by Governor Bullock who appears to have removed any chance of future cuts. Indeed, one former RBA senior economist told MNI that the RBA could raise the 3.6% cash rate by 25bps as early as February.
- In the crosses, EURAUD extended this week’s impressive move south, having gained momentum below the June low at 1.7462. Overnight lows of 1.7291 narrowed the gap substantially to a key downside target at 1.7248, the May 2025 low.
- For AUDNZD, the spike to 1.1693 placed the cross at the highest level since July 2013. 1.1896 would be a significant long-term objective for AUDNZD, the 50% retracement of the 2011-2020 range.
