GILT AUCTION RESULTS: Budget impacts show in DMP data; something for everyone in the report
Dec-05 09:54
- This is the first post-Budget DMP survey (so the first since the National Living Wage and employer NIC increases were confirmed), but note that most of the "headline" numbers are produced on a 3-month rolling basis, so aren't fully accounted for yet. However, looking at the single month prints, it is clear to see a big shift in employment expectations (negative over the next year), expected own-price growth hit a 6 month high but expected wage growth actually decelerated. So it appears that firms will be more reluctant to hire, will be passing on at least some of the costs of the employer NIC increase but wages will be squeezed a little (particularly when you take into account some wages are going to be rising 6.7%).
- Firm's expected own-price growth increased to 3.7% in the three months to November (up from 3.5% in the 3-months to Oct). The single number print of 3.8%Y/Y was the highest since May (up 0.2ppt from both Sep and Oct). Part of the increase in the 3-month rate was the pickup in the single month print, but there was also a low outlier in August of 3.3% that drops out of the 3-month rate.
- Mean expected employment growth over the next year fell to 0.7% in the 3 months to November (from 1.1% in the 3-months to Oct and Sep). This is the first 3-month print below 1.0% since December 2020 and was driven by a big fall in the single month print to -0.1% in November (from 1.1% in both Oct and Sep). This is the first negative single month print since October 2020.
- However, expected year-ahead wage growth actually decelerated to 4.0% in the 3 months to November (from 4.1% in the prior four readings). The single month print fell to 3.8% after four consecutive 4.1% prints.
- In terms of realised numbers: own price growth continued to decelerate further on the 3-month measure to 3.9%Y/Y, wage growth on a 3-month measure fell to 5.5% (lowest since July 2022) while realised employment growth of 0.5% on the 3-month average is in line with the 0.5-0.6% range seen for four months now.
- In general the survey showed little reason for MPC members to really change their views - those looking for gradual cuts will be looking at the conflicting signs for employment and price growth. Those more in the "case 1" more activist camp will note that employment expectations and wage growth are decelerating, while those concerned with case 3 will see no clear direction here with price growth remaining higher-for-longer.
- SONIA futures are marginally lower than prior to the data with GBPUSD marginally higher.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
EURIBOR OPTIONS: ERM5 Upside Package Bought
Nov-05 09:44
ERM5 98.00/98.125 call spread vs. 97.625/97.50 put spread. Paper buys the call spread for a net 0.5 on 4.5K. ERM5 last 97.840.
SPAIN T-BILL AUCTION RESULTS: 6/12-month letras
Nov-05 09:40
| Type | 6-month letras | 12-month letras |
| Maturity | May 9, 2025 | Nov 7, 2025 |
| Amount | E1.517bln | E3.44bln |
| Target | E4.5-5.5bln | Shared |
| Previous | E3.344bln | |
| Avg yield | 2.840% | 2.610% |
| Previous | 2.869% | 2.579% |
| Bid-to-cover | 2.24x | 1.56x |
| Previous | 2.15x | 1.61x |
| Previous date | Oct 01, 2024 | Oct 01, 2024 |
GERMANY: Debt-Funded Sovereign Wealth Fund - Update
Nov-05 09:30
The likely head investment manager of the planned German debt-funded sovereign wealth fund gave some updated info on its setup in an interview here. The fund is planned to have around a E200bln size by 2036, with the intention that it can use the spread between Bund yields and expected returns on global equity investment to plug holes in the German statutory (currently fully pay-as-you-go funded) pension scheme.
- Planned gross returns are 6% compared to estimated bund yields at 3% (10y Bund yields remained below 3% constantly during the current cycle).
- Initial plans are for a 80% public equities and 20% private equity / infrastructure split. Across regions, plans are 40% Europe, 40% US, and 20% RoW.
- Investment will be spread over time: E12bln in 2025 (some initial equity investment on top), then growing by 3% per year until 2036. The debt investments are included in the current federal net issuance estimates.
- First payouts to the pension scheme are planned for 2036, but conditional on 10% net investment gains being reached cumulatively.
- A net return of 3% on a E200bln fund would yield around E6bln income per year - 1.6% of E380bln statutory pension expenditure in Germany.
- There was no specific info in the interview if the international investments will be FX-hedged or not.
- The head manager said consensus for the setup of the fund is wide-spread across parties, so also if the current traffic light coalition is not able to finish the setup, it seems likely the fund will be implemented at some point.
- However, there already appear to be some delays, as the fund was initially planned to be passed by this Summer. The plans are currently still being discussed in a federal parliamentary committee.
- Anja Mikus (the planned head manager) is currently CEO/CIO of the German nuclear waste disposal fund KENFO, which is also planned to be responsible for the pension fund until 2026. After then, a separate entity could be set up.
