ECB: EUR 5y5y Inflation Swaps Anchored Despite NatGas Rally
Jan-29 14:01
Today’s extension higher in TTF futures (albeit off highs at typing) sees shorter-dated Euro inflation swaps move to unchanged on the session, though the 5y5y inflation swap remains close to intraday lows of ~2.08%.
- The January increase in natural gas prices is unlikely to sway near-term ECB policy rate expectations, with policymakers largely endorsing market pricing for 25bp cuts in January and March ahead of tomorrow’s decision.
- The ECB will likely be able to look through increases in energy prices if they are (1) small enough and/or (2) deemed to be temporary. However, more persistent rises would raise concerns around second-round effects, which could bleed into core inflation metrics.
- The current TTF futures price of over E50/MWh is well above the E42.9/MWh assumption for 2025 overall in the ECB’s December projections, so current levels would imply an upward revision to the bank’s headline inflation projections, all else equal.
- Recent energy moves may be assessed in more detail at tomorrow’s press conference. On January 22, President Lagarde noted that “data [in H1 2025] is going to be fascinating, as I said, the price of energy is going to be something that might have a real impact".
- See here for MNI’s ECB preview
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UKRAINE: Croatian Election Signals Continued Erosion In EU Support For Ukraine
Dec-30 13:41
The Croatian presidential election is set to go to a runoff on January 12, with former Prime Minister Zoran Milanović poised to win re-election. Although the position is largely ceremonial, Milanović's likely re-election is another signal that voters in Europe are softening in their support for Ukraine.
- Politico notes that Milanović and Croatian Prime Minister Andrej Plenković, "are deeply divided on support for Ukraine. Plenković supports military aid to Kyiv. Milanović, a member of the Social Democratic Party (SDP), has spoken out against it and criticized Western sanctions on Russia. In October, he blocked the participation of Croatian soldiers in NATO’s mission to support Ukraine."
- Semafor writes that Milanović's success, "is the latest sign of Europe’s eroding support for Ukraine ahead of US President-elect Donald Trump’s return to office: Europeans’ willingness to countenance peace negotiations has risen markedly, and the numbers who say they care about Kyiv has dropped, according to YouGov."
- Le Monde writes: "Europe has promised to stand by Ukraine against Russia in 2025. But, in reality, it is more than ever caught between Vladimir Putin and Donald Trump... With less than four weeks to go before [Trump] takes office on January 20, 2025, there is nothing to suggest that European capitals will be able to contain the impact of the populist's return to power."
Figure 1: Should Your Country Increase, Maintain, or Reduce Support for Ukraine?
Source: YouGov, Semafor
US TSY FUTURES: Extending Highs
Dec-30 13:13
- Treasury futures continue to march higher, mirroring support in EGBs (see 0754ET bullet), otherwise no substantive headline or Block driver.
- Tsy Mar'25 10Y contract trades 108-25 last (+11) puts it back to last Monday's early range, 10y yield declining .0545 at 4.5709%.
- Curves remain mixed, 2s10s -.050 at 28.792, 5s30s +1.967 at 37.374.
STIR: Repo Reference Rates
Dec-30 13:07
- Secured Overnight Financing Rate (SOFR): 4.46% (-0.07), volume: $2.275T
- Broad General Collateral Rate (BGCR): 4.45% (-0.05), volume: $840B
- Tri-Party General Collateral Rate (TGCR): 4.45% (-0.05), volume: $803B
- (rate, volume levels reflect prior session)
