CREDIT UPDATE: EUR Primary Weekly Supply

• MNI: US DEC INDUSTRIAL PROD +0.1%; CAP UTIL 78.6%
• US NOV IP REV TO +0.0%; CAP UTIL REV 78.6%
• US DEC MFG OUTPUT +0.1%

Bank of America note that “the USD has rallied against all G10 currencies in early ‘24.”

• They see several reasons for this, including: “the exuberant "pricing to perfection" of a soft landing scenario and the possibility that any Fed cuts priced for a harder landing scenario are not USD negative; a mixed reading of recent US labor and inflation data; recent Fed communication striking a more balanced tone than the December FOMC; the fact that other central banks are similarly (albeit more modestly) being priced for faster/deeper easing in 2024; and ongoing geopolitical concerns.”
• “While we see the USD depreciating broadly this year, it could still take some time, and our forecasts call for greater moves in H2. Current Fed pricing is excessive, but a normalized inflation environment and eventual rates cuts should still allow for greater FX valuation adjustments to finally occur, even as most other central banks are also cutting.”
• “But until we get even more signs that inflation is comfortably pointing towards central bank targets, the timing and pace of USD depreciation can remain less certain.”

The strong US retail sales print sees a further moderation in the degree of rate cuts priced into ECB-dated OIS, with 138bps of easing priced through 2024 at typing (vs. a post-data extreme of 136bps and vs. 140bps earlier this morning).

• The remainder of today's ECB-speak is unlikely to move the needle further, with Lagarde (scheduled at 1515GMT) and Nagel (1830GMT) already having spoken in recent days.
• The Euribor strip is off post-data lows, but remains -4.5 to -9.0 ticks, with Whites/Reds under the most pressure.