ECB: FT Report Adds To Push Back On Neutral Importance
- The FT reports that Eurozone rate-setters have urged economists to stop fixating on the so-called neutral rate, warning that the measure was “not a good guide” to what will happen to borrowing costs.
It follows both Lane and de Guindos playing down the near-term relevance of the neutral rate yesterday, of note ahead of the ECB staff paper on neutral due tomorrow as flagged by Lagarde in last week’s ECB press conference.
- As noted yesterday: Lane's speech draws upon familiar themes from the ECB January press conference, with policy needing to track a "middle path" to "balance the risks of moving too slowly against the risks of moving too quickly". The familiar data-dependent and meeting-by-meeting approach was unsurprisingly repeated.
- What is more notable is that another Executive Board member (after de Guindos earlier) has played down the relevance of the neutral rate in calibrating near-term policy.
- This comes ahead of the ECB staff paper on neutral rates this Friday, which is expected to contextualise the 1.75-2.25% range first cited by President Lagarde ahead of the January press conference.
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US 10YR FUTURE TECHS: (H5) Bearish Trend Condition
- RES 4: 111-20+ High 6 and the bull trigger
- RES 3: 110-25 High Dec 12
- RES 2: 110-06+ 50-day EMA
- RES 1: 109-08 20-day EMA
- PRICE: 108-14 @ 11:05 GMT Jan 07
- SUP 1: 108-06+ Low Dec 26
- SUP 2: 108-00 1.500 proj of the Oct 1 - 14 - 16 price swing
- SUP 3: 107-19+ 1.618 proj of the Oct 1 - 14 - 16 price swing
- SUP 4: 107-04 1.764 proj of the Oct 1 - 14 - 16 price swing
The trend condition in Treasury futures is unchanged and remains bearish. Recent weakness reinforces the current bear cycle - the contract has traded through key short-term support and the bear trigger at 109-02+, the Nov 15 low. The breach confirms a resumption of the downtrend and opens 108.00, a Fibonacci projection. Short-term gains are considered corrective below 109-08, the 20-day EMA.
EURIBOR OPTIONS: Call Condor vs Put Spread
ERM5 97.87/98.00/98.12/98.25c condor vs ERM5 97.62/97.50ps, bought the Condor for -0.25 (receive) in 3k.
EUROPEAN INFLATION: Dutch HICP Accelerates on Energy & Services
Dutch flash HICP inflation rose to 3.94% in December, up from 3.79% in November, in line with the 3.9% expected but almost rounding up to 4.0%. The sequential reading was 0.34% M/M (0.3% cons; -1.0% prior). However, the headline acceleration was energy-driven, as core HICP eased to 3.58% from 3.66% but the moderation for the latter saw mixed drivers.
- Non-energy industrial goods played a large role in the moderation in core, sliding to -0.03% Y/Y vs 1.30% Nov.
- Services however accelerated for the third consecutive month, to 5.86% in December (vs 5.18% prior) for its highest since Aug and Aug 2023 before that. This series peaked at 7.5% in mid-2023 and mostly averaged between 1-3% pre-pandemic.
- Food, alcohol and tobacco inflation accelerated to 6.61% Y/Y (vs 6.13% prior), a solid acceleration from February's local low of 2.66% but well off highs of over 15% Y/Y seen in 2023.
- Energy inflation accelerated to 1.37% (vs -0.29% Nov) on the back of base effects as the sequential reading was -0.10% M/M.
- The national CPI meanwhile came in above consensus at 4.1% Y/Y (vs 4.0% cons and prior).
- The final Netherlands HICP/CPI inflation release will be on January 14.
- For reference, Netherlands represents 5.7% of the overall 2024 Eurozone HICP basket.
| Dutch HICP Metrics | Dec % Y/Y | Nov % Y/Y |
| Headline | 3.94% | 3.79% |
| Core | 3.58% | 3.66% |
| Services | 5.86% | 5.18% |
| Non-Energy Industrial Goods | -0.03% | 1.30% |
| Food, Alcohol and Tobacco | 6.61% | 6.13% |
| Energy | 1.37% | -0.29% |
