EU TRANSPORTATION: Heathrow; UK Chancellor backs 3rd runway
(HTHROW; Class A Opco; NR/BBB+/A-) (private)
UK Chancellor, Rachel Reeves, has given government support for a 3rd runway in Heathrow (as rumoured). Last estimates on cost were from 2014 and put it at £14b. It take up to 10-years to complete.
Heathrow has estimated it would be able to boost capacity to 140m passengers/yr (currently near capacity at 84m/yr). It is already the worlds 4th busiest behind Atlanta, Dallas & Dubai - globally similar sized airports use 4-6 runways.
For credit it's hardly a positive - Heathrow is already high levered and high-tariffed (latter leading to market leading margins). Next period of tariff caps will take into account any confirmed plans for capex and will likely be in negotiation with Heathrow owners and the government.
There are still number of obstacles ahead for this plan; London Mayor, Sadiq Khan, is a vocal opponent and has said he will launch a legal challenge. It will also need planning approvals.
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US TSYS: Tsys Unwinding Friday's Sale, PMI, Pending Home Sales Ahead Year End
- Treasuries are looking modestly firmer, near early early London session highs as rates recover from Friday's sell-off. The Mar'25 10Y contract trades 108-19 last (+5) vs. 108-21 high on decent volumes heading into year end: just over 175k at the moment.
- Average to small year-end duration extensions: US +0.07Y, EU: +0.04Y, UK -.02Y (Bbg)
- Tsy 10Y yield at 4.5951% (-.0303), curves mixed with 2s10s -.342 at 28.950 despite overnight Block steepener: +4,276 TUH5 at 102-22.75 vs. -2,592 TYH5 108-17.5 (0256:12ET); 5s30s +1.752 at 37.159.
- Projected rate cuts into early 2025 look steady to slightly higher vs. late Friday levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -13.6bp (-13.3bp), May'25 -19.5bp (-18.5bp), Jun'25 -28.8bp (-26.5bp).
- Data on tap (prior, estimate): MNI Chicago PMI (40.2, 43.0) at 0945ET, followed by Pending Home Sales at 1000ET MoM (2.0%, 0.8%), YoY (6.6%, 7.9%). Dallas Fed Mfg Activity at 1030ET (-2.7, -3.0). Dearth of scheduled Fed speak until Richmond Fed's Barkin gives keynote remarks at a Maryland Bankers assn event on January 3 at 1100ET (text & Q&A).
- Treasury auctions $84B 13W, $72B 26W bills at 1130ET followed by 75B 42D CMBs at 1300ET.
EUROPEAN INFLATION: Portugal HICP Accelerates, Core CPI Also Higher
Portugal HICP rose to 3.1% Y/Y in December, its highest since June 2024 and notably above November's 2.7%. The national CPI measure also saw some acceleration, both on headline (3.01% vs 2.47% Nov) as well as on core (2.80% vs 2.61% Nov). Behind the higher CPI headline, Statistics Portugal identifies energy and unprocessed food as the predominant drivers.
- Specifically, energy CPI came in at 4.89% Y/Y (2.14% Nov, mainly driven by base effects as M/M this was +0.43%), while unprocessed food CPI was 3.42% Y/Y (1.95% prior, again partially a base effect as this was +0.50%M/M).
- CPI excl. housing accelerated just over 0.5pp, as headline, indicating that rental inflation saw a similar increase to the wider index (+0.10% M/M).
- For reference, Portugal contributes 2.4% to the overall Eurozone HICP 2024 basket.
- December flash inflation data for Ireland will be released tomorrow, with the other major releases of the December round out next week. Belgium HICP already came in at 4.4% Y/Y, decelerating four tenths vs November, while Spain HICP surprised consensus to the upside earlier today (2.8% Y/Y vs 2.6% cons).
FOREX: Greenback at Session Lows Into NY Hours
Greenback headed into the NY crossover at the session's lowest levels - while FX markets seemed to shrug off the recovery in yields into the Friday close, the dollar's certainly chasing the US 10y yield lower so far today, with EUR/USD through to print 1.0450 and GBP/USD just above the 1.2600 handle.
- For EUR/USD specifically, price has risen above the 50% retracement of the post-Fed price action at 1.0428 - making 1.0473 the next intraday level of interest on rallies.
- While FX volumes headed through the European morning at very low levels, they've caught up slightly into US trade, with the activity deficit dropping to 5-10% on the day, from ~30% at the European open.
- Despite the USD pullback, price action lacks much conviction here, with daily AUD/USD chart showing the price still well within range of cycle lows at the bear trigger of 0.6199.
