MEXICO: NYT Reports US Pressing Mexico to Allow Military Forces to Fight Cartels
- According to the New York Times, "The United States is intensifying pressure on Mexico to allow U.S. military forces to conduct joint operations to dismantle fentanyl labs inside the country, according to American officials."
- As a reminder, following a call with President Trump on Monday, President Sheinbaum indicated that trade, drugs and sovereignty were topics that were discussed in a “very good" conversation. Sheinbaum added that "Collaboration and cooperation within a framework of mutual respect always yield results”, before detailing that a US and Mexico security committee would meet between Jan 22-23.
- Sheinbaum also stated that US military intervention in Mexico has been ruled out, providing a relatively optimistic outlook for relations ahead.
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GILTS: Off Lows After Auction Sees Solid Demand, Curve Bear Steepens On The Day
Gilt futures recover after registering fresh lows around the bidding deadline for the Mar-31 gilt auction, with solid auction results helping the space to find a base.
- While this morning’s firmer-than-expected wage and PMI data doesn’t alter the outlook for Thursday’s BoE decision, it did provide a marginal hawkish impulse for markets beyond that event.
- Wages are still on track to ease in line with BoE estimates, but an extended run of similar PMI readings over the next few months would add to the hawks' argument that inflation could be stickier than expected.
- Futures base at 90.83, last -34 at 90.95.
- Initial technical parameters in the contract remain unchanged
- Recent price action in futures highlights 90.53, the Nov 25/26 low, and 91.93, the Nov 27 high, as the important short-term directional triggers.
- Yields 1.5-2.5bp higher, curve a little steeper on the day.
- 10s 3bp wider vs. Bunds on the day at 167bp, after the spread failed to break below the September ’24 closing low (162.01bp) during the recent round of narrowing.
- Widening vs. Bunds comes on the combination of the aforementioned UK data and soft German PMIs.
- SONIA futures now flat to -4.0, also trading a little steeper after the data, with the front end pinned by ongoing expectations for a cut on Thursday.
- BoE-dated OIS prices 22bp of easing for Thursday and 59bp through end ’26 (vs. ~61.5bp late yesterday).
- Tomorrow’s CPI data presents the next key domestic input for STIR pricing, with U.S. NFP data due in the interim.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.752 | -22.3 |
Feb-26 | 3.703 | -27.1 |
Mar-26 | 3.621 | -35.3 |
Apr-26 | 3.525 | -44.9 |
Jun-26 | 3.480 | -49.4 |
Jul-26 | 3.418 | -55.7 |
Sep-26 | 3.404 | -57.1 |
Nov-26 | 3.387 | -58.7 |
Dec-26 | 3.384 | -59.0 |
SWEDEN: Government Remains Confident In Domestic Demand Boost Next Year
The Swedish Government remains optimistic that domestic demand will support a cyclical recovery next year. See latest Government projections here
“After a weak start to the year, activity in the Swedish economy has increased and a cyclical recovery has begun. Domestic demand, strengthened by an expansionary fiscal policy, has been driving the recovery and is expected to continue to be so next year.”
- The 2025 calendar adjusted GDP projection was revised up to 1.8% (vs 1.1%% in September), while 2026 growth is seen at 2.8%. The 2027 and 2028 projections were revised a touch lower relative to September.
- The output gap is expected to close by 2027.
“Unemployment remains high but is expected to gradually decrease at the beginning of 2026 as demand for labor increases.”
- The unemployment rate is expected to decline from 8.8% in 2025 (vs 8.7% projection in September) to 8.4% in 2026 (vs 8.3% in September) and 7.8% in 2027.
The Government’s policy rate projection is for 1.75% rates throughout 2026, rising to 2.25% by 2028 (the mid-point of the Riksbank’s 1.5-3.0% neutral range).
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