BONDS: Societe Generale Recommend AUD 2s5s swaps Flattener Boxed vs. EUR.

Euribor futures are being dragged lower by core EGBs this morning, now -1.0 to -6.0 ticks through the blues. European bonds have seemingly been pressured by the prospect of increased defence spending following a US-brokered peace deal between Russia and Ukraine. An unwind of geopolitical risk premium and upside growth risks in the event of a deal may also be factoring in.

• Downside in ERZ5 remains contained by the US CPI inspired Feb 12 low at 97.955.
• ECB-dated OIS are up to 2.5bps more hawkish through year-end, with 75bps of easing now priced through December.
• This is consistent with the median forecast of sellside analysts MNI tracks, though the mean of ~1.9% suggests risks are skewed towards more aggressive easing.
• Over the weekend, ECB’s Panetta struck a characteristically dovish tone in his first comments since November. He argued that “a less decisive easing of monetary policy could lead to excessively low inflation in the medium term”, with downside risks largely stemming from weak growth.
• Today’s regional data calendar is light. Bundesbank President Nagel speaks on the German economy at 1100GMT. 

• G10 FX sees an unchanged picture overall, the Yen is once again the standout volatile mover, close to a 100 pips range (91 pips), the fall in US Yield in the past two sessions have been supportive, and the Japan GDP beat overnight has put the Yen as the early best performer versus the Dollar within G10 Currencies.
• Regardless of the Yen bid, the main area of interest in USDJPY is still seen further out, down to 150.90, the 10th December low, where it fell to break that level on the 7th February, when it printed a 150.93 low.
• AUD and the NZD are the second and third best performer at the start of the Week, despite that both the RBA and RNBZ are expected to cut Rates this Week, a 25bps and 50bps respectively are expected by most Economists.
• The AUDUSD and NZDUSD see quite similar charts, next resistance in the AUDUSD is seen at 0.6414 (38.2% retracement of the Oct/Feb range), and at 0.5792, followed by 0.5846 (38.2% retracement of the Oct/Feb range) for the NZDUSD.

Taken at face value, the January LFS report was weak. One month of data isn't enough to meaningfully price back in a 25bp March cut yet, but the Riksbank are certainly sensitive to weak activity/labour market data. The increase in the January unemployment rate to 9.7% (vs 8.5% prior) was the largest one month change since April 2020 (i.e the start of the pandemic).

•  However, Statistics Sweden suggest the data “may be overestimated” because “unemployment was at a relatively low level in the LFS January 2024”. They note that “further measurements are required” and thus the data should be interpreted with “some caution”.
• Swedbank also wrote last week that Swedish LFS response rates have fallen significantly over the last decade, averaging 43% in 2024.
• Employment growth was -0.5% M/M (vs a strong 0.8% prior), bringing the employment rate down to 68.6% (vs 69.0 prior).
• On a 3m/3m basis, employment growth was flat, but negative when reported to 2dps. As such, this was the fifth consecutive negative month of job growth.
• The Riksbank will continue to assess the labour market using a variety of indicators, including the Public Employment Service data (where the unemployment claims rate has flatlined at 7.0% in recent months) and the Economic Tendency Indicator's expected employment metrics (which have slightly increased over the last three months).