GILTS: Spillover Support From EGB Bid
Jan-30 15:32
Limited pullbacks/continued demand for EGBs following the ECB decision makes for similar trade in gilts.
- Futures stick below pre-existing session highs, last +53 at 92.74.
- A reminder that a break of existing session highs (92.83) would target the Dec 20 high (93.09).
- Yields 6-8bp lower, 10s lead the rally.
- SONIA futures trade in sync with gilts, just off highs, last flat to +6.0.
- BoE-dated OIS last pricing ~73bp of cuts through year-end, markets haven’t managed to quite fully discount 75bp of cuts through year-end during today’s dovish adjustment
- Little of note on the UK calendar for the remainder of the week leaves focus on macro and cross-market cues.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Feb-25 | 4.469 | -23.2 |
Mar-25 | 4.421 | -27.9 |
May-25 | 4.265 | -43.5 |
Jun-25 | 4.201 | -49.9 |
Aug-25 | 4.096 | -60.4 |
Sep-25 | 4.064 | -63.6 |
Nov-25 | 3.995 | -70.5 |
Dec-25 | 3.972 | -72.8 |
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EUROPEAN INFLATION: MNI Eurozone Inflation Preview - December 2024
Dec-31 15:12
Services Momentum To End Year On A Soft Note?
- The holiday season stretches the December Eurozone inflation round over two weeks this year. It also has limited the number of analyst expectations for the data to only a handful, which centre on a higher headline number underpinned by energy base effects, for a current MNI median Eurozone estimate of 2.4-2.5%.
- That would represent a pickup from 2.2% prior, though core inflation is seen steady at 2.7%. MNI will provide updates on any changes to consensus as we emerge from the holidays.
- There are expectations that service inflation could moderate slightly in December vs November, but that would still leave services HICP in the 3.8-3.9% Y/Y area (3.9% Nov).
- Methodological issues are a key theme, both in terms of assessing the apparent softening of seasonally-adjusted sequential services inflation in recent months, and looking ahead, to January's annual category repricings / reweightings.
- While markets fully expect a 25bp cut at the next ECB meeting in January, they currently price only a 10% implied chance of an outsized 50bp cut – well off dovish extremes of around a one in three chance expected towards the end of November.
PDF Analysis Here:
FOREX: Dollar Index Consolidating 6.8% Advance This Year
Dec-31 14:40
- We have seen some constructive price action for the greenback to finish the year, with the USD index shrugging off the early session declines to now trade in the green. The DXY has spent late December consolidating the post-election advance, up ~6.8% on the year.
- In most recent trade, EURUSD has slipped to the worst level of the session at 1.0378, just ahead of yesterday’s 1.0372 low. The trend condition continues to highlight scope for a test of key support at 1.0335, the Nov 22 low and a bear trigger. However, it is worth noting that some option expiries around the 1.0400 mark might limit the chance of a meaningful breakout this week. For reference, we have 1.59bn rolling off at 1.0400 on Thursday.
- USDJPY has also recovered well, rallying over 100 pips from the overnight lows, with spot now consolidating at the 157.00 handle. Officials at the BOJ fear that the real neutral rate of interest could be even lower than the previously-estimated range, MNI understands.
- Aussie and Kiwi are the clear underperformers to end the year, with both AUDUSD and NZDUSD sitting at cycle lows and the lowest levels since October 2022, around 0.62 and 0.56 respectively. For AUDUSD, scope is seen for an extension towards 0.6158 next, a Fibonacci projection.
STIR FUTURES: BLOCK: Red Dec'25 SOFR
Dec-31 14:23
- 4,000 SFRZ5 96.08 (+0.020), post-time bid going into the cross at 0918:29ET, appears to be a sale - though futures continue to rise, the contract trades 96.09 last (+0.030).
