CONSUMER CYCLICALS: VF Corp; tariff impact (x8)

The details of the Swiss February inflation print point towards the upside core surprise (0.9% Y/Y vs 0.7% cons) stemming from categories the SNB has put less focus on historically regarding remaining inflation stickiness. Specifically, the contribution from 'core goods' (which, in Switzerland, is goods excl. fresh/seasonal products & energy/fuels) rose by 0.125pp from January - more than outweighing the services contribution change of -0.068pp. As the combined contribution of household items and clothing also declined, this points towards processed foods and non-alcoholic beverages as the key outperformance drivers.

• This should underpin markets' base case of a 25bp cut at the March 20 SNB meeting - SARON futures moved into a hawkish direction following the release but are starting to come back a little.
• Looking at the details within the services category, on which the SNB has focussed in the past:
  • 0.046pp higher contribution from recreation, which moved back up to around the 1%Y/Y handle (it stood there throughout Q4'24 before dropping in January).
  • Hospitality, which has seen a 1.1% minimum wage increase on Feb 1 (2024 minimum wage increase was around 2.1% for comparison), took away 0.087pp in headline contribution vs Jan - that was driven by a base effect in the hotels category.
  • Airfares adding 0.024pp in contribution countered that partially.
  • Rental inflation saw its quarterly update as expected, and declined 0.2pp to 3.2% Y/Y.
• Elsewhere, a lower contribution from energy moving further into deflationary territory more than outweighed food (incl. non alcoholic beverages) inflation being higher than before.

German 2yr Yield now test that February high of 2.187%, noted that level versus 106.685 today.

As mentioned earlier, upside continuation opens to 2.200% = 106.665 next.

For the German 10yr Yield, reference 128.73:

• 2.750% = 128.53.
  2.800% = 128.02.
  2.850% = 127.50.
  2.900% = 126.98.
  3.026% = 125.68 (2023 high, highest since July 2011).

(Chart source: MNI/Bloomberg).

• Secured Overnight Financing Rate (SOFR): 4.33% (+0.00), volume: $2.562T
• Broad General Collateral Rate (BGCR): 4.32% (+0.01), volume: $947B
• Tri-Party General Collateral Rate (TCR): 4.32% (+0.01), volume: $933B
• (rate, volume levels reflect prior session)