From MNIs US OPENING update
EXECUTIVE SUMMARY:
EU TRAVEL RESTRICTIONS ON OMICRON UNLIKELY: GERMANY'S SPAHN
GERMAN INVESTOR CONFIDENCE DETERIORATES ON NEW VIRUS WAVE
EUROPEAN GAS JUMPS AS TALK OF FRESH RUSSIAN SANCTIONS SWIRLS
EVERGRANDE BONDHOLDERS YET TO BE PAID AS GRACE PERIOD ENDS
NEWS:
ECB: An FT sources story published this morning (see link here) has suggested that there is a debate on the ECB about how much longer inflation would remain above target. This was in line with comments made by the Central Bank of Malta Governor Scicluna to MNI last week, as he said that there are upside risks to inflation and that further supply chain disruption due to the pandemic would leave Eurozone inflation above target "longer than previously anticipated."
The FT story also says there is some support on the Governing Council for a delay to commit to a long-dated post-PEPP programme at the December meeting (as had originally been expected by markets). This was also cited in a Reuters story last week.
There has been little immediate reaction to the release of the FT story, but it will add to the tone in markets that the ECB is unlikely to act hawkishly any time soon and the markets' view that the ECB will take the Omicron variant more into account than the FOMC at next week's policy meetings.
…GERMAN ZEW (BBG): Investor confidence in Germany’s economy deteriorated as the new government led by Olaf Scholz seeks to contain a new wave of Covid-19 infections. The ZEW institute’s gauge of expectations fell to 29.9 in December from 31.7 the previous month. An index of current conditions dropped to a six-month low of -7.4 -- worse than any economist surveyed by Bloomberg predicted.“Persisting supply bottlenecks are weighing on production and retail trade,” ZEW President Achim Wambach said in a statement on Tuesday. “The decline in economic expectations shows that hopes for much stronger growth in the next six months are fading.”
…FIXED INCOME: German curve outperforming
Core fixed income is all under some pressure this morning with US and German curves flattening (while the gilt curve has seen another parallel shift.
Schatz and Bunds have seen larger moves than corresponding Treasuries, in contrast to moves in recent days. This is despite the Eurodollar strip moving more than the Euribor strip today, but suggests the German curve is playing catch up with moves in the Treasury curve seen over recent days.
TY1 futures are down -0-2+ today at 130-18+ with 10y UST yields up 0.9bp at 1.445% and 2y yields up 2.6bp at 0.659%.
Bund futures are down -0.32 today at 174.41 with 10y Bund yields up 1.8bp at -0.373% and Schatz yields up 3.3bp at -0.730%.
Gilt futures are down -0.19 today at 126.94 with 10y yields up 2.3bp at 0.754% and 2y yields up 2.3bp at 0.477%.