• With no eco data with market moving potential scheduled for release in the EMU, European fixed income traders kept a close eye on how much TLTRO funding banks had returned at the second early repayment window since the ECB changed conditions on the loans at the October meeting. After repaying a rather modest €296 bln in November banks this week returned € 447.5 bln of loans out of an outstanding amount surpassing €1.8 tn. Together with a smaller tranche maturing this month, the outstanding amount of TLTRO’s will decline to €1.32 tn. A reduction in excess liquidity and the repayment freeing collateral in theory should reduce demand for high-grade collateral. German Bonds today indeed underperformed both US Treasuries and EMU swaps. German yields traded 5/6 bps higher across the curve at the start of the US trading session. EMU swap yields at that time gained about 2/2.5 bps across the curve. Aside from this (admittedly important) technical ‘intermezzo’, one could expect US PPI data to be more important for the directional trend on global bond markets. US traders apparently anticipated a soft figure with yields easing a few bps in the run-up to the release. However, the soft bias this time didn’t pay off. US producer prices slowed less than expected with final demand PPI rising 0.3% M/M and 7.4% Y/Y (from 8.1% but 7.2% expected). The reaction was far from impressive, but the report at least prevented a further rally in US Treasuries. US yields currently vary between +1.5 bp (2-y) and + 7 bps (30-y). The US 10-y (3.52%) moves a bit further away from the 3.42% key support. German yields are gaining between 8/9 bps across the curve. The German 10-y yield (1.90%) will avoid a weekly close below the 1.77% neckline. Equities/US futures had to return earlier gains post-PPI. The EuroStoxx50 returned gains of 0.5% to currently trade little changed. US indices opened up to 0.75% lower (Nasdaq). Oil (Brent $76.6 p/b) continues to fight an uphill battle, losing more than 10% compared to last week’s close. After finishing this report the U. of Michigan consumer confidence (including measures in inflation expectations) still might change the course of events.
• On FX markets, post-PPI USD gains, if any, remain modest. USD/JPY, despite a brief uptick even declines in a daily perspective (136.20 vs open at 136.67). EUR/USD is ceding a few ticks (1.0540 vs 1.0556 open). Surprisingly, sterling outperforms, both against the dollar (cable 1.2275) and the euro, with EUR/GBP revisiting the 0.86 big figure. The 0.8647/60 support area isn’t out of reach yet.
• Norwegian headline inflation eased more than expected in November. The multi-decade high of 7.5% Y/Y eased to 6.5% on the back of a monthly price drop of 0.3% (+0.3% expected). Core inflation, critical for the Norges Bank in setting monetary policy, unexpectedly fell too, from 5.9% to 5.7%. While both measures missed estimates, they remain well below the Norges Bank’s own 5.4% and 5% forecasts respectively due to a series of earlier upside surprises. The central bank remains on track for a 25 bps rate hike at the policy meeting next week. It will also publishes new forecasts at that December meeting. Back in September, Oslo penciled in a 3% terminal rate to be reached in the winter. After a string of topside inflation surprises, markets raised their own expectations to 3.50% only to pare them back recently to 3.25%. The fall-out on the Norwegian krone is limited with EUR/NOK hovering around 10.54. Still, the krone already lost quite some ground over the past few days, in lockstep with oil prices.
• China held its annual “1+6” dialogue, involving talks with heads of the IMF, World Bank, OECD, WTO and others. Speaking after the meeting, IMF’s Georgieva said economic indicators suggest further downgrades to global growth are likely. She added that China’s recalibration of its Covid policies would help growth both domestically and elsewhere, echoing comments made by OECD’s Cormann. Malpass from the World Bank expressed concerns of a world at risk of a global recession, with a long-term crisis looming especially in developing countries. He said more needs to be done to lift the world out of stagflation and that China will have to reduce its excess stocks of food and fertilizer to alleviate shortages elsewhere. Okonjo-Iweala (World Trade Organisation) said global trade was losing momentum, expecting it to only grow 1% next year from 3.5% this year.