Course for monetary policy tightening remains a key driver for bond markets

Notes/Observations

- Germany Dec inflation readings steady but near post reunification highs.

- German Factory Orders recorded strong month in November.

- Fed members see a need to lift rates sooner or at a faster pace than many had earlier anticipated. Focus on upcoming payroll data (Fri) and Dec CPI (next Wed).

- Hawkish FOMC minutes spur selling across most asset classes, with equities, commodities and risk currencies all down.

Asia

- China Dec Caixin PMI Services registered its 4th month of expansion (53.1 v 51.9e).

- Australia Dec Final PMI Services: No est v 55.1prelim (confirmed 3rd straight month of expansion).

- Japan Dec Final PMI Services: No est v 51.1 prelim (confirmed 3rd straight month of expansion).

- BOJ offered to buy ¥2.0T in JGBs under repurchase agreements [unscheduled operation and a large cash injection after JGB yields hit the highest level since Nov.

Europe

- PM Johnson said to be under pressure to halt a £12B rise in national insurance as people struggle with rising inflation and energy bills.

- France took over the presidency of the Council of the EU in 2022. President Macron looking to loosen the euro zone’s fiscal rules. Such a move could cause a major clash with conservatives in Germany.

Americas

- FOMC Dec Minutes some participants judged that rates could rise before maximum employment was reached. A less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures. Noted that inflation readings had been higher and were more persistent and widespread than previously anticipated.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -1.16% at 488.64, FTSE -0.73% at 7,461.65, DAX -1.17% at 16,081.29, CAC-40 -1.24% at 7,284.59, IBEX-35 -1.09% at 8,695.58, FTSE MIB -1.34% at 27,786.00, SMI -0.88% at 12,792.94, S&P 500 Futures -0.11%].

Market Focal Points/Key Themes: European indices open lower across the board and slipped further into the red as the session wore on; all sectors trading in the red, but the least worse off are materials and financials; sectors leading to the downside include technology and consumer discretionary; banking subsector supported after reports that Credit Agricole might make offer for Carige; ALG-SocGen JV acquires LeasePlan; M&C Saatchi receives tentative approach from AdvancedAdvT; earnings expected during the upcoming US session include Walgreens-Boots Alliance.

Equities

- Consumer discretionary: Next [NXT.UK] -1% (trading update; raised outlook), Dr. Martens [DOCS.UK] -10% (placement), Greggs [GRG.UK] -1.5% (trading update; new CEO), Sodexo Alliance [DW.FR] -1% (sales).

- Consumer staples: B&M European Value Retail [BME.UK] +1% (trading update).

- Technology: Team17 [TM17.UK] +4% (trading update; acquisitions).

Speakers

- Fitch affirmed New Zealand foreign currency sovereign rating at AA.

Currencies/Fixed income

- USD was steady in the session against the major pairs after the FOMC Dec Minutes on Wed highlighted that members saw a need to lift rates sooner or at a faster pace than many had earlier anticipated. The March FOMC now a live meeting.

- EUR/USD steady at 1.13 area as various EU inflation data remained elevated by stabilizing for the time being.

- GBP/USD drifting back to the lower part of the 1.35 handle as the pair gave up some of its recent gains as risk appetite deteriorated.

- Monetary policy tightening course remained a key driver for bond markets with global yields continuing to move higher. German 10-year yield at -0.07% (**Note: The German 10-year Bund was last positive back in Apr 2019).

Economic data

- (DE) Germany Dec CPI North Rhine Westphalia M/M: +0.5 v -0.3% prior; Y/Y: 5.2% v 5.1% prior.

- (DE) Germany Nov Factory Orders M/M: 3.7% v 2.2%e; Y/Y: +1.3% v -1.1%e.

- (HU) Hungary Nov PPI M/M: 2.7% v 4.5% prior; Y/Y: 21.6% v 18.3% prior.

- (TW) Taiwan Dec CPI Y/Y: 2.6% v 2.7%e; CPI Core Y/Y: 1.8% v 1.6%e; WPI Y/Y: 12.3% v 13.4%e.

- (BR) Brazil Dec FIPE CPI (Sao Paulo) M/M: No est v 0.7% prior.

- (HU) Hungary Central Bank left the One Week Deposit Rate unchanged at 4.00% (1st pause in 8 weeks).

- (DE) Germany Dec Construction PMI: 48.2 v 47.9 prior.

- (DE) Germany Dec CPI Brandenburg M/M: +0.6% v -0.2% prior; Y/Y: 5.7% v 5.7% prior.

- (DE) Germany Dec CPI Hesse M/M: +0.7% v -0.2% prior; Y/Y: 5.4% v 5.3% prior.

- (UK) Dec New Car Registrations Y/Y: -18.2% v 1.7% prior.

- (UK) Dec Final Services PMI: 53.6 v 53.2 prelim (confirms 10th month of expansion); Composite PMI: 53.6 v 53.2 prelim.

- (UK) Dec Official Reserves Changes: +$0.3B v -$1.4B prior.

- (DE) Germany Dec CPI Saxony M/M: +0.5% v -0.2% prior; Y/Y: 5.1% v 5.0% prior.

- (EU) Euro Zone Nov PPI M/M: 1.8% v 1.5%e; Y/Y: 23.7% v 23.2%e.

Fixed income issuance

- (FR) France Debt Agency (AFT) sold total €10.997B vs. €10.0-11.0B indicated range in 2032, 2040 and 2053 Bonds.

- Sold €5.870B in 0.00% May 2032 Oat; Avg Yield: 0.30% v 0.16% prior; Bid-to-cover: 2.12x v 1.78x prior.

- Sold €1.796B in 0.50% May 2040 Oat; Avg Yield: 0.69% v 0.62% prior; bid-to-cover:2.29 x v 2.33x prior.

- Sold €3.331B in 0.75% May 2053 Oat; Avg Yield: 0.99% v 0.83% prior; bid-to-cover: 1.57x v 2.56x prior.

Looking ahead

- (DE) Germany Dec CPI Bavaria M/M: No est v -0.2% prior; Y/Y: No est v 5.3% prior.

- (DE) Germany Dec CPI Baden Wuerttemberg M/M: No est v -0.1% prior; Y/Y: No est v 4.9% prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 06:00 (BR) Brazil Dec FGV Inflation IGP-DI M/M: 1.6%e v -0.6% prior; Y/Y: 18.1%e v 17.2% prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Nov Leading Indicators M/M: No est v -0.08 prior.

- 07:00 (BR) Brazil Nov Industrial Production M/M: +0.1%e v -0.6% prior; Y/Y: -4.1%e v -7.8% prior.

- 07:30 (US) Dec Challenger Job Cuts: No est v -14.9K prior; Y/Y: No est v -77.0% prior.

- 08:00 (DE) Germany Dec Preliminary CPI M/M: +0.4%e v -0.2% prior; Y/Y: 5.1%e v 5.2% prior.

- 08:00 (DE) Germany Dec Preliminary CPI EU Harmonized M/M: +0.2%e v 0.3% prior; Y/Y: 5.6%e v 6.0% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Nov Trade Balance: -$80.9Be v -$67.1B prior.

- 08:30 (US) Initial Jobless Claims: 195Ke v 198.0K prior; Continuing Claims: 1.68Me v 1.716M prior.

- 08:30 (CA) Canada Nov Int'l Merchandise Trade (CAD): 2.0Be v 2.1B prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 10:00 (US) Dec ISM Services Index: 67.0e v 69.1 prior.

- 10:00 (US) Nov Factory Orders: 1.5%e v 1.0% prior; Factory Orders (ex-transportation): 1.1%e v 1.6% prior.

- 10:00 (US) Nov Final Durable Goods Orders: No est v 2.5% prelim; Durables (ex-transportation): No est v 0.8% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v -0.1% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v 0.3% prelim.

- 10:00 (MX) Mexico Central Bank (Banxico) Dec Minutes.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 14:00 (AR) Argentina Nov Industrial Production Y/Y: No est v 4.3% prior; Construction Activity Y/Y: No est v 8.3% prior.

- 18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision; Expected to raise Reference Rate by 50bps to 3.00%.

- 18:30 (JP) Japan Dec Tokyo CPI Y/Y: 0.7%e v 0.5% prior; CPI (ex-fresh food) Y/Y: 0.5%e v 0.3% prior; CPI (ex-fresh food/energy) Y/Y: -0.3%e v -0.4% prior (revised from -0.3%).

- 18:30 (JP) Japan Nov Labor Cash Earnings Y/Y: 0.5%e v 0.2% prior; Real Cash Earnings Y/Y: -0.5%e v -0.7% prior.

- 18:30 (JP) Japan Nov Household Spending Y/Y: +1.2%e v -0.6% prior.

- 20:00 (PH) Philippines Nov Unemployment Rate: No est v 7.4% prior.

- 22:00 (ID) Indonesia Dec Foreign Reserves: No est v $145.9B prior.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 22:35 (JP) Japan to sell 30-Year JGB Bonds.