The recent recovery in core bond yields faced resistance, impacting various markets. Equity markets experienced a positive run, with the EuroStoxx50 ending approximately 0.5% higher, following a 1% intraday rise. The Nasdaq on Wall Street posted a gain of 2%. However, yields finished 1-2.7 bps lower in the US, marking a decrease from the earlier 8 bps dip after the NY Fed‘s consumer inflation expectations survey.
The survey showed a one-year ahead gauge at a three-year low of 3.01%, and the three-year forward-looking indicator eased from 3% to 2.62%. Despite subsets pointing to relative confidence in the US labor market, German Bund yields lagged in the US bottoming out process but finished no more than 3 bps lower.
Fed’s Bostic addressed the economic outlook, mentioning that inflation has eased more than expected, but he is comfortable with the current restrictive stance. He reiterated his call for only 50 bps of rate reductions this year, starting in Q3. Lowering the pace of QT is an open question, Bostic added. Fed’s Bowman warned that easing financial conditions could risk fueling inflation.
In the currency market, the dollar lagged major peers, with minor gains for EUR/USD (to 1.0950) and losses for the DXY (102.20) and USD/JPY (144.23). Sterling was among the better performers, breaking sub EUR/GBP 0.86 support. Norway’s krone underperformed due to sliding oil prices (-3.5% for Brent) after Saudi Arabia sharply cut prices for its Middle Eastern supplies, indicating tepid physical demand, especially in China.
In Asian dealings, Japan reopened after a long weekend, with bond yields easing a few bps. Tokyo’s December inflation figures showed a slight deceleration from November readings, with headline prices rising 2.4%, core gauges at 2.1% (ex. fresh food), and 3.5% (ex. fresh food & energy).
The economic calendar today is relatively light, with a focus on the start of the US monthly refinancing and bond supply from Belgium and Italy, which could impact yields. EUR/USD remains a technical/risk sentiment trade without a clear direction.
