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German inflation seen above 4% in December

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Trading right now is all about inflation, after German and Spanish data drove bond yields down, while boosting market bets on future policy rate cuts.

Some analysts argue the euro zone's consumer price index looks on track to slow back to the European Central Bank's 2% target. However, as many ECB officials have recently warned, it might be too early to celebrate.

"German inflation is set to surge again in December, most likely to a rate above 4% year-on-year," says Salomon Fiedler, economist at Berenberg.

Data on Wednesday showed German consumer inflation fell to 3.2% in November, its lowest since June 2021.

"This is primarily due to a base effect. In December 2022, the government had artificially reduced the price level by paying certain energy bills for households," he adds.

"Price pressures will remain high at the start of next year, as a temporary cut in value-added tax for gastronomy services expires, CO2 taxes rise."

After that, inflation rates should trend down again throughout 2024, as Germany will probably tighten its fiscal policy after a court ruling triggered a budget crisis.

On Wednesday, German Finance Minister Christian Lindner said Germany faced a 17 billion euro gap in the 2024 budget.

(Stefano Rebaudo)



The STOXX 600 .STOXX is down a marginal 0.1% this morning, with rising oil and gas stocks .SXEP preventing further losses, up 0.7%, while chemicals .SX4P are weighing on the index, down 0.6%.

Italy's FTSE MIB .FTMIB rose to a fresh 15-year high shortly after the open.

The top riser of the STOXX 600 is ASR Nederland ASRNL.AS, up 11.1% after the Dutch insurer announced a final settlement with interest groups concerning unit-linked products for an amount well below expectations.

In the UK, shares in bootmaker Dr Martens DOCS.L plunged to an all-time low after news that it forecasts a decline in annual revenue. Meanwhile Metro Bank MTRO.L shares ticked 5.3% higher after announcing plans to lay off 20% of its headcount.

(Lucy Raitano)



European markets are gearing up for potentially market-moving U.S. data on Thursday, after a muted two weeks, which has seen the STOXX 600 inch up by only 1%.

EuroSTOXX50 .STXEc1 futures, FTSE futures .FDXc1 and DAX futures .FDXc1 are all indicating rises at the open of 0.1%-0.2%.

The day will bring fresh figures that could give investors an important steer on the state of the U.S. economy, including consumer spending and price pressures, weekly jobless claims and home sales.

It follows data on Wednesday that showed the U.S. economy grew faster than initially thought in the third quarter.

On the earnings front, in the UK eyes will be on Dr Martens DOCS.L shares after the bootmaker forecast a decline its annual revenue, and also on Metro Bank MTRO.L which announced plans to lay off 20% of its workforce.

Swiss engineering ABB ABBN.S has unveiled higher sales and profitability targets, and Scandinavian airline SAS' SAS.ST pretax loss has grown in Q4.

(Lucy Raitano)



Let's start with Treasuries because, if this were sports, we'd be calling it a comeback for the ages. Not long ago the market was collapsing so fast that, going by some headlines, civilisation as we know it was under threat.

Now, with some encouraging hints from Fed officials, 10-year notes are poised to celebrate their best month since the 2008 global crash, with yields down 61 basis points for November so far.

Yields on two-year paper are down 31 bps just this week, the steepest drop since the U.S. mini-banking crisis in March. And almost all of that came because one Fed governor said that, should inflation keep falling for a few months, then policy would need to be loosened just to stop real rates from rising.

Then again, it did come from Governor Waller, normally such a reliable hawk that the sudden conversion to dovishness had a far greater impact. Markets also assume he would not have flagged such a possibility without running it by Fed Chair Powell first.

And Powell just happens to have a Q&A appearance on Friday, so of course bulls are betting that he will accommodate their rate-cut wishes.

Rarely has a "fireside chat" had so much staked on it. Futures 0#FF: have now fully priced in a quarter-point cut in May, and are even 50-50 for March. Fed fund futures for December next year have surged 35 ticks so far this week, taking the total easing expected for 2024 to 115 bps. FEDWATCH

Note that influential Fed New York President Williams is speaking later on Thursday, and he carries a lot of weight with investors.

Markets will also be vulnerable to any upside surprise from the U.S. personal consumption expenditures (PCE) report, which they are counting on to echo the benign CPI data and show core inflation slowed to 3.5% in October.

The European Union has inflation data of its own later on Thursday and analysts suspect the risks are for a downside surprise following subdued readings from Germany and Spain.

The median forecast is already for the EU's HICP inflation to slow to 2.7%, the lowest since mid-2021. That is one reason futures are almost fully priced for an ECB rate cut as soon as April. 0#ECBWATCH

The dizzying drop in Treasury yields has left the dollar looking a little green in the gills. The dollar index =USD looks set for its worst month since November last year, with a loss so far of 3.7%.

It is also down 3.1% on the yen JPY=EBS, which if sustained would be the sharpest fall this year, while the euro is ahead by 3.8% EUR=EBS for the month.

The dollar has lost 2.6% on the yuan, a major move for such a tightly managed currency pair, and failed to get any lift from a rather disappointing China PMI survey on Thursday.

Key developments that could influence markets on Thursday:

- Appearances by ECB members Lagarde, Enria, McCaul and Jochnick

- BoE Monetary Policy Committee member Greene speaks, as does Riksbank Deputy Governor Bunge

- EU HICP flash inflation data for Nov, German retail sales and unemployment figures, French CPI, PPI and consumer spending

- U.S. data on PCE, weekly jobless claims, pending home sales and the Chicago PMI

(Wayne Cole)


The dollar's December blues https://tmsnrt.rs/3uuZ6DL

Germaninflation https://tmsnrt.rs/3RkdZlc


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