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BONDS: EGBs-GILTS CASH CLOSE: Soft Inflation Makes ECB October Cut The Base Case

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European yields fell Friday as global inflation data proved softer-than-expected.

  • French flash September HICP came in 0.4pp below consensus at 1.5% Y/Y, with the M/M CPI print of -1.2% the lowest since the series began in 1990 as services prices softened sharply. Spanish core CPI came in 0.4pp below expected at 2.4% Y/Y, with headline HICP 0.2pp below survey at 1.9%.
  • US August PCE price data surprised on the downside as well, helping maintain positive momentum in Global FI in European afternoon trade.
  • A 25bp rate cut at the October ECB meeting is now 80% market-implied, vs around 60% coming into the day and 20% coming into the week. Multiple sell-side analysts revised their ECB calls to include an October cut.
  • The German curve leaned bull steeper on the day, with the UK's bull flattening. Periphery EGB spreads widened moderately; OATs outperformed with spreads in 1+bp vs Bunds, mitigating some of the week's prior underperformance.
  • Given the dovish implications of today's country-level data, the German and Italian inflation prints will be in close focus Monday for corroboration on the Eurozone-wide print.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

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European yields fell Friday as global inflation data proved softer-than-expected.

  • French flash September HICP came in 0.4pp below consensus at 1.5% Y/Y, with the M/M CPI print of -1.2% the lowest since the series began in 1990 as services prices softened sharply. Spanish core CPI came in 0.4pp below expected at 2.4% Y/Y, with headline HICP 0.2pp below survey at 1.9%.
  • US August PCE price data surprised on the downside as well, helping maintain positive momentum in Global FI in European afternoon trade.
  • A 25bp rate cut at the October ECB meeting is now 80% market-implied, vs around 60% coming into the day and 20% coming into the week. Multiple sell-side analysts revised their ECB calls to include an October cut.
  • The German curve leaned bull steeper on the day, with the UK's bull flattening. Periphery EGB spreads widened moderately; OATs outperformed with spreads in 1+bp vs Bunds, mitigating some of the week's prior underperformance.
  • Given the dovish implications of today's country-level data, the German and Italian inflation prints will be in close focus Monday for corroboration on the Eurozone-wide print.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

Keep reading...Show less