Commerzbank Dissect The Recent Sell Off

Commerzbank note that “the party mood around Christmas is giving way to a more sobering assessment.”

• “For one, supply is taking its toll. Although syndicated deals are being well received overall… the issuance pipeline remains packed.”
• “In addition, break-evens are stabilizing as the December flash HICP seems to have taken the edge out of lowflation fears. This includes the all-important Services sub-index, which explains almost the entire m/m-increase in €-HICP in December after the massive drop in November fuelled the rate cut euphoria.”
• “Although seasonality implies a decent negative contribution for services prices in January (as hotels et al cut prices after the holidays) and base effects will be significant throughout Q1, the underlying momentum seems intact. This implies upside risks for (core) headline €-HICP towards H2 vs. current broker forwards - and hence ECB rate expectations.”
• “These dynamics should also allow 5y5y € ILS to decouple from the interim decline in y/y Services HICP over coming months.”