Curves Bull Flatten As Weak PMIs Trump ECB Cut Pushback

A weak run of flash December PMIs from France and Germany has helped core/semi-core EGBs firm, outweighing attempted pushbacks on rate cut pricing by ECB Governing Council members following yesterday's meeting.

• Bund futures trade at intraday highs, up 94 ticks today at 137.16 with the Dec 14 high of 137.28 eyed to the upside. OAT futures are similarly 96 ticks higher on the day. Core/semi core cash curves have bull flattened.
• The flash PMIs printed lower than expected, but we note that underlying stagflation risks remain evident as wage pressures fuel inflation in the services sector. The increase of Q3 Eurozone labour costs to 5.3% Y/Y (vs 4.5% in Q2) further highlights this risk.
• ECB sources from Bloomberg reported after hours yesterday that the ECB "was largely united on seeing rate cuts later than market bets". ECB Board members Muller, Nagel and Hozlmann also unsurprisingly weighed in on the hawkish side this morning, citing upside risks to inflation. Comments from Villeroy were more optimistic.
• Peripheries are modestly narrower to Bunds, holding around post-ECB levels (a reminder that spreads tightened as the ECB's announcement on PEPP was less hawkish than some feared). The 10Y BTP yield currently trades close to the lowest levels of the year at 3.698%.
• ECB-speak dominates the remainder of the calendar today, with a raft of speakers at 11:20 GMT. Fed's Williams at 1330GMT may also attract some cross-border interest.