MNI US OPEN: Periphery EGB Spreads Continue To Widen

MNI BRIEF: No Let Up Yet In Germany Price Increases: Ifo

Germany's corporate sector is expected to raise prices to customers further in coming months, with the steepest increases expected in the service sector, but remain elevated across the economy, a survey for the Munich-based Ifo Institute published Monday shows.

According to Timo Wollmershauser, Ifo's head of forecasting, those pricing expectations will likely filter down into consumer prices, meaning 'inflation will remain above 4% for a while.'

The European Central Bank is growing increasingly concerned about the near-term outlook for inflation, with President Christine Lagarde saying on Feb 3 that risks in coming months were to the upside.

MNI: GERMANY DEC IP -0.3% M/M, -4.1% Y/Y; NOV +0.3r% M/M

Construction leads the slump in German IP

DEC IP -0.3% M/M, -4.1% Y/Y; NOV +0.3r% M/M

• Germany's industrial production disappointed again today, with both monthly and annual readings coming in below expectations.
• IP edged further downwards by -0.3% m/m, one point lower than upwardly-revised November and 0.8% m/m lower than the forecast which saw an increase of 0.5% m/m.
• On the year, IP also disappointed, dipping a further 1.9 points to -4.1% y/y in December, despite the consensus expecting a softer 3.6% decline. Capital goods and intermediate production rose by 2.5% and 0.6% respectively, however consumer goods production dampened by 0.5%. Construction led the decline at -7.3%.
• Compared to the pre-pandemic level, German IP was 6.9% lower in December.

MNI: SWISS JAN UNEMPLOYMENT RATE +2.3%;  +2.4% DEC

FIXED INCOME: Lagarde in focus later as European peripherals under huge pressure

• Bunds and to an even greater extent, European peripheral bonds are under pressure this morning following weekend comments from DNB President Knot over the weekend that a 25bp hike would be appropriate in Q4-22 following by another 25bp hike to bring the Deposit Rate to 0% in Q1-23. 10-year GGB spreads to Bunds are over 20bp wider on the day, 10-year BTP spreads 8.7bp wider at typing, while even core spreads are widening such as 10-year OAT spreads 1.7bp wider on the day. President Lagarde is due to give an introductory statement ahead of the European Parliament's Economic and Monetary Affairs Committee at 15:45GMT / 10:45ET. Her comments would have been in focus anyway, but with the huge moves in EGBs there is even more focus.
• Moves in gilts and Treasuries have been more subdued with 10-year UST yields unch but shorter yields lower as the curve bull steepens. Gilt have seen short end yields higher, but little change in 10-year as the curve bear flattens.
• TY1 futures are up 0-3+ today at 126-28 with 10y UST yields unch at 1.911% and 2y yields down -1.5bp at 1.298%.
• Bund futures are down -0.36 today at 165.66 with 10y Bund yields up 2.5bp at 0.228% and Schatz yields up 1.3bp at -0.243%.
• Gilt futures are up 0.02 today at 120.99 with 10y yields up 0.3bp at 1.412% and 2y yields up 1.5bp at 1.270%.

FOREX: Subdued, With All Focus on CPI

• Markets have started the week in subdued fashion, with most major pairs trading inside their recent ranges, although a modest risk-off tone continues to hang over price action.
• JPY is the best performing currency in G10, with USD/JPY briefly edging below the Y115.00 handle, albeit still trades clear of the Friday low of 114.77.
• One standout currency is the NOK, falling against all others in G10 as USD/NOK bounces further off the 200-dma at 8.681. Next upside target rests at the 50-dma of 8.8989, which remains within range should crude oil prices roll further off their recent highs.
• ECB's Lagarde is due to speak later today (1545GMT/1045ET) and markets will be on watch for any reinterpretation of last week's hawkish ECB meeting. Markets continue to price in around 50bps of tightening by year-end, a marked shift that continues to widen Italian/Spanish spreads against Germany - a correlation that has historically been negative for the EUR.
• Focus remains on US CPI data later in the week, with markets expecting Y/Y CPI to rise to 7.3% - a new multi-decade high. Sentiment leading into the release will likely drive sentiment over the coming days, particularly through the lens of US monetary policy.

EQUITIES: Shanghai Stocks Catch Up Post Holiday

• Japanese markets closed weaker, while China markets rose on the post-holiday re-open: Japan's NIKKEI closed down 191.12 pts or -0.7% at 27248.87 and the TOPIX ended 4.57 pts lower or -0.24% at 1925.99. China's SHANGHAI closed up 68.141 pts or +2.03% at 3429.581 and the HANG SENG ended 6.26 pts higher or +0.03% at 24579.55.
• European equities are fairly flat, with the German Dax up 2.21 pts or +0.01% at 15111.04, FTSE 100 up 17.56 pts or +0.23% at 7534.16, CAC 40 up 4.81 pts or +0.07% at 6957.54 and Euro Stoxx 50 down 4.73 pts or -0.12% at 4084.02.
• U.S. futures are weaker, with the Dow Jones mini down 127 pts or -0.36% at 34851, S&P 500 mini down 14.25 pts or -0.32% at 4478.25, NASDAQ mini down 45 pts or -0.31% at 14640.5.

COMMODITIES: Industrials Lower; Precious Gains

• WTI Crude down $1.5 or -1.63% at $90.8
• Natural Gas down $0.16 or -3.41% at $4.419
• Gold spot up $3.46 or +0.19% at $1811.79
• Copper down $4.3 or -0.96% at $444.8
• Silver up $0.22 or +0.98% at $22.7435
• Platinum down $13.08 or -1.27% at $1015.27