Off Highs In Spite Of Soft EZ Inflation; Peripheries Widen

Core/semi-core EGBs are off intraday highs in spite of Eurozone November flash inflation printing on the soft side of analyst expectations.

• The national releases over the past two days will have revised initial analyst expectations lower, but a soft print in Italy (released alongside the EZ figure) will have meant even updated expectations were too high. ECB-dated OIS markets now price the first full ECB cut by the April 2024 meeting for the first time while the 5y5y inflation swap sits 3bps lower at 2.334% (if we close at this level, it would be the lowest close since the end of March).
• Bund and OAT futures sit lower on the day at typing, while the German cash curve bull steepens with 2s10s up 3.6bp at -35.6bps. OATs are mixed, with 10Y OAT yields up 0.3bp at 2.999% and 2Y OAT yields down -1.4bp at 3.224%.
• Alongside the inflation data, Eurozone unemployment for October was in line at 6.5% but German and Italian figures printed above consensus expectations.
• Peripheries widen to Bunds as European equities see a mixed morning. The 10-Yr BTP/Bund spread is 2.6bps wider at 176.5bps.
• Lagarde speaks at the ECB Banking Supervision Forum at 1330GMT, so may not be a market mover. Nagel also speaks later at 1700GMT. Comments from Panetta this morning did not add much new to the policy debate.