Eurozone near-term inflation expectations moderate

Results of the December ECB consumer expectations survey showed a decline in household inflation expectations in the near-term. The median household now expects inflation of 3.2%, over the next 12 months, down from 3.5%. Expectations over a longer 3-year horizon appear stickier however, with households reporting that they expected inflation to be 2.5%, up marginally from 2.4%.

Eurozone retail sales declined in the final month of 2023, with volumes dropping 1.1% m/m in December. This follows an upwardly revised 0.3% m/m growth in November. The decline in sales was broad-based across categories, although sales of food, drinks and tobacco saw the biggest drop, falling 1.6% m/m. Within countries, Germany, France, and Spain recorded the biggest falls in sales volumes. 

Germany factory orders surged in December, rising 8.9% m/m. The latest figure was a sharp rise on the 0% m/m growth recorded in November, and materially higher than consensus expectations for a 0.1% increase. The rise was however largely driven by Airbus orders, with new orders for aircraft increasing 110.9% on the month. Orders from other sectors, such as chemicals, automotive and mechanical engineering, fell in contrast, suggesting that underlying activity remains weak.

Today’s Economic Data and Events

• 11:00 GE industrial production Dec: forecast -0.5% m/m
• 17:30 US trade balance Dec: forecast -$62bn

Fixed Income

• US Treasury yields fell back on Tuesday, following a 2-day run-up. The 2yr UST yield fell 7bps to reach 4.4035% while the 10yr declined by 6bps to 4.1000%. Yields were also lower in other major bond markets on Tuesday, with the UK 10yr Gilt falling 6bps to 3.947% and the German 10yr Bund down 2bps to 2.291%.
• Bahrain is looking to price a 7yr USD benchmark sukuk at around 6% and a 12yr USD conventional at an 7.5% coupon level.
• Saudi Electricity Company is pricing a dual tranche USD sukuk. A 5yr tranche had initial guidance of +130 and a 10yr had guidance of +145.

FX

• The dollar fell back on Tuesday, with the dollar spot index falling 0.23%. EURUSD rose 0.11% to 1.0755 while GBPUSD gained 0.49% to 1.2598, and USDJPY fell 0.5%, to reach 147.94.
• Commodity currencies were stronger on the day, with AUDUSD gaining 0.6% to 0.6523 and NZDUSD increasing 0.71% to 0.6098, while USDCAD fell 0.35% to 1.3492.

Equities

• Major US equity indices gained on Tuesday, with investors weighing comments from Fed officials about the timing of a Fed cut against strong economic data. The Dow Jones rose 0.37%, the S&P 500 gained 0.23% and the NASDAQ was 0.07% higher on the day. European markets were also stronger. The Eurostoxx 50 and Dax both gained 0.76%, the CAC 40 rose by 0.65%, and the FTSE gained 0.9%.
• Locally, the DFM fell 1.82% on Monday, while the ADX declined 0.83%.

Commodities

• Oil prices made further gains on Tuesday, with heightened geo-political risk in the red sea being only partially offset by news of rising US crude inventories. Brent futures rose 0.77% to USD 78.59/b while WTI gained 0.73% to USD 73.31/b. An API report suggests that US crude inventories rose by 674K barrels last week.