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G10 Macro Rates Market Analysis – Weekly Review – 14th December 2020

Monday, December 14, 2020

With the Pacific G10 Macro Rates Team 
The big event last week was the December ECB meeting, which was much anticipated as Lagarde had hinted strongly that action was forthcoming. They delivered just enough to keep markets happy. Delivering a Euro 500bn increase for the PEPP and extension to mid-2022 along with TLTROs, but no rate cut. Favourable financing conditions were preserved, but not enough to stop ECB forward guidance on inflation being revised lower to a sub target 1.4% in 2023.

Brexit – With pantomime season on hold due to COVID, Brexit talks take the stage. Last week’s talks were off and then, after a dinner that was mostly remarked on for its menu (scallops and turbot), back on again with a new, final, deadline. It is very unlikely that this will be final, 6 years of Brexit analysis has at least taught us this. However, we too cannot wait until we can join the hecklers in 2021, shouting “it’s behind you”.

North America
US: Initial jobless claims ticked higher to 853k (725k exp., 712k prev.) which along with weaker continuing claims lead to weakness in the UST market. Core CPI was slightly stronger at +0.2% MoM (0.1% exp., 0.0% prev.) and +1.6% YoY (1.5% exp., 1.6% prev.) U. of Mich. Sentiment, Current Conditions and Expectations all printed better than expected. However, 1yr inflation expectations dropped to 2.3% (2.8% prev.) and, while the longer-term measure was steady, the FOMC will be watching this over the coming months to see if expectations become unanchored from their target levels.

Canada: Bank of Canada Rate Decision 0.25% (0.25% exp., 0.25% prev.)

BoC meeting - no change to the overnight rate or QE, and no material change to forward guidance

Eurozone: ECB left rates unchanged as expected, with their target rate at 0.0% and the deposit rate at -0.5% French, German and Italian industrial production was stronger than expected at +1.6% MoM (0.4% exp., 1.4% prev.), +3.2% (1.6% exp., 1.6% prev.) and +1.3% (1.0% exp., -5.6% prev.) German ZEW survey show strengthening expectations at +55 (46 exp., 39 prev.) albeit in the face of a challenging current situation measure -66.5 (-66 exp., -64.3 prev.) Italian unemployment rate (quarterly) ticker higher 9.8% (9.8% exp., 8.3% prev.), as expected.

Sweden: Swedish core CPIF was expectedly weak at +0.0% MoM (0.0% exp., 0.2% prev.) leaving the YoY measure unchanged, at +1.1% (1.1% exp., 1.1% prev.). Industrial production bounced to +0.4% YoY (-2.6% prev.)

Norway: Norway industrial production dropped -3.5% MoM (-1.7% prev.) and GDP was strong, at +1.2% MoM (0.4% exp., 0.6% prev.). The big surprise was CPI with the headline unexpectedly dropping by -0.7% MoM (0.1% exp., 0.3% prev.). This move was echoed in the core measure which dropped -0.4% (0.1% prev.) bringing the annual measure to 2.9% YoY (3.3% exp., 3.4% prev.). For a “high yielder” these moves will give the Norges bank something to think about.

Core machine orders were unambiguously strong +17.1% MoM (2.5% exp., -4.4% prev.) in step with the current export and trade measures in other Asian countries. Household spending disappointed at + 1.9% YoY (2.8% exp., -10.2% prev.) and surveys showed economic conditions and outlook both weakening.


Released data from October, so pre national-restrictions and largely reflective of that environment with GDP +0.4% MoM (0.0% exp., 1.1% prev.), industrial production +1.3% MoM (0.3% exp., 0.5% prev.) and manufacturing production +1.7% MoM (0.3% exp., 0.2% prev.)

Australia: In surveys there increases in consumer confidence as well as business conditions and confidence. 

New Zealand: Data showed a strong manufacturing PMI and reiterated the strength of the Q3 rebound and a strong housing market. The later of which has prompted the government to ask the central bank to prevent from over stimulating. Something it is currently not too keen on.

 For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below  

Read the Strategy Information Sheet

IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation.

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