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G10 Macro Rates Market Analysis – Weekly Review – 25th January 2021

Monday, January 25, 2021

With the Pacific G10 Macro Rates Team 
The week opened to another strong Chinese number showing Q4 GDP at +6.5%. It was then down to G10 central bank announcements to make up for the lack of market noise due to the MLK holiday and the Biden/Harris presidential inauguration stealing attention. Italy provided some late political volatility as the 66th post WW2 government coalition fell apart on differences in the spending of EU recovery funds.

G10 central banks continued their rhetoric from last week, with Norges Bank’s “steady as she goes” statement quashing hawkish expectations. The BoJ, as usual, produced a “stay the course” statement, along with many comments indicating they did not want to prejudge the outcome of their policy review, due in a few months’ time. These comments were more poignant after the recent leak indicating that the 10y YCC target bands may be widened. The ECB also produced a statement of no change, emphasising how marginalised the views of their chief economist have become over recent months. This was followed by a news conference that muddied the waters, stating that the PEPP may not be fully utilised and that new measures of policy effectiveness will be developed in the coming months, focusing on monetary conditions. This provided a subtle hint of EU taper, and rates markets backed up accordingly. The BoC issued a statement with a tinge of hawkishness and actually a rate hike to go with it. Admittedly, the hike was a technical adjustment of +5bp to its securities financing rate. This was to offset some of the Q4 slump in market rates due to excess cash in the system. Compared to some others, their actions appeared cohesive.

Fiscal policy was not abandoned in the US, with Treasury Secretary nominee Yellen’s congressional hearing giving the feeling that stimulus cheques won’t be far off, even if the fiscal package is paired back from 1.9T to between 1-1.2T.

North America
US: PMIs were all strong and higher.

Canada:  Dec CPI dropped -0.2% MoM (0.1% exp., 0.1% prev.) but the core measure was stable 1.6% YoY (1.7% exp., 1.7% prev.) Core retail sales were strong +2.1% MoM (0.3% exp., 0.0% prev.)

Eurozone: The ECB bank lending survey, usually a rather dry and less read item, showed a tightening of credit within the euro-system. Lending activity leads growth, so this should concern policy makers of all stripes. PMIs ticker slightly higher, but services remained at contractionary levels. French business confidence ticked higher and PMIs echoed the eurozone numbers. The German ZEW Survey showed increasing expectations and a slightly better current situation.

Sweden: No tier 1 data

Norway: Norwegian 4Q industrial Confidence ticked higher 3.1 (1.7 prev.)

December National core CPI ticked down -0.4% YoY (-0.4% exp., -0.3% prev.) but was mostly ignored by the central bank.


CPI +0.3% MoM (0.2% exp., -0.1% prev.) bringing the core YoY measure to +1.4% (1.3% exp., 1.1% prev.) Core retail sales 0.4% MoM (1.0% exp., -2.6% prev.) and +6.4% YoY (7.4% exp., 5.6% prev.) PMIs echoed the European tone.

Consumer confidence ticked lower 107 (112 prev.) and inflation expectations held steady 3.4% (3.5% prev.). Headline employment and revisions improved, printing at +50.0k (50.0k exp., 90.0k prev.) and the unemployment rate dropped 6.6% (6.7% exp., 6.8% prev.) PMIs were strong, but retail sales dropped -4.2% MoM (-1.5% exp., 7.1% prev.)

New Zealand: A shock print from the antipodes with 4Q CPI +0.5% QoQ (0.2% exp., 0.7% prev.) with the annualized number at +1.4% YoY (1.1% exp., 1.4% prev.) This resulted in a little market volatility with rates adjust to a different set of hiking probabilities.

 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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