EURi: Flatter as long end slips; Peering through the data fog

Chart numbers candles 14 Jun 2022
Euro inflation finished flatter again today as the long end slipped although today's inflation prints were much less surprising than Spain's.

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  • Flatter as long end slips

  • Data add to fog


    Flatter as long end slips

    Euro inflation flattened further at month end after the market re-priced sharply at the front of the curve yesterday following shock Spanish inflation data. The Spanish numbers were followed by better-behaved prints from France and others today (see below) with the result that EUR 1y finished at 2.42% (unch) while 5y fell to 2.29% (-2.5bps) and 10y slipped to 2.30% (-2.5bps) leaving EUR 5y5y lower at 2.31% (-2.5bps).  


    A drop in TIPS breakevens following soft ECI data today (and ahead of the Fed decision tomorrow) provided a headwind for euro inflation.


    Meanwhile the failure of today’s French HICP/CPI data to repeat the strength seen in the Spanish print yesterday saw FRF 1y swaps fall back 10bps after surging by 12bps yesterday, while FRF 5y fell 6bps today after gaining almost 8bps on Monday.    


    Swap trades today included EUR 10y at 2.289% early doors, 2.31%, 2.315%, 2.32%, 2.3087% and finally at 2.304%. EUR 20s/30s traded at +7.5bps. EUR 1y went through in a chunky €450m at 2.38%. And French inflation trades shortly after today’s CPI data included FRF 2y at 3.025% and 5y at 2.695%.   


    For more swap trades please see the Total Derivatives SDR, which now also includes information on broker/platform for the trade in question.


    Inflation data add to fog

    Despite the release of HICP data over the last few days from Spain (5.8% versus the 4.8% Bloomberg consensus and 5.5% last month), Belgium (8.05% versus 10.35% last month), France (7.0%, dead in line with the Bloomberg consensus and up from 6.7%), Portugal (8.3% versus 9.8% last month) and Ireland (7.7% versus 8.2%), the postponement of Germany’s figures and the wait for numbers from Italy and the Netherlands, combines to makes estimates of euro flash HICP and core even less reliable than normal.


    In the reset market, EUR 1y Apr22 Apr23 (HICPx) traded at at 8.88% and 8.8425% today, up from 8.695% and 8.66% on Friday before the shock Spanish inflation data.


    Similarly EUR 1y is indicated at 2.4175% at today’s close, off the session peak of 2.4375% and down sharply from around 3.30% at the start of 2023 following the fall in natgas prices, but still up from 2.29% on Friday.  


    Bank analysts make a brave attempt to peer through the data fog. BNP Paribas warns against reading too much into this week’s numbers and suggests that, “as this week’s flash estimate of eurozone inflation for January will be made without data from Germany, we think the reading might contain more noise than signal.”


    It continues: “We think the attempt to estimate a reading for Germany could create downward bias relative to the prevailing consensus because, among other things, it will not capture the bounce-back from ending the one-time payment for energy bills in December.”


    “We stress, however, how uncertain this is, not least because this adds to other sources of uncertainty, including the impact of the reweighting of the price index, which will still go ahead on Wednesday despite this issue.”


    Elsewhere, Barclays estimates that the inflation releases from France, Spain and Belgium pin its tracker of euro flash HICP due tomorrow at 8.70%, with core seen at 5.25% and HICPx at 8.84%. That's based on its forecasts for the remaining national inflation prints of 8.8%yoy (-3.1%mom) for Italy in January, “significantly below” the Bloomberg consensus of 10.7%yoy as Barclays sees utilities inflation easing. In the Netherlands, the expects inflation to slow to 8.0%yoy driven by the introduction of gas and electricity retail tariff caps. But German inflation remains the elephant not in the room.