Market Information Thursday 16 January 2025

US stocks and bonds rallied as inflation data revealed a sharper-than-expected ease in underlying price pressures, prompting expectations for quicker Federal Reserve interest rate cuts. While headline inflation rose to 2.9% in December, core inflation unexpectedly dipped to 3.2%. Despite positive market trends, the Fed expressed caution in adjusting rates, concerned about inflation not decreasing quickly to their 2% target amid potential policies from the Trump administration.

Germany’s economy shrank by 0.2% in 2024, marking a second year of decline due to high energy costs, competition, and political uncertainty, with industrial production over 10% below its pandemic peak. The crisis, exacerbated by automotive sector challenges and the shift to electric vehicles, looms over an upcoming election, with candidate Friedrich Merz advocating for economic reforms. The Bundesbank forecasts continued stagnation and cautions that a US trade war could worsen the economic situation.

UK inflation unexpectedly decreased to 2.5% in December, mainly due to falling restaurant and hotel prices, prompting a rally in gilts and raising hopes for Bank of England rate cuts. This offers some relief to Chancellor Rachel Reeves amid concerns of stagflation and rising borrowing costs, though inflation is expected to rise again due to volatile factors. Despite this temporary dip, the Bank of England may have an opening to cut rates in February, while economic challenges persist.

The 6M Euribor increased with 3 basis points to 2.69% compared to previous business day. The 10Y Swap decreased with 11 basis points to 2.51% compared to previous business day.

In the attachment, today’s market data on money and capital market rates as well as other rates are presented.