M Update Global Macro Commentary | Global January 17Morgan Stanley & Co. LLCMartin W Tobias, CFAStrategist Martin.Tobias@morganstanley.com +1 212 761-6076 Zoe K StraussStrategist Zoe.Strauss@morganstanley.com +1 212 761-0407 Morgan Stanley & Co. International plc+Dominic J KrummenacherStrategist Dominic.Krummenacher@morganstanley.com +44 20 7425-9781 Morgan Stanley & Co. LLCEli P CarterStrategist Eli.Carter@morganstanley.com +1 212 761-4703 Lenoy DujonUS/Canada Economist Lenoy.Dujon@morganstanley.com +1 212 761-2779 Morgan Stanley & Co. International plc+Marie-Anais C FrancoisStrategist Marie-Anais.Francois@morganstanley.com +44 20 7425-1877 Morgan Stanley MUFG Securities Co., Ltd.+Koichi SugisakiStrategist Koichi.Sugisaki@morganstanleymufg.com +81 3 6836-8428 Morgan Stanley Asia Limited+Gek Teng KhooStrategist Gek.Teng.Khoo@morganstanley.com +852 3963-0303 Strong UK CPI induces sizable gilt bear-flattening; Robust US retail sales reignite UST bear-flattener; ECB's Lagarde dampens rate-cut optimism; European rates bear-flatten; Downbeat China growth data weigh on local equities and AUD, NZD; DXY at 103.37 (+0.0%); US 10y at 4.102% (+4.4bp).• Strong UK core CPI at 5.1% y/y in December (C: 4.9%) induces a sharp bear-flattening of the UK gilt curve as market participants reduce this year's implied BoE rate cuts; SFIZ3Z4 steepens to -113bp.• Robust December US retail sales reignites the UST bear-flattening as OIS reflect odds for a Fed rate cut in March near 50% and reprice the implied fed funds rate path higher.• ECB President Lagarde acknowledges it is likely the ECB will cut rates in the summer but stresses the aggressive pricing of rate cuts are not “helping our fight against inflation, if the anticipation is such that they are way too high compared with what’s likely to happen.”• European curves bear-flatten as market participants reprice the implied ECB rate path higher and no longer price in a full 25bp rate cut at the April meeting; 10y BTP-Bund spread widens 3bp.• China equities (Hang Seng: -3.7%) post steep losses after China quarterly GDP growth softens, with notable weakness in industrial production, and the largest decline in home prices since 2015.• Weak China data weigh on AUD (-0.5%) and NZD (-0.4%) as the Antipodean currencies lag G10 peers.Please refer to our latest Foundations (Do US Elections Change Fed Policy in Election Years?) and (The Big Issue - 2024 Supply Outlook) as well as our recent publications and collaborations (G10 FX Strategy: The Roman Republic, 90s Movies and USD; EM Fixed Income Strategy: EM Sovereign 2024 Financing Outlook Summary; Egypt Economics and Sovereign Credit Strategy: IMF and FX Watch Continues; UK Inflation Watch: Fasten Your Seatbelts).Developed MarketsUnited States: Risk appetite remained suppressed as developed market economic data were supportive of a further repricing higher of central banks’ implied policy...
