The announcement that the ECB's key rates would be cut by -0.25pts to 3.00% (Repo), 3.15% and 3.40% respectively was interpreted as a "non-event" by the equity markets, while the bond markets were genuinely disappointed, tightening by an average of +10pts due to the ECB's unwillingness to support growth with a more "accommodating" monetary policy.

Volatility, which had been very low in the morning, got out of control in the late afternoon, and a veritable storm broke out over Italian BTPs, which had been highly sought-after since November 7 (the yield was 3.73% on 6/11), and which had managed to reduce their spread over the German Bund to less than 108 basis points.
Today, it's a cold shower, with the yield on BTPs soaring by +15 basis points to 3.345%, and the Italian '10-yr' erasing all its gains since November 28 and returning to the lows of October 1 and 18.
Spanish bonds are down by +10.5 basis points to 2.8710, and our OATs by +9.5 basis points to 2.982%.
Bunds held up better with +7.2pts to 2.2040%: the spread with our OATs widened by almost +3pts to +78pts, and widened to +115 for BTPs.

The ECB's press release contained no economic indications likely to surprise the market: the lowering of EU GDP growth forecasts for 2025 (to +0.7%) was expected, as it is well known that the economic and political situation in Germany and France is problematic.

The ECB estimates that while growth in Q3 reached +0.4% thanks to tourism (Olympic Games effect), it slowed sharply in early autumn (decline in industrial production, drop in job offers).
Christine Lagarde agrees that "growth is losing momentum" in Q4, and adds that "corporate margins are deteriorating": we'll have to wait until 2026 to see growth pick up to +1.4%, then 1.3% in 2027.

Inflation is forecast at +2.3% in 2025 (after +2.4% in 2024) and +1.9% in 2026 and 2027 (prices remaining high with the rise in wages observed in the zone.

The FED is expected to follow the ECB's lead next Wednesday with a 25 basis point easing of its key rates, a scenario expected by 85% of investors.

In addition to the ECB's announcements, investors were also awaiting early afternoon figures on producer prices and jobless claims in the USA.
The Labor Department reports that US producer prices rose by 0.4% in November compared with the previous month, and by 0.1% excluding food, energy and commercial services.
Expressed as an annual variation, the rise in US producer prices accelerated last month compared with October by 0.4 points to 3% unadjusted, but held steady at 3.5% excluding food, energy and commercial services.

The Labor Department announced that 242.000 new jobless claims in the US in the week to December 2, up 17,000 on the previous week.
The four-week moving average - more representative of the underlying trend - came in at 224,250, up 5,750 on the previous week.

T-Bonds had a much quieter day than Bunds: the US '10-yr' posted just +3.3Pts to 4.3030%, while the '2-yr' added +1.5Pts to 4.172%.

Finally, across the Channel, 'Gilts' imitated our OATs, with a +9.5Pts surge in yield to 4.418%.


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