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Morning Round-Up

UK yield, German producer price index has fallen, America and China look to ease tensions and record deals for IndiGo and Airbus.

UK 2-Year Yield Surpasses 5%

Yesterday, the yield on UK two-year gilts rose above 5%, surpassing 2008 highs. This comes as markets look towards Thursday’s Bank of England policy meeting, where their 13th consecutive rate hike is on the cards. If enacted (which it almost certainly will be) a 0.25% increase would bring their main policy rate to 4.75%. As yields on the UK-two year continued


to climb, the average cost of a two-year fixed-rate mortgage rose past 6%. Meanwhile the average cost of a five-year mortgage climbed 5bps over yesterday’s session to 5.67%. With base rates now forecast to go into the 6% range there is going to be plenty more pain to come and plenty more pressure on the government to offer some kind of support.

German PPI Falls to January 2021 Lows

Germany’s producer price index has fallen to its lowest level since early 2021, as it decelerated to 1% on an annualised basis. This came 70bps softer-than-expected as energy prices fell 3.3% with electricity prices falling 10.2%. Producers also got some relief from wood prices being cut 24.8% as metals shrunk just below 11%. While these fed into an easing of the index, the cost of machinery and vehicles rose over 8% and 5.6%, respectively.

In August and September of 2022, German PPI surged to 45.8% as energy costs and many raw materials rose to record levels. On a month-on-month basis, PPI went into negative territory with prices 1.4% lower than the previous month. With Germany being in a technical recession, easing inflation will come as some good news for Frankfurt as households continue to grapple with a rising cost of living and squeezed budgets.

Blinken-Xi Meeting

Yesterday, US Secretary of State, Antony Blinken met with Xi Jinping as China and America look to ease tensions after a fragile period. Both countries agreed to try to improve relations moving forward while they declared progress on “some specific issues” without explicitly mentioning which ones. The meeting – which marked the first time a US secretary of state had visited China since 2018 – did not however see an agreement reached on reviving communication between the US and Chinese militaries. With growing tensions in the South China Sea and around Taiwan, such a resumption of communication was seen as an important milestone in improving bilateral relations and avoiding potential incidents. Given that the two countries’ militaries have already had a series of close encounters this year, tensions have been mounting.

IndiGo Reaches Record Deal with Airbus

Yesterday, the Indian low-cost carrier IndiGo struck a record deal with Airbus as the global airline industry turns its focus to the Paris Air Show. The company (founded in 2006) has a fleet size of 308, and yesterday placed an order of 500 planes, with a value of around $50bn. Even before the deal, IndiGo has around 480 planes which are yet to be delivered and it is expected that yesterday’s agreement will see planes delivered between 2030 and 2035. IndiGo is the largest player in the Indian airline industry, but by no means the only one;


earlier this year Air India placed orders with Boeing and Airbus for a total of 470 aircraft, which would bring their fleer to 600. For context, the world’s largest airline, American has just under one thousand planes and operates almost 7,000 flights per day. With India about to overtake China as the world’s most populous nation and with economic growth at 7%, the airline industry has already taken off and now looks to be heading stratospheric.


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