[MARKET ANALYSIS] Benchmarks bid as the European risk tone slips, EZ inflation, supply & US data ahead

• A firmer start for fixed income. Initial gains were a familiar ~ 5 and ~ 20 ticks for USTs and Bunds, respectively.
• During the early European morning, the benchmarks picked up further, to highs of 112-17+ and 128.19, firmer by 7+ and 51 ticks at most, respectively. A move that occurred in relatively limited newsflow, but as the European risk tone soured. A deterioration that extended on the mixed/downbeat APAC performance, as the region failed to sustain record Wall St. levels.
• EGBs await the EZ Flash Estimate inflation series for December. Readings that follow on from a cooler-than-expected German series on Tuesday (in line with the bias from the German states beforehand). As such, the bias to the series is likely cooler than expected, though given the move we saw on the German state figures and then the lack of follow-through to the mainland German series, any reaction may be limited/fleeting to a cooler print.
• No move to Construction PMIs this morning or a dire set of German retail data. However, on the latter, the implications have perhaps been limited given the marked upward revision to the prior (October) series.
• Amidst this, and once again with a lack of specific newsflow, Gilts acknowledged the bullish action in peers and opened higher by 29 ticks at 92.54 before extending to a 91.84 peak and are currently leading the fixed space.
• Ahead, aside from EZ HICP, we await UK (2031 Gilt) and German (2036 Bund) supply before the US data docket takes over, featuring ADP, ISM Services & JOLTS

The European risk tone has deteriorated, contributing to a firmer start in fixed income markets, with USTs and Bunds seeing initial gains. Ahead, the market is focused on upcoming Eurozone inflation data which, given recent mixed signals, may lean cooler, although the reaction to such data is expected to be limited. As market participants await broader US economic indicators, this could impact the risk sentiment across asset classes.