UK borrowing costs hit fresh 34-year high over Germany after inflation data; Europe markets rise

The gap between U.K. borrowing costs over Germany’s notched a fresh 34-year high on Wednesday, as investors assessed the path of interest rates for the Bank of England and European Central Bank next year.

The 10-year gilt yield was 4 basis points higher at 4.563% at 12:42 p.m. in London, just off an earlier peak, while the 10-year bund yield — the benchmark for the euro area — remained a little under 2 basis points higher at 2.256%, taking the spread to 230.7 basis points.

The spread between the two had already closed at 230 basis points on Tuesday, hitting its widest level since 1990, according to Deutsche Bank. Notably, the spread was wider than the level seen during the U.K’s so-called “mini-budget crisis” of 2022, when yields spiked following a sweeping fiscal announcement.

“The view from a market perspective is that U.K. inflation is at risk of proving stickier than in the U.S. and the euro area, so the BoE likely won’t be able to cut as aggressively as the [U.S.] Fed or ECB, with investors now only expecting 53 basis points of cuts by the time of the November 2025 meeting,” Deutsche Bank strategists led by Jim Reid said in a Wednesday note.

Though the level of the U.K. headline inflation is not dissimilar from the rates observed in the euro area and in the U.S., policymakers at the BOE appear more concerned with rates of domestically-driven consumer price increases, along with wage growth.

Britain’s risk premium also climbed after the country’s new Labour government’s budget on Oct. 31 announced a major program of tax hikes targeted primarily at businesses. Several economists stressed at the time that the moves were not comparable to the mini-budget, which triggered huge market volatility driven by factors in liability-driven investments.

German footwear manufacturer Birkenstock reported an unexpected jump in revenue on Wednesday, when it published earnings for its fiscal year ending in September.

The company’s annual revenue came in at 1.8 billion euros ($1.89 billion), beating market expectations at 1.78 billion euros, according to LSEG data. It marked 22% year-on-year revenue growth on a constant currency basis, beating Birkenstock’s earlier guidance that said revenue would jump 20% from 2023.

Adjusted net profit rose 16% year-over-year to reach 240 million euros, while adjusted earnings per share were up 13% from a year earlier.

The which debuted on the New York stock market last year.

— Chloe Taylor

Sylvain Broyer, chief EMEA economist at S&P Global Ratings, said in a note to clients on Wednesday that investors should brace themselves for a difficult trading environment next year.

“Between the possible correction of the economic anomalies that emerged in 2024 and the potential for policy pivots in 2025, we expect European economies and markets will be subject to high volatility over the coming 12 months,” noted Broyer, a member of the European Central Bank’s “shadow council” of economists.

The incoming U.S. administration of Donald Trump, changes in EU leadership and forthcoming German elections are all clouding the economic outlook for Europe, he added.

— Chloe Taylor

Investors shouldn’t expect interest rates in Britain to go down until 2025, Bruna Skarica, chief U.K. economist at Morgan Stanley, said in a note to clients on Wednesday.

The Bank of England previously hinted that four rate cuts could be on the cards in 2025 — but weak economic data over the past week has dampened hopes that a such a trim is imminent.

Markets are overwhelmingly expecting the Bank of England to hold rates steady at its upcoming Monetary Policy Committee meeting on Thursday, overnight index swap data shows. The data also indicate that traders are divided on whether the central bank will keep its key interest rate at 4.75% or reduce it when the MPC convenes again in February. A small majority is leaning toward a hold.

Skarica said in the Wednesday note that she is positioned away from that consensus, stressing, “We expect the next cut in February.”

— Chloe Taylor

Shares of Swedish property group SBB surged during Wednesday’s trading session, gaining 23% by 9:50 a.m. London time.

The stock rally came after SBB announced it had completed a bond exchange that saw creditors agree to swap 2.8 billion euros’ ($2.94 billion) worth of debt for new notes.

SBB CEO Leiv Synnes told news agency Reuters on Wednesday that the exchange — which was accepted by 95% of relevant creditors — would allow the firm to press ahead with its restructuring plans.

— Chloe Taylor

Financial markets have allowed countries like France to get away with disrespecting the euro zone’s fiscal rules for too long, economist Raphael Gallardo told CNBC Wednesday.

France is among a number of euro zone member states that have failed to meet the single currency union’s fiscal rules that require member states to keep budget deficits below 3% of GDP (gross domestic product) and to restrict public debts below 60%.

The French government expects the budget deficit to hit 6.1% of GDP this year, however, while the International Monetary Fund predicts the country’s debt to GDP ratio will reach around 112%. Arguments between lawmakers over taxation and spending plans means France currently has no 2025 budget in place and has instead rolled over this year’s fiscal plan, as political turbulence continues.

Gallardo, chief economist at Carmignac, said France had not respected the rules for years.

“Unfortunately, the problem in the euro area is that you cannot have a currency union with it without fiscal discipline and a mechanism to enforce that fiscal discipline, and in the case of France, for 25 years, we have never respected the rules,” he told CNBC’s “Squawk Box Europe” Wednesday.

“The safeguards in the European constitution have been completely unable to enforce it on the French government and the markets haven’t done their job either, because they have considered that France — being a core country — will be bailed out,” he said.

— Holly Ellyatt

Shares of Italian lender Unicredit gained 0.5% by 8:45 a.m. London time, after the bank said it had raised its potential stake in Commerzbank to 28%.

Unicredit had previously held a 21% stake in the German lender.

Read the full story here.

— Chloe Taylor

Shares of French carmaker Renault rose 5.39% by 8:21 a.m. London time, following reports that Nissan and Honda are set to enter into merger talks.

Renault owns a minority stake in Nissan, whose Tokyo-listed shares gained 24% during the trading session in Asia — their best day in four decades.

— Chloe Taylor

Inflation in the U.K. rose to 2.6% in the year to November, meeting expectations but further dampening hopes of a rate cut from the Bank of England on Thursday.

The U.K.’s annual inflation rate stood at 2.3% in October.

Yields on the U.K.’s 10-year Gilt were little changed by 7:05 a.m. at 4.519%, while the British pound was down 0.07% against the U.S. dollar to trade at around $1.2700.

Markets are now overwhelmingly expecting the Bank of England to hold its key interest rate at 4.75% when its Monetary Policy Committee meets for the final time this year, according to overnight index swap data.

Read the full story here.

— Chloe Taylor

The British pound traded lower against the dollar and the euro on Wednesday morning, as investors awaited the U.K.’s latest inflation print and a policy update from the Bank of England.

Sterling was around 0.1% lower against the euro, and 0.06% weaker against the greenback by 6:35 a.m. London time.

November inflation data, which will be published Wednesday morning, comes after official figures showed wage growth in Britain jumped 5.2% in the three months to October, while the nation’s economy unexpectedly contracted that month.

On Thursday, the Bank of England will make its final monetary policy decision of the year.

— Chloe Taylor

Six stocks in the S&P 500 have been inversely correlated to Nvidia’s share price moves over the past month, according to analysis by CNBC Pro.

Five of the six stocks have also risen by an average of 6.75% alongside Nvidia’s fall from all-time highs.

It comes as Nvidia fell into correction territory this week, meaning it’s fallen over 10% from its closing high of $148.88 reached last month.

CNBC Pro subscribers can read more here.

— Ganesh Rao

European markets are expected to open lower Wednesday.

The U.K.’s FTSE 100 index is expected to open 8 points lower at 8,191, Germany’s DAX down 48 points at 20,202, France’s CAC down 10 points at 7,353 and Italy’s FTSE MIB down 100 points at 34,258, according to data from IG.

Data releases will include U.K. inflation data.

— Holly Ellyatt