Markets
Trading for the new week took a rather slow start today with little in the way from higher profile eco data. German Ifo business climate improved slightly more than expected from 93.2 to 93.6. Assessment of current conditions eased from 95.4 to 95 but this was compensated for by an improved in the expectations index (92.2 from 91.0). The details of the survey were slightly different from the EMU PMI’s last week. The manufacturing index rose as companies turned somewhat more optimistic on future activity. Contrary to the PMI’s, IFO indicated that the uptrend in business climate in the service sector over the recent months came to an end. The trade index also fell slightly. Business climate in construction improved on better expectations. The different nuances between the IFO and the PMI’s didn’t change market dynamics. German Bunds underperform US Treasuries. Comments from ECB’s Wunsch in the FT over the weekend (4.0% ECB depo rate not excluded) probably supported European yields compared to the US. German yields currently add between zero and 2.5 bps (2-y). At the same time, yields on US Treasuries are easing between 2.5 bps (2-y) and 4.5 bps (5-y). 10-y inter-EMU spreads versus Germany mostly were little changed even as rating agencies on Friday brought a reassessed of the rating or the outlook for the likes of Ireland, Italy and Greece. Ireland didn’t profit from the Moody’s rating upgrade from A1 to Aa3 (spread +1 bp). Greece was the exception to the rule (10-y spread narrowing 5 bps) as S&P raised the outlook on the BB+ rating from stable to positive. European equities (Eurostoxx 50 unchanged) stay in consolidation modus near recent/post corona peak levels. US indices also open little changed as markets are awaiting a heavy earnings calendar with several (tech) bellwethers later this week. Oil ($81/b) still struggles not to fall below last week’s low ($80.5 area).
On FX markets, EUR/USD returned north of 1.10 (currently 1.102). The move probably is more due to euro strength, rather than USD weakness as markets understand that the single currency will probably continue to receive ‘hard’ interest rate support at & beyond next week’s policy meeting (cf Wunsch comments), while the Fed will probably take a pause in its tightening cycle. DXY eases slightly (101.55), but USD/JPY even gains modestly (134.55 from 134.16 at the open this morning). EUR/JPY is testing the 148.4 2022 top. Euro strength is also visible in the EUR/GBP cross rate (0.8955 from 0.893 at the start of European dealings). Still cable also gained a few ticks (1.2445). S&P on Friday upwardly revised the UK rating outlook from negative to stable on a better economic and fiscal out outlook. Maybe the BoE will retain/join some of the S&P assessment when it meets on May 11. The UK 2-y yield rises 4.5 bps today, slightly more than EMU/Germany.
News & Views
The Belgian debt agency tapped OLO 85 (€1.15bn 0.8% Jun2028), OLO 97 (€1.37bn 3% Jun2033) and OLO 98 (€1bn 3.3% Jun2054). The combined amount sold was at the upper hand of the targeted €3-3.5bn. The auction bid cover was strong at 2.11 with a skew to strong demand for especially OLO 85. After today’s auction, the Kingdom of Belgium raised €20.42bn in long-term funding YTD, compared with a €45bn OLO funding target (45.38%). The bulk of the amount came from two syndicated deals in January and February (€12bn combined). In its funding plan, the debt agency suggested that a third syndicated deal was likely with the maturity being driven by investor demand and the yield environment. The 10- and 30-yr deals at the start of the year were well flagged.
Belgian business confidence deteriorated slightly in April (-7.8 from -7.6), ending a 4-month recovery. Improvements in business-related services (11.4 from 8.4) and trade (-15.9 from -21.6) were offset by a setback in the manufacturing industry (-12.1 from -10.8) and the building industry (-5.4 from -5). Both the assessment of activity levels and market demand expectations improved in the services sector. The very strong improvement in trade was mainly due to employment expectations and intentions of placing orders. Those very same factors declined in manufacturing. Belgian consumer confidence, released last week, improved from -9 to -6, the highest level in over a year. Belgian inflation and Q1 GDP data will be published respectively on Thursday and on Friday.
. The move probably is more due to euro strength, rather than USD weakness as markets understand that the single currency will probably continue to receive ‘hard’ interest rate support at & beyond next week’s policy meeting (cf Wunsch comments), while the Fed will probably take a pause in its tightening cycle.){kind=link}