Markets
Markets build on recent momentum today in absence of eco data of any significance on both sides of the Atlantic. European stock markets correct a second session straight up and over 1% (underwhelming outcome EU Summit?!) with opening losses of similar magnitude in the US. Disappointing earnings by the likes of FedEx and Nike add to stalling US growth fears. Core bonds advance with US Treasuries slightly outperforming German Bunds. The front end of the curve outperforms with yields changes in the US varying between -1.8 bps (30-yr) to -4.5 bps (2-yr). We don’t believe this is a lasting comeback of core bonds in light of this week’s developments. Central bankers around the globe sent a clear signal that upside inflation risks outweigh downside growth risks, going from the Fed’s updated Summary of Economic Projections, over the BoE’s more hawkish 8-1 status quo vote or the Riksbank end to the cutting cycle to BoC governor Macklem just spelling it out-loud and the Brazilian central bank taking its policy rate beyond the post-Covid peak. Inflation is here to stay with inflation expectations becoming at risk of being de-anchored. “Transitory” is how Fed chair Powell labelled the inflationary impact from tariffs. Fool me once, shame on you; fool me twice shame on me. Markets won’t get fooled around this time. German Bund yields correct 1.9 bps (30-yr) to 4 bps (5-yr) lower with the German upper house as expected passing the spending package. Defense spending in excess of 1% of GDP will be exempt from borrowing restrictions, an off-budget infrastructure fund will be able to raise another €500bn over the next 12 years with €100bn earmarked for the Climate and Transition Fund and €100bn for regional projects and Germany’s states get room to borrow up to 0.35% of GDP instead of having to run balanced budgets. The US dollar recovers some ground, but gains remain technically insignificant. Recapturing the 104 area on a trade-weighted basis would be a first sign of some short term peace. Previous resistance near 1.08 is similarly the first reference for EUR/USD (currently changing hands at 1.0833).
Next week’s eco calendar looks promising with March PMI surveys immediately on Monday. Early March German confidence indicators suggest a significant improvement for European gauges linked to fiscal U-turn, while US indicators might show more of the recession fatigue. In Tuesday’s US consumer confidence, we especially eye the evolution of inflation expectations given the recent surge in this component (both short term and long term) in the Michigan survey. Wednesday is key for UK markets with February CPI numbers and UK Chancellor Reeves’ Spring Budget. On Thursday’s there’s a special reference to the US Congressional Budget Office’s 30-yr US budget outlook which risks becoming another red flag for (long term) US Treasuries with President Trump’s fiscal agenda and the higher interest rate climate set to significantly raise future budget deficits. US PCE deflators wrap things up on Friday after which we rapidly approach Tariff Day (April 2nd).
News & Views
Czech confidence data improved more than expected in March. The overall composite confidence indictor improved from 97.8 to 99.5, while a near stabilization was expected. The rise was supported by both a similar improvement in consumer sentiment (98.8 from 96.6) and in business confidence (99.6 from 98.0). CSO also analyzed that both the composite and the business indicator where higher compared to the same month last year. In the consumer survey, the share of consumers expecting the economic situation in the Czech Republic to deteriorate over the next twelve months decreased, but remained relatively high. The share of households expecting their financial situation to deteriorate also decreased slightly. Business confidence increased across all sectors. Compared with February, it increased the most in trade (+2.3 points), followed by selected services (+1.8 points), industry (+1.3 points) and construction (+1.1 points).
Belgian consumer confidence fell sharply in March, almost completely wiping out the increase in February. The indicator dropped from -4 to -10. The decline was due to rising pessimism over the general economic situation in Belgium (-35 from -24) and increased fears over unemployment (20 from 8), which had abated considerably last month. On a personal level, households’ expectations concerning their own financial situation remained unchanged. However, their savings intentions fell, after having risen by almost the same degree last month (17 from 20).
 with opening losses of similar magnitude in the US. Disappointing earnings by the likes of FedEx and Nike add to stalling US growth fears. Core bonds advance with US Treasuries slightly outperforming German Bunds.){kind=link}