There were particularly significant trading volumes on Friday a few minutes before the close, as the session marked the quarterly expiration for several categories of options and futures contracts. This morning, sentiment remained positive, with hopes of a softening of US trade measures (targeted tariffs). This week, the macroeconomic news flow will hog the limelight, in particular European and US PMIs today, and inflation figures for France (March CPI) and the US (February core PCE) at the end of the week.
Rates: there was a further easing of € and $ rates on Friday, with bond markets continuing to benefit from a flight-to-quality. The market revised upwards its rate cut expectations for the Fed (+3bp to 71bp) and ECB (+5bp to 52bp). Yield curves therefore underwent a bull steepening, with the yield for the 10Y Bund nearing 2.75%, down 2bp over the session, while the yield for the 2Y Schatz eased by 4bp to 2.13%. The swap curve also extended its steepening, with the 5Y-30Y segment of the € swap curve putting on 3bp to 17bp. Sovereign spreads tightened slightly after Germany’s spending plan on defence and infrastructures was approved by the Bundesrat, the 10Y BTP-Bund spread narrowing by 1bp to 112bp. The 10Y OAT-Bund spread traded at 70bp, but the resurgence of the political risk could upset this equilibrium level.
Credit: there was a widening of iTraxx indices (+1.6pb for the Main, +7.5bp for the X-Over) with an underperformance by cyclicals, notably Lufthansa, which was the Main’s worst performer, its 5Y CDS widening by 4bp. Lufthansa was also affected by the closure of Heathrow airport following a power outage, an event that affected the entire sector (the Air France-KLM 5Y CDS widening by 4bp). The Sodexo 5Y CDS widened by a further 3bp (10bp over the past week) following the profit warning issued on 20 March. Finally, while the spreads of automotive equipment manufacturers proved highly resilient on Thursday following the publication of ZF's results, the sector struggled again on Friday: ZF's spreads widened by 20bp-30bp against swap, the Forvia, Valeo and Schaeffler spreads by around 10bp. The recently issued Forvia 5.625% 2030c27 returned close to par after trading as high as 100.875% the previous day.
Equities: European indices opened and closed in the red, particularly materials (-1.8%) and industrials (-1.3%) in the case of the Stoxx 600, which was off by 0.6%. Telecom and utilities were the only sectors in the green. At the very end of the US session (5 minutes before the bell), US indices rebounded and closed flat, with particularly high volumes at the end of the session (expiration of several categories of options and futures contracts).
FX: the DXY dollar index put on 0.20% to 104.1, recording its first positive weekly performance in March (+0.35%). In a risk-averse market, the US dollar appreciated against most G10 currencies, with the notable exceptions of the Norwegian krone and Swedish krona. The euro shed 0.29% to 1.082 against the US dollar. The Bundesrat was expected to adopt the German spending plan following the agreement reached at the start of the week. The Canadian dollar lost 0.1% (USD/CAD at 1.434), penalised by a sharper-than-expected deterioration in retail sales. All emerging currencies corrected against the greenback, particularly in Latin America (-0.5% on average) and the EMEA zone (-0.4%).
Commodities: oil prices up slightly near the close on Friday, with Brent trading 0.2% higher at around $72.2/bbl. Prices tracked broader markets through the session whilst the US decision to sanction an independent Chinese refiner in relation to Iranian crude imports for the first time remained supportive - this has generally been interpreted as a step up in sanctions enforcement and comes in the context of Trump's renewed maximum pressure regime. European gas prices closed 0.7% lower at €42.6/MWh. Prices opened the session strongly on reports of a fire at the Sudzha metering station (the most recently operating gas interconnection point between Ukraine and Russia), although prices later eased.
