The BoJ is on a wait and see stance to evaluate how global trade policies and the spring wage negation would evolve. As for the Fed, it is rather unlikely it will modify its stance and its “dots”, stressing the need to maintain stable key policy rates in the face of concerns over inflation. Investors will be attentive to any comments concerning the recent deterioration in US economic activity indicators.
Rates: despite the Bundestag passing the fiscal plan (this having already been largely priced in), there was no new surge at the long end of the euro curve. The yield for the 10Y Bund eased by 1bp over the session to 2.81%, the 2Y-10Y segment of the German curve steepening by 1bp to 67bp. Sovereign spreads widened slightly, by around 1bp, reaching 68bp for the 10Y OAT-Bund spread and 111bp for the 10Y BTP-Bund spread. 2025 rate cut expectations were globally stable at around 47bp for the ECB and 60bp for the Fed at the European close.
Credit: there was a tightening of iTraxx indices (-0.3bp for the Main) and cash spreads (-0.2bp on average for IG) with an outperformance by industrials and cyclicals (2.6bp tightening of Stellantis 5Y CDS, 2.3bp tightening of AcelorMittal 5Y CDS) and a good performance by German names (2bp tightening by VW, Deutsche Bank, 1.5bp tightening by Allianz) after the vote by the lower house of the German parliament. By contrast, US issuers underperformed, as did the DCX NA IG index (+0.3bp at the European close). Turning to the primary, it should be noted that Ipsen staged a €500m maiden issue of 7-year, which was oversubscribed 10x.
Equities: European indices appreciated yesterday (notching up their third consecutive session of gains), with European cyclicals outperforming, namely banks (+2.4%), industrials and autos. Media and real estate, on the other hand, closed lower. Tuesday's session marked a decoupling from US indices, which opened in the red, with the NDX underperforming the SPX... even though the Bundestag vote on the tax package did not have much impact on the European indices. The V2X held below the 20 threshold yesterday.
FX: on the eve of the FOMC meeting, the DXY dollar index remained stable at 103.4, close to its five-month low of 103.35 set last Tuesday. The Swiss franc was the G10 currency that gained the most against the US dollar, the USD/CHF pulling back to 0.878 and the EUR/CHF to 0.959. The EUR/USD briefly hit a five-month high at 1.0954 before stabilising. The vote on the German defence/infrastructure fiscal package supported the single currency. The Swedish krona outperformed the euro, the EUR/SEK pulling back to 10.98. Sterling hit a new four-and-a-half- month high of 1.3004 against the US dollar on the prospect of a status quo by the BoE this week and the announcement of cuts in social welfare spending. Turning to emerging currencies, the Colombian peso corrected by 1.11% (the USD/COP firming to 4,117) on fears that the finance minister would resign over disagreements with President Gustavo Petro.
Commodities: crude oil prices fell over Tuesday's session, with Brent losing 0.7% near the close, trading around $70.6/bbl. Prices again tracked the stock markets, finding relatively limited support after the resumption of Israeli strikes on Gaza. Trump's long-awaited call with Putin reinforced the feeling that any deal will take time to negotiate, ending with limited developments towards a final ceasefire - although Russia did agree to halt attacks on Ukraine's energy infrastructure and begin negotiations for a maritime ceasefire in the Black Sea. European gas prices closed down 1.8% at €49.6/MWh.
