The one exception was the Swiss National Bank, which cut its key rate by 25bp to 0.25%. In her testimony before MEPs, European Central Bank President Christine Lagarde said that a 25pp increase in US customs tariffs would reduce the Eurozone's economic growth rate by about 0.3pp in the first year. In Canada, Governor Tiff Macklem announced that the central bank would be changing its approach to the economic forecasts considered when determining its key rate. Thursday also marked the first day of a new wave of Chinese customs tariffs targeting Canadian agricultural products, in response to import tariffs on electric vehicles levied by Canada in October. In Germany, after the Bundestag on 18 March, it is now the Bundesrat's turn to vote on the €1,000bn fiscal package.
Rates: there was an easing of bond yields yesterday as risk aversion returned, benefiting above all the short and intermediate segments of the yield curve, despite the tensions observed on the Gilt curve. The mention of the trade war in Christine Lagarde's testimony before the European Parliament’s Committee on Economic and Monetary Affairs was one of the possible factors supporting the German curve. While the yield for the 2Y Schatz eased by 2bp, the curve steepened at the long end, with the 10Y-30Y segment of the German curve putting on 3.6bp to 31bp. The OAT and Bonos auctions elicited a decent response from investors but did not benefit from the appreciation of the German curve, the 10Y OAT-Bund spread widening by 2bp.
Equities: the post-Fed rebound remained modest, with the S&P 500 retracing some of its gains during yesterday's session. In Europe, indices closed in the red, with an underperformance by the DAX that lost 1.2%. The Stoxx 600 shed 0.4%, with a clear outperformance by defensive sectors (utilities, consumer staples, real estate) and energy, whereas there were declines for consumer cyclicals, industrials, financials and materials.
Credit: yesterday was marked by the rolling of the indices, with three new additions to the iTraxx Main (GSK, Marks & Spencer, United Utilities), while three names were removed (with SES, Rentokil and Vivendi dropped from series S43 of the index). Apart from the changes in the names and maturity, the roll did not generate any strong protective buying, indices closing wider (+3.8bp for the Main, around +10bp for the X-Over). The 7-year Ipsen priced last Tuesday struggled yesterday and is now trading 5bp above the reoffer spread (mid). On the other hand, the new Forvia 5nc2 placed on Wednesday is benefiting from good support from potential buyers, with a 3bp tightening despite a low NIP. Finally, ZF's results not having produced any really unpleasant surprises, its spreads were virtually unchanged despite a not very encouraging outlook for 2025.
FX: in the first session since the Fed's standstill, the DXY dollar index rose by 0.5% to 103.9. In a market dominated by risk aversion, most G10 currencies weakened against the US dollar. In reaction to a sharp fall in employment in Australia (down 52.8 thousands on a seasonally adjusted basis, at odds with the consensus that was for a 30 thousand increase), the Australian dollar corrected by 0.5% against the greenback, as did the New Zealand dollar against the US currency. The Swedish krona was stable against the euro (EUR/SEK at 11) after the Riksbank's status quo. With the SNB cutting its key rate by 25bp, as widely expected, the Swiss franc also closed unchanged against the euro (EUR/CHF at 0.956). The euro fell by 0.20% to 1.0848 against the US dollar, partly impacted by the ECB President's testimony (a 25pp increase in US customs tariffs expected to reduce Eurozone growth rate by 0.3pp in the first year). The EUR/GBP weakened by 0.20% to 0.837 following the BoE's status quo. Despite a 100bp hike in Banco Central do Brasil’s Selic rate, the Brazilian real was down 0.4% against the greenback (USD/BRL at 5.67).
Commodities: oil prices traded higher through Thursday's session, with Brent up 1.6% near the close, trading around $71.9/bbl. Prices were supported as the US issued a series of Iran-related sanctions, targeting players downstream of the trade for the first time, including an independent Chinese refinery, as part of Trump's maximum pressure regime targeting Iran. OPEC also released a schedule for compensation cuts, with a total of 0.25m bpd scheduled for April (more than offsetting planned production increases of 0.13m bpd). European gas prices closed 2.5% lower, at €42.9/MWh. Prices held the majority of Wednesday's gains (+6.4%) following dampened expectations of a quick truce in Ukraine.
