ENERGY SECTOR: BP Equity/Spreads Broadly Steady On Q1 Update

Gilts initially a little softer as equities tick higher through the European & UK cash open, adjusting to an apparent moderation in U.S.-Canadian trade tensions.

• Futures through yesterday’s low to 91.66 before recovering to 91.77 last.
• The bearish technical theme in the contract remains intact.
• Friday’s low (91.67) has been pierced, an extension lower would target the March 6 low (90.71).
• Yields flat to 1bp higher.
• 2s10s and 5s30s curves register fresh cycle highs, as the shifting global issuance outlook, increased risk of sticky inflation and reduction in central bank balance sheet size continues to reshape core global curves.
• 10-Year gilt/Bund spread 0.5bp tighter on the day but still above the next support cluster at 175bp/174.5bp after failing to break below that zone earlier in the week.
• The DMO will come to market with GBP4bln of the 4.50% Mar-35 gilt this morning.
• Earlier this morning, the DMO’s provisional auction calendar for the first 3 weeks of FY25/26 generally met our expectations (see earlier bullets for details).

A round of selling on both sides of the Pond, front Euribor (ERM5) in 5k, and US Tnotes in 5k.

Early expected supply out of Germany (10yr €4.5bn) has limited some of the early upside in Bund initially supported as the EU Launched Tariffs countermeasures.

Today reference 126.86 in Bund:

• 2.95% = 126.50.

Euribor futures are extending lower alongside Bunds at typing, now -1.0 to -2.0 ticks through the blues, paring some of the overnight recovery. EUR STIRs dipped alongside Bunds from ~1730GGMT last night on Russia-Ukraine ceasefire announcements and US-Canada tariff reprieve. 

• The EU has announced a set of retaliatory tariffs against the US, after 25% levies on aluminium and steel imports were imposed overnight. Markets will need to assess whether the growth-negative or inflation-positive channel dominates here. Reactions to tariff headlines throughout this year have suggested the former is more important, not least given the impact of higher uncertainty.
• ECB-dated OIS price 45bps of easing through year-end, with a ~45% implied probability of a 25bp cut in April. Key data points to watch ahead of the April 17 decision are flash PMI/inflation data and the Q1 Bank Lending Survey.
• The ECB’s forward looking wage tracker is released at 1100GMT. President Lagarde said at the March press conference that “recent wage negotiations point to a continued moderation in labour cost pressures”. We expect the tracker to reflect this.
• Several ECB speakers are also scheduled throughout the day, headlined by President Lagarde at 0845GMT and Chief Economist Lane at 1515GMT.