EGBS: BTP/Bund Spread Tightening Extends
There hasn’t been much to impede today’s BTP/Bund narrowing, with the spread now over 8bps tighter on the session at 116bps. BTP outperformance versus EGB peers has come amidst a more stable global risk backdrop alongside the reaction to Friday evening’s S&P ratings upgrade.
- Futures are +103 ticks at 119.13, having pushed through the bull trigger at 119.07 (Apr 4 high). This exposes the March 4 low at 119.31 next.
- Tomorrow’s Eurozone calendar is headlined by the Q1 Bank Lending Survey. While it may come too late to impact Thursday’s rate decision (a 25bp cut is firmly expected), it will be an important gauge of the restrictiveness of ECB policy.
- As such, the survey will feed into discussions around policy statement wording, after rates were described as “meaningfully less restrictive” back in March.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
