HYBRIDS: EDP Hybrids Meeting is Tomorrow 27th March

Today’s light dovish repricing in ECB-dated OIS has been centred in the April-June spread, which now prices 19bps of cuts from 17bps at Friday’s close. Implied cuts through the March and April gatherings are unchanged at 24bps and 41bps respectively. There are 81bps of easing priced through year-end (vs 79bps on Friday).

• Today’s regional data (final January HICP, German IFO survey) was not market moving, with primary focus on tomorrow’s Q4 negotiated wages data and the February flash inflation round on Thursday/Friday.
• Wage metrics over the past few weeks (ECB’s forward looking wage tracker and the Indeed wage tracker) have generally supported the ECB’s base case for a moderation of labour costs.
• Executive Board member Schnabel also delivers a speech titled “No Longer Convenient? Safe Asset Abundance and r*” at 1300GMT tomorrow, at the 2025 BOE BEAR conference on “The Future of the Central Bank Balance Sheet”.
• This comes following last week’s MNI event with Executive Board member Cipollone, who highlighted that the liquidity demand of Eurozone banks will be the key determinant of the ECB’s future balance sheet size.

The Dallas Fed's Texas Manufacturing Outlook Survey general business activity index fell much more sharply than expected in February, to -8.3 from a January's 39-month high 14.1. Consensus was for a 7.7 point drop to 6.4 - instead, the index fell by 22.4 points, the most since the start of the pandemic and the 4th largest M/M fall in survey history.

• This survey result mirrored those seen last week in the New York and Philadelphia Fed surveys, pointing to higher uncertainty and inflationary pressures. The Dallas survey was conducted Feb. 11–19 and from both the anecdotal commentary in the report and the indices themselves, it is clear that both potential future tariffs (including with neighboring Mexico) and those already-implemented are hitting confidence and activity, and underpinning perceived price pressures.
• There was weakness in activity across the board: production fell 21 points to -9.1, new orders fell 11 points to -3.5, with capacity utilization, shipments, employment, and hours worked all lower vs January.
• Forward-looking indicators were no better: the "outlook uncertainty index" rose from flat to a 7-month high 29.2, with future production falling 26 points to 28.3 and future general business activity dropping nearly 28 points to 7.7.
• And on prices: current prices paid rose 17 points to 35.0, a 29-month high, with prices received up over 6 points to 42.0, a 34-month highs. 6-month-ahead prices paid rose 19 points to 59.0, a 42-month high (Aug 2021), with 6-month prices received up just over 6 points to 42 (a 34-month high).

• Stocks reversed modest overnight gains early Monday, extending lows by midmorning amid carry-over risk-off on President Trump policy concerns on tariffs while trading desks cited managed money rotation out of stocks into Fixed Income. Treasury safe haven support saw rates reverse early losses to moderately higher in 5s to 30s.
• The DJIA recovered from early selling but remains near mid-January levels trades up 27.83 points (0.06%) at 43453.5 (43343.67 low), S&P E-Minis down 20 points (-0.33%) at 6008.75, Nasdaq down 185.5 points (-1%) at 19335.37.
• Health Care and Financial sectors led gainers in the first half, carry-over support from Friday noted in pharmaceuticals amid concerns over a new Covid strain with "pandemic potential": Charles River Labs +4.46%, Amgen +3.03%, Regeneron Pharmaceuticals +2.88%.
• Insurance companies buoyed the Financials sector: Berkshire Hathaway +3.39%, Travelers Cos +3.14%, Progressive Corp+1.93%, Chubb Ltd+1.92%.
• Meanwhile, Consumer Discretionary and Information Technology sectors underperformed, Domino's Pizza -5.05% after missing earnings, Deckers Outdoor Corp -3.04%, Tesla Inc -2.77% and Ralph Lauren Corp -1.92% weighed on the Consumer Discretionary sector.
• Technology sector shares were hampered by the threat of tariffs weighing on foreign investment: Palantir Technologies -9.02%, Crowdstrike Holdings -4.53%, Super Micro Computer -4.04%, Western Digital Corp -3.96% and Arista Networks Inc -3.87%. Microsoft declined 1.8% on reports they canceled some leases for domestic data center capacity.