OPTIONS: Expiries for Mar24 NY cut 1000ET (Source DTCC)

Prime Minister Mette Frederiksen has said that an additional DKK50B (EUR6.7B) will be spent on defence in 2025 & 2026. Foreign Minister Lars Løkke Rasmussen says that this new allocation will see Denmark's total defence spending increase above 3% of GDP. Speaking at a presser, Frederiksen says "Because of the threat from Russia, to defend Denmark and avoid war, we are embarking on further rearmament,". PM says the gov't has a message to the Chief of Defence: "Buy, buy, buy. There's only one thing that counts now, and that's speed. If we can't get the best equipment, then buy the next best."

• Defence spending among EU and NATO countries has come to the forefront of the news cycle and fiscal calculations in recent weeks amid demands from the US that European countries 'pay their way' in defence.
• For Denmark in particular, the issue of defence spending and capabilities has come to the fore following US President Donald Trump's frequent comments regarding the US taking control of the Danish autonomous territory of Greenland on national security grounds.  
• Politiken writes "The government will finance the initiative through ...fiscal leeway and a relaxed fiscal policy. But it can't stay that way. Because the increase in defence spending is not temporary. This means there remains a significant task to find sustainable financing. This implies tough economic prioritization, where the three governing parties traditionally do not have common ground. But the government has postponed this battle by securing short-term financing that does not require cuts or reforms."

• One area where there can be a greater argument for the lack of dovish reaction at today’s open is that Germany’s greater sensitivity to these sectors sees stronger support from the largest EU member for retaliation beyond non-tariff measures (NTMs).
• This Sunday’s German election muddies proceedings but comes sufficiently ahead of these early April deadlines.
• German exports of vehicles to the US were worth 0.8% German GDP in 2024 (vs an equivalent 0.3% GDP for EU exports to the US) whilst medicinal and pharmaceutical products were worth 0.6% GDP (similar to the 0.7% for the EU).
• On the same net trade basis as in part one, auto net exports were worth 0.6% GDP in 2024 (vs 0.2% for EU) and 0.5% GDP for pharma (0.4% for EU). 

• US President Trump’s latest threats late yesterday on large tariffs on autos (“in the neighborhood of 25%”) and pharmaceuticals and semiconductors (“25% and higher”) hasn’t been met with the same growth-negative market reaction in EU rates today as in previous episodes.
• On top of the offsetting theme from prospects of notable increases in EU defense spending, the continued pushing back of effective dates is also likely at play. The latest date of Apr 2 is a further delay from previously focused tariffs on iron/steel & aluminium (due Mar 12) and it tallies with the proposed report on reciprocal tariffs due Apr 1, with previously discussions potentially getting rolled up into these early April deadlines/discussions.  
• The assumption seems to be that this is a continuation of a Trump’s negotiation strategy of proposing penal policies in order to strike a deal, but if these tariffs do start to grow in likelihood then it’s worth noting that the latest proposals are far more damaging than those on iron/steel & aluminium.
• EU exports of medicinal and pharmaceutical products to the US were worth 0.7% of EU GDP in 2024 whilst vehicle exports were worth 0.3% GDP vs just 0.1% GDP for iron/steel & aluminium.
• With Trump also focused on trade imbalances, the EU sees sizeable trade surpluses of 0.4% GDP (pharma), 0.2% GDP (vehicles) and 0.0% GDP (iron/steel & aluminium).