GERMANY: Handelsblatt-No Tax Hikes In Coalition Deal, Corp Tax Falls From 2028

The March Eurozone Sentix investor confidence survey was much stronger-than-expected at -2.9 (vs -9.3 cons, -12.7 prior). Survey data was collected between March 6 - March 8, so includes the fallout from last week's German fiscal announcement. From the press release:

"The announcement of debt-financed armaments programmes (EU and Germany) and infrastructure investments (Germany) has investors positively euphoric about further economic development. The sentix economic index for the euro area rises by 9.8 points to -2.9 points. At the same time, we are witnessing a historic crash in US eco-nomic indicators, the likes of which we have only seen during the 2008 financial crisis. The US expectations index falls for the third time in a row by 25.8 points to -17.8 points. How realistic and sustainable are both investor-designed scenarios?"

Little net reaction in Bund futures to the data as the fiscal signals were priced during last week's selloff. The Sentix is also not usually market moving in any case.

Gilts stick within Friday’s ranges, with broader-risk-off flows helping underpin early today, although those moves have started to fade.

• Risk-off price action stemmed from German fiscal tensions, along with U.S. growth and Israeli-Palestine worries.
• Still, futures remain in a clear bear-mode technical condition and gains are - for now - considered corrective.
• First resistance at Friday’s high (92.63), followed by the Mar 4 low (93.06).
• Yields ~1bp lower across the curve.
• Gilts wider vs. German peers across the curve, highlighting the importance of German fiscal cues when it comes to cross-market moves at present.
• BoE-dated OIS little changed to 2bp more dovish on the day, pricing ~55bp of cuts through year-end
• ~80% odds of the next cut priced through May, with a cut fully discounted through June. We still look for the next cut to come in May.
• SONIA futures flat to +4.0.
• The latest KPMG-REC Report on Jobs provided the latest source of worry when it comes to the UK labour market.
• Friday’s monthly economic activity data headlines this week’s UK calendar, with the latest BoE/Ipsos inflation attitudes survey also due to be released on the same day.
• The long end will have to digest 10-Year supply on Wednesday. We also remain on the lookout for the launch of the new Sep-49 I/L syndication.
• Elsewhere, the DMO will both propose (Wednesday) and confirm (Friday) its issuance calendar for the first 3 weeks of FY25/26.

USD had traded firmer through the European open, but much of that progress is reversing here - putting USD toward the bottom end of the G10 table in recent trade. Headlines remain few and far between - leaving markets with little conviction and, quite clearly, subject to non-directional trade.

• GBP gains have slightly run out of steam, however GBP/USD remains either side of the 1.2900 handle as markets continue to parse reports of incoming budget and spending cuts in the UK ahead of the March 26th Spring Statement. GBP is nonetheless among the poorest performers on the session.
• A solid set of Norwegian inflation numbers this morning has underpinned a rally in NOK, which outstrips all others in G10. Outdoing the higher-than-expected Swedish inflation print last week, underlying CPI in Norway lurched to 3.4% vs. Exp. 2.9% - a data outturn that's likely to pressure those looking for Norges Bank rate cuts as soon as this month's decision.
• EUR/NOK has slipped toward the lower half of this year's range, but support at 11.5738 needs to be taken out before the February and YTD lows can be considered at 11.5413.
• Markets look ahead to the US CPI, PPI releases later this week, with NY Fed inflation expectations the sole US release. The Fed are now inside their pre-meeting media blackout period - meaning no monpol headlines are to cross for the next 10 days or so. ECB's Nagel is set to speak on German growth later today.