CONSUMER CYCLICALS: L'Oréal; Tariff impact (low)

Back on Friday UBS wrote that “the ECB emphasised that its monetary policy is becoming meaningfully less restrictive, but real rates will remain elevated in the year ahead so we would receive the April ’25 meeting”.

• They went on to note that “the ECB itself said that risks to economic growth remain tilted to the downside. In addition, the euro area economy will also have to digest the increase of higher sovereign and swap rates. We think that European growth could stagnate or even decelerate in 2025 if tariffs on EU exports to the U.S. materialize in early April. We still think that the market will price a terminal rate below 2% in this cycle”.

A pullback in European equity futures has lent support to core EGBs this morning, though Friday’s high in Bund futures at 128.29 remains untested. Bunds are +12 ticks at 127.78 at typing, now off earlier session highs. The recovery from last Thursday’s lows in Bunds has allowed an oversold condition to unwind a little, though a bearish theme remains intact. Initial firm resistance to watch is 129.41, the Jan 14 low.               

• We have highlighted several drivers for today’s risk off action: Continued US growth worry, signs of tension within German fiscal negotiated and a possible reignition of tensions between Israel and Hamas.
• German yields are 1.5-2.5bps lower, with the 10-year point underperforming a little.
• German January industrial production was stronger than expected at 2.0% M/M (vs 1.5% cons), but had little net impact. The March Eurozone Sentix investor confidence survey also exceeded forecasts 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.
• 10-year EGB spreads to Bunds trade quite resiliently despite the equity selloff. PGBs underperform (10-year spread to Bunds ~1.5bps wider at ~52.5bps) amid signs the Socialists will oppose the minority government’s no-confidence vote tomorrow.
• ECB’s Nagel is scheduled to speak at 1300GMT. 

RXJ5 126.50/125.50 put spread paper paid 18 on 10K.