Market movers today

  • In the US, we get the first estimate of GDP growth in Q1 today. We expect to see a more or less unchanged GDP number for Q1 relative to Q4, 2018. However, a lower than expected number will add to the downward pressure on US Treasuries as political pressure for a rate cut will increase.

  • Today the Bank of Russia (CBR) will announce its monetary policy meeting decision on the key rate. In line with Bloomberg and Reuters consensus, we expect the CBR will keep the key rate unchanged at 7.75%. A softened ECB and Fed stance offers more room for the CBR to start cutting soon. We expect two 25bp cuts in 2019.

  • Italy and Greece up for review by S&P today. See more on page 2.

  • In Sweden , March PPIs and retail sale numbers are released today (see page 2).


Selected market news

French president Emmanuel Macron held a more than two hour long press conference yesterday, in which he promised cuts of EUR 5bn in personal income taxes, inflation indexing of monthly pensions below EUR 2,000 and no further closures of hospitals and schools for the remaining part of his term in a bid to stop the gilets jaune riots. While details of the plan did not become known until after close of the European session, expectations weighed on semi core and periphery throughout the day. French 10Y yields widened 2bp to Bunds and 10Y BTP widened 5bp.

US treasuries sold off early in the session yesterday after initially seeing surprisingly strong data on durable goods, but weaker earnings reports than recent days and an increase in initial jobless claims meant that treasuries ended the day up just 2bp. S&P500 was only little changed. Remaining in the US the effective Fed Funds rate (EFFR) fixed high for the fourth consecutive day at 2.44% - 6bp below the upper bound of the target range, but an entire 4bp above the IOER. While the EFFR has traded closer to the upper bound in the past, this has happened with the IOER only 5bp below the upper bound. The difference of 4bp has not been seen since back in 2008 when the facility was first introduced. While excess reserves remain large in a historical context, implementation of liquidity requirements is said to have pushed up structural demand for excess reserves. The high fixing has prompted speculations of an early end to the balance sheet run-off (currently set to end in September) and even a downward adjustment of the IOER.

According to a government official, British Prime Minister Theresa May has lost the race to avoid UK elections for the European Parliament on 23 May as the Brexit Bill probably won't come to the floor next week, and after which there is too little time to carry out a ratification of a potential agreement. According to the official the next target will be to have the bill passed by June 30 where the newly elected MEPs take seat in the Parliament.

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