Stronger EUR and higher bund yields

Market movers today

PEPP data: We will keep an eye on the gross PEPP purchase data published by ECB this afternoon after net purchase data yesterday showed a surprisingly modest buying pace last week.

Swedish house price data: This morning showed a 20% rise y/y in house prices.

The 60 second overview

Germany: Armin Laschet last night won the backing of the CDU over his rival Markus Söder. 31 out of the 46 members of the party's executive committee backed him in his bid to succeed Merkel as chancellor. Only nine voted for Söder as six abstained. Söeder said earlier in the week that he would respect the vote of the executive committee, but it is not 100% clear whether he will withdraw his bid and endorse Laschet. However, it is by no way given that Laschet will be able to succeed Merkel as chancellor. The CDU is not doing particularly well in the polls and are facing strong competition from especially the Greens. The Party choose, also yesterday, Annalena Bearbock as its candidate for the chancellor post. Contrary, to CDU/CSU process the election was undramatic.

EGB yields: We have recently seen a move higher in Bund yields while UST yields have edged lower. In that respect, we note that the weekly PEPP net purchase data showed a low buying pace last week (16.3bn or 3.3bn/day), which is well below the 4.3bn/day in the previous week. By now, we should have seen the full effect of a 'significant' increase announced by the ECB. Today, the gross purchase rate will be released. Lagarde will surely be questioned on Thursday during the ECB Q&A session on the purchase behaviour.   

Housing prices Sweden: The HOX housing price index published this morning showed that Swedish house prices jumped 2.8% m/m in March. Prices are up 9.0% over the last three months and are up 20.3% y/y. This is the highest y/y rate recorded by HOX since 2005, where the HOX price series started. Apartment prices were up 8.0% y/y.  

Equities: Global equities fell yesterday driven by cyclicals and growth stocks. Defensive stocks have outperformed cyclicals in four consecutive sessions. Implied volatility higher with the VIX moving back above 17. In US, Dow -0.4%, S&P 500 -0.5%, Nasdaq -1.0% and Russell 2000 -1.4%. Earnings are still running strong and US futures are higher this morning after a solid reporting from IBM after yesterday's close. Asian equities mixed this morning with Japanese stocks being a big underperformer.

FI: European bonds were under pressure yesterday with yields rising 3bp in the core space. No imminent news stories ahead of Thursday's ECB were driving this, yet we have to potential discuss a European reflation theme (at least temporarily) as additional vaccines to Europe in hope of recovery, higher inflation expectations may have contributed to this. On the technical side, pre-positioning ahead of ECB despite this week being net positive cash flow may have contributed to the higher rates. Spreads vs. Bunds tightened in all countries but Italy, amid the bear flattening move. 10 bund as spreads tightened 1bp to 33.5bp, which is the tightest since mid-March. 10y Bunds are close to the highest since the pandemic started last year.

FX: EUR/USD broke firmly through 1.20 yesterday and it trading at 120.60 this morning as the 2020 theme of reflation is pushing back on dollar strength. EUR/NOK moved below the 10.00 support level yesterday for the first time since January 2020. The cross has continued lower overnight and is currently at 9.96.

Credit: The tone in EUR credit was slightly soft yesterday where iTraxx Xover widened 4bp (closing in 247) and Main closed in 48bp (½bp wider). HY bonds closed 3bp while IG was more or less unchanged.