Head of Macroeconomic Research
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.
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As expected, the initial market reaction to the EUCO summit (see our review here) is very negative. This morning, Italy-Germany 10 year bond spread opened wider and it is testing at the moment of writing this note 250bp yield spread, which represents a price differential of about 38bp over the past few days. Tonight, S&P will release its rating review for Italy and a rating cut is widely anticipated. In the coming weeks, the BTP market, which is in our view the best proxy to assess the level of confidence in the EU, will remain in the spotlight. Moody’s will update its rating, currently on lowest investment grade notch, on May 8. Adding to that, there is a huge inflow of BTP issuance coming in an already saturated market. All of this will increase significantly the pressure on the BTP market. While the EU is stalled due to lengthy deliberation, the ECB is likely to stay the only game in town to counter increase in peripheral spreads. If the situation further deteriorates, it may force the ECB to intervene in a timely manner in order to expand the size of its PEPP programme that runs until the end of the year.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
