ITALY AUCTION RESULTS: BTP Results

"ITALY'S PM MELONI: GOVT CONSIDERING CUTTING EXCISE DUTIES TO SOFTEN FUEL PRICES IN EVENT PRICES INCREASE STEADILY" Reuters

Note the following from our policy team yesterday: 

• "Italy and Slovenia asked for the activation of the General Escape Clause from the EU's fiscal rules at Monday's meeting of euro area finance ministers, MNI was told by a source at the meeting."
• "The call came as ministers discussed policy options to respond to the surge in oil and gas prices, such as energy price caps and the release of emergency oil reserves."
• However, "Economy Commissioner Valdis Dombrovskis told ministers that the legal conditions to apply the escape clause have not been fulfilled"

The key caveat with the Riksbank’s February Business Survey is that interviews were mainly carried out between Jan 29 – Feb 9. As such, it doesn’t capture any direct impact of the Middle East War. 

With that in mind, the results are mixed, with a few dovish signals but otherwise confirmation that a tentative economic recovery is underway. Overall, we continue to think that the Riksbank will once again signal plans to hold rates at 1.75% "for some time" at next week's decision, but stress a wider range of potential outcomes than before.

• Respondents suggested that a geopolitical shock would increase consumer’s marginal propensity to save, and many companies note that consumer behaviours is limiting the ability to raise prices above inflation.
• However, there were no comments around whether a rise in energy prices (as has been seen in the current environment) would force companies to raise prices even if it meant sacrificing demand.
• The Business Survey indicator did strengthen relative to last quarter, and is now above the historical average: “It is primarily companies' hopes that demand will strengthen that are contributing to the rise in the indicator”

Some highlights from the report:

• “Large Swedish companies are experiencing some improvement in economic activity, but the recovery is both slow and hesitant. “
• “Companies that sell goods and services to households describe the situation in somewhat brighter terms compared with last autumn. Households’ willingness to consume has strengthened “…. “companies see a risk that global events may cause households to tighten their purse strings again.”
• “Among manufacturing companies, the view of the economy is more divided than usual. The uncertain geopolitical situation reinforces the disparity between sectors.”… “The appreciation of the krona is having a negative impact on the earnings of export companies, but it is above all the fluctuations in the exchange rate that are perceived as challenging.”
• “Non-durable goods retailers plan to reduce their selling prices when VAT on food is temporarily reduced. Other retailers and companies selling services to households instead plan to increase selling prices in line with inflation. They emphasise that households' price consciousness is dampening pricing plans.”
• “Almost all companies use AI in their operations. But they mainly use AI to increase productivity with existing staff, not to reduce headcount.”

Gilts sell off with oil bid through early London trade, while hawkish comments from an ECB Governing Council member provide spillover pressure from Bunds.

• Futures trade as low as 90.51, breaching initial support located at the March 9 high/gap support (90.54). Bears look to the March 6 low (89.43) next.
• Conversely, bulls need to break the 20-day EMA (91.68) to turn focus higher.
• Yields 7-10bp higher, curve flattens. Pre-existing week-to-date yield highs remain untested across benchmarks.
• Flattening driven by reduction in pricing of BoE rate cuts.
• Short end last discounting 5bp of easing through July, with contracts as much as 14bp less dovish for late ’26 meetings.
• BoE’s Breeden will speak in front of the House of Lords Financial Services Regulation Committee this morning, but will cover Stablecoins, so don’t expect much on monetary policy.
• That will leave geopolitical matters and related oil volatility at the fore.