EM LATAM CREDIT: Colombia March Retail Sales Reported Stronger Than Expected

Deutsche Bank analysts have added Fed cuts to their expected path, as "record levels of policy uncertainty and the sharp tightening of financial conditions has already set the US economy on a weaker growth trajectory."

• The upshot is that they now see a 25bp cut in December 2025, with 2 more cuts in Q1 2026 (ie 3x consecutive cuts through Jan and Mar 2026) before holding. That would get the Funds rate to Deutsche's view of neutral (3.50-3.75%). Previously they hadn't seen any cuts in 2025, and just one 25bp cut in 2026 (Q3).
• They see growth slowing later this year before rebounding in 2026: "the mechanical impact from the tariffs plus the drag from trade policy uncertainty together represent an adverse shock of up to 2 percentage points to growth in the coming quarters. Under a baseline assumption of no further material tariff escalation – and eventually some further tariff relief – as well as a tax package passed this summer, we now see growth slowing sharply in 2025 to 0.9% (Q4/Q4). Growth should then rebound in 2026 to 1.75%."
• Unemployment is seen rising to 4.6% by end-2025, but tariffs are seen pushing core PCE / core CPI near 3.6%/4.0% respectively (on a Q4/Q4 basis), with upside risks.
• Risks are two-sided: "Cuts could come earlier if unemployment rises more sharply, while jittery inflation expectations could push rate reductions into 2026."

There hasn’t been much to impede today’s BTP/Bund narrowing, with the spread now over 8bps tighter on the session at 116bps. BTP outperformance versus EGB peers has come amidst a more stable global risk backdrop alongside the reaction to Friday evening’s S&P ratings upgrade. 

• Futures are +103 ticks at 119.13, having pushed through the bull trigger at 119.07 (Apr 4 high). This exposes the March 4 low at 119.31 next.
• Tomorrow’s Eurozone calendar is headlined by the Q1 Bank Lending Survey. While it may come too late to impact Thursday’s rate decision (a 25bp cut is firmly expected), it will be an important gauge of the restrictiveness of ECB policy.
• As such, the survey will feed into discussions around policy statement wording, after rates were described as “meaningfully less restrictive” back in March. 

SFIM5 95.80/95.75 put strip, paper sells at 7.75 in 5k