US OUTLOOK/OPINION: Consumer Resilience In April Watched

• Issue size: E3bln WNG
• Spread set earlier at MS+92 (guidance was MS+93bps area)
• Books closed in excess of  E15.8bln (incl.E2.115bln JLM interest)
• Hedge ratio 82% vs 4.75% Jul-40 Bund
• Maturity: 15-June-2040
• Settlement: 08-May-2025 (T+5)
• Coupon: Fixed, Annual ACT/ACT, long First Coupon (June 15, 2026)
• ISIN: PTOTE4OE0008
• Bookrunners: BBVA/DB/GSBE SE/JPM (DM & B&D)/NovoBanco/Santander
• Timing: Hedge headline 12:40BST / 13:40CET, pricing later today

From market source

• In the FI space, Bund futures continue to trade below their recent highs. Despite the latest move down, a bull cycle remains in play and the sell-off between Apr 7 - 9 is considered corrective. Attention is on resistance at 132.03, the Apr 7 high and a bull trigger. Clearance of this level would confirm a resumption of the uptrend and open 132.56, the Feb 28 high. Firm support lies at 130.77, the 20-day EMA.
• Gilt futures are trading higher today, extending the current bull cycle that started Apr 9. 92.63, the Apr 8 high, has recently been breached, and today’s gains have resulted in a clear break of 93.44, the 76.4% retracement of the Apr 7-9 sell-off. This strengthens the bull cycle and opens 94.50, the Apr 7 high and a key resistance. On the downside, support to watch is 92.39, the 20-day EMA.

Looking a bit closer at this morning's German state level April inflation data, key aspects of analyst views have materialized: Goods inflation has slowed on the back of materially lower energy prices, while services has seen some re-acceleration - driven by the transport category, which would be consistent with a notable upward push from the Easter effect.

• Crucially, we see the mixed-weighting (across goods and services) transport category at 1.4-1.5% Y/Y (vs 0.9% prior) despite an energy deceleration to around -5.5% Y/Y (Morgan Stanley saw -5.4% for the category in their preview) - fuel prices, as expected, would then have to account for the lower energy print, so that travel services (especially airfares) will have pulled up the overall travel category. This suggests that the Easter effect put notable upward pressure on German services CPI Y/Y this month.
• Looking at the categories with heavy services weighting, we see (all Y/Y) healthcare at 2.8% (vs 3.0% prior), communication at -0.9% (vs -1.1% prior), recreation and culture at 1.5% (vs 1.0% prior), education unchanged at 4.7%, and restaurants and hotels at 3.6-3.7% Y/Y (vs 3.8% prior).
• Food inflation (excl. alcohol and tobacco) appears to have seen some slight deceleration, to around 3.2% Y/Y (3.4% prior).
• Core goods meanwhile appear a bit mixed (we see clothing and footwear at 1.3% vs 1.0% prior; furnishings and household equipment unchanged around -0.3%).