ECB: de Guindos Echoes ECB Estimates On Tariff Impact
Mar-28 09:07
Comments from ECB's de Guindos via our policy team. His comments around the growth/inflation impact of tariffs are broadly in line with the estimates President Lagarde presented at last week's ECON Hearing:
- U.S. tariffs and potential retaliation in Europe would boost inflation in the short term but this would be balanced in the medium term by a hit to economic growth, European Central Bank Executive Board member Luis de Guindos said on Friday.
- De Guindos was confident in that the ECB is on its way to reaching its 2% inflation target, but stressed that it should remain cautious regarding future movements due to the great level of uncertainty.
- “There are many elements that can distort the projections. The fundamental element is what is going on with trade policy,” he said at an event in Spain.
- The lower degree of monetary restriction is already being felt, he said, pointing to data from credit and lending surveys
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Historical bullets
EURIBOR OPTIONS: Call Condor vs Put Spread
Feb-26 09:04
ERM5 97.875/98.00/98.125/98.25c condor vs 97.625/97.50ps, sold the Condor at 3.25 in 5.5k.
BUNDS: Spiking higher in early trade
Feb-26 08:58
- Bund sees a decent extension, has again closed the 132.60 gap, with next resistance coming at 132.97.
- As mentioned, the German supply wasn't expected to weigh into Govies in early trade, but still not seen any clear new driver on this spike higher.
- Volumes have picked up, with around 30k bought in the past 10 minutes or so.
- US Treasuries are Totally unmoved.
BUNDS: /SWAPS: Long End ASWs Above Cycle Lows
Feb-26 08:57
German ASW spreads (vs. 3-month Euribor) within 0.5bp of yesterday’s closing levels.
- Schatz and Bobl spreads a touch narrower, while Bund and Buxl spreads are a little wider.
- This goes against the recent trend and could simply reflect some profit taking given short positioning in long end ASWs (both outright and vs. Schatz).
- The bid in core global FI is also supporting spreads.
- Headline flow over the last couple of days points to special fund deployment geared towards defence spending as the most likely source of German fiscal support in the immediate term, with many lawmakers seemingly keen to push this through before the new Bundestag sits in late March (a tight timeline, but doable).
- Debt brake reform is set to present a more testing point of negotiation given the incoming Bundestag composition and differing views on appropriate uses of fiscal spending amongst the political parties. Expect discussions surrounding this matter to drag out over a few months, at a minimum.
- Fundamentals continue to screen bearish for long end spreads, but we caution that crowded positioning near cycle/all-time lows in ASWs and the potential tensions in debt brake discussions present risks to this idea.
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