HUNGARY: EU to Sue Hungary Over Orban-Era Retail Tax

The March European Commission economic survey saw overall confidence decline as expected whilst price expectations increased, especially for industry. However, both areas saw smaller shifts than under the 2021-22 price shock and the Russia invasion of Ukraine in Feb 2022 in particular. 

• Eurozone economic confidence was very close to expectated in the European Commission’s March survey (link), easing to 96.6 (cons 96.7) from a downward revised 98.2 (initial 98.3).
• Talking more broadly in EU rather than Eurozone terms, the press release notes “the decline in the ESI resulted from considerably lower confidence among consumers and retailers and, to a much smaller extent, services managers. Confidence in construction improved somewhat, while it remained broadly unchanged in industry.”
• The final consumer confidence was unrevised at -16.3, confirming a drop from -12.3 in February for its lowest since late 2023. Lagarde’s take from last week’s speech is intact here: “So far, consumer confidence has fallen more sharply in Europe than following the 9/11 attacks and the war in Kuwait in 1990, but not as steeply as following the Russian invasion of Ukraine.”
• Strong price increases although expected prices increases are contained compared to 2021-22:  "Managers’ selling price expectations were sharply up in all four business sectors, and strikingly so in industry. Selling price expectations moved further beyond their long-term average in all business sectors. Consumers’ perceptions of price developments over the past twelve months increased moderately, but their expectations about price developments for the next twelve months surged."

Spillover from Friday’s slightly more neutral rhetoric from the usually hawkish ECB Executive Board member Schnabel and some focus on growth concerns surrounding the elongation of the Iran conflict supported core global FI markets through early London trade, although an extension of the rally in crude oil and firmer inflation expectations in the Eurozone confidence data has countered that move.

• Bund futures +12 at 124.60. Initial support and resistance located at 124.25 & 125.02, bears remain in technical control.
• German yields 1.5bp higher to 1bp lower, curve twist flattens. Note that Bobl yields have failed to challenge next resistance at the September 2023 high (2.927%) in recent sessions.
• The aforementioned cross-market/macro backdrop, plus a move off lows in European equity index futures, initially compressed EGB/Bund spreads. The pullback from session highs in wider core global FI has since countered. BTP/Bunds little changed at 95.5bp after last week’s failed break above 100bp.
• Gilt futures +4 at 87.17 vs. highs of 87.58. Bears remain in technical control, initial support and resistance located at 85.91 & 88.18. Yields 1bp higher across the curve. 10s threaten a move back above 5.00%.
• Hawkish drift in EUR & GBP short ends alongside the move off highs in bonds, ~80bp of ECB hikes priced through year-end, 74bp of BoE tightening showing over the same horizon. Monday ECB-speak has been fairly neutral but cognisant of stagflationary risk linked to the Iran conflict.
• National level German inflation data is due later, with the regional level readings seen so far roughly in line with national consensus (+2.6% Y/Y for CPI vs. +1.9% last time out).

Large expiry in the EUR on Wednesday.

Of note:

EURUSD 2.41bn at 1.1500 (tue).

AUDUSD 1.52bn at 0.6825 and 1bn at 0.6900 (tue).

EURUSD 5.3bn at 1.1500/1.1505 (wed).

EURUSD 1.12bn at 1.1500 (thu).

USDCNY 2.47bn at 6.9000 (thu).

• EURUSD: 1.1450 (869mln), 1.1475 (296mln), 1.1500 (500mln), 1.1525 (534mln), 1.1550(963mln).
• USDJPY: 159.50 (301mln).