FRANCE DATA: GDP Inches Up 0.1% Q/Q, But Composition Weak
French Q1 flash GDP was in line with consensus at 0.1% Q/Q (vs -0.1% prior), but the composition of expenditures was weak. Domestic demand excluding inventories made no contribution to growth in the first quarter (vs a 0.2pp contribution in Q4), while foreign trade pulled the quarterly rate 0.4pp lower. Inventories then made up the remaining 0.5pp. On annual basis, GDP growth was 0.8% Y/Y (vs 0.7% cons, a two tenth upwardly revised 0.8% prior).
- Household consumption growth was flat, following 0.2% Q/Q in Q4 and 0.6% in Q3 (the latter biased higher by the Olympic/Paralympic Games last year). An increase in services consumption was offset by a fall in goods.
- Government consumption growth was 0.1% Q/Q vs 0.4% prior, as Government attempts to consolidate public finances continue.
- Gross fixed capital investment was negative for the third consecutive quarter at -0.2% (vs -0.1% in Q4, -0.7% in Q3).
- Within net trade, export growth fell sharply to -0.7% Q/Q (vs 0.2% prior), while import growth rose 0.4% (vs 0.5% prior). Products that were not sold on the export market may have then showed up as increased inventories in the national accounts.
- Looking at the production breakdown of GDP: Manufacturing added 0.4% Q/Q (vs 0.1% prior), as did services (0.4% vs 0.1% prior). Construction dragged, falling 0.5% (vs -0.7% prior).
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ECB VIEW: Goldman Pencil In An Additional ECB Rate Cut
Goldman Sachs now “expect the Trump administration to implement a reciprocal tariff on the EU worth 15 percentage points, raising the total effective tariff rate on the EU by 20ppt (vs. 7ppt before) since the start of 2025”.
- They estimate that inflation will be higher, “driven mostly by EU retaliation, and raise core inflation forecast to 2.1% in 2025Q4 (compared to 2% before)”. Further out, they see “risks skewed to the downside as the mechanical effects of retaliation drop out and modestly negative effects from lower demand dominate”.
- They conclude by noting that “a Taylor rule that looks through the mechanical effect on inflation suggests that the ECB should lower the deposit facility rate further in our new baseline compared to our previous tariff assumptions. Our new tariff baseline therefore reinforces our expectation that the ECB will cut rates in both April and June, and we now forecast a further 25bp cut in July for a terminal rate of 1.75% (vs. 2.00% before)”.
EUROZONE ISSUANCE: EGB Supply - W/C 31 March, 2025 (2/2)
- On Thursday, Spain will hold a Bono/Obli and ObliEi auction. On offer will be the on-the-run 3-year 2.40% May-28 Bono (ISIN: ES0000012O59), the 3.10% Jul-31 Obli (ISIN: ES0000012N43), the 3.90% Jul-39 Obli (ISIN: ES0000012L60) and the 1.00% Nov-30 Obli-Ei (ISIN: ES00000127C8). We look for an upper auction target size of around E5.5-6.0bln for the nominals and a E250-750mln target range for the linker.
- Also on Thursday, France will hold a LT OAT auction. As we expected, the on-the-run 10-year 3.20% May-35 OAT (ISIN: FR001400X8V5) will be on offer alongside the first reopening of the on-the-run 30-year 3.75% May-56 OAT (ISIN: FR001400XJJ3). We had expected a further two LT OATs on offer, but only the 3.50% Nov-33 OAT (ISIN: FR001400L834) will be on offer alongside the on-the-run issues. With only three OATs on offer, we think that explains the slightly smaller auction size of E10-12bln.
- Finally on Thursday, Finland will hold an ORI operation to sell up to E0.4bln. The bonds on offer will be announced the preceding day.
NOMINAL FLOWS: This week sees a single redemption of E2.4bln from a formerly 7-year EU-bond (legacy issuance before SURE/NGEU). Coupon payments for the week total E3.8bln of which E2.4bln are Italian, E1.0bln are from EU-bonds and E0.2bln are from the EFSF. This leaves estimated net flows for the week at positive E24.4bln, broadly cancelling out last week’s negative E24.4bln.
EURGBP TECHS: Remains Above Support
- RES 4: 0.8494 High Aug 26 ‘24
- RES 3: 0.8474 High Jan 20 and a key resistance
- RES 2: 0.8428/8450 High Mar 18 / 11 and the bull trigger
- RES 1: 0.8395 High Mar 24 and a key near-term resistance
- PRICE: 0.8364 @ 06:47 BST Mar 31
- SUP 1: 0.8316 Low Mar 28
- SUP 2: 0.8291 76.4% retracement of the Mar 3 - 11 bull leg
- SUP 3: 0.8251 Low Mar 4
- SUP 4: 0.8241 Low Mar 3 and a key support
The move down in EURGBP that started Mar 11 still appears corrective and has allowed a recent overbought condition to unwind. Note that MA studies are in a bull-mode position, highlighting a dominant uptrend. Support to watch is 0.8316, the Mar 28 low. A break of this level is required to signal scope for a deeper retracement that would open 0.8290, a Fibonacci retracement. For bulls, clearance of 0.8395, the Mar 24 high, would be a bullish development.
