EMISSIONS: International Carbon Credits May Undermine EU ETS

Bund block trade, suggest seller

• RXM5 3.23k at 129.51.

Worth keeping an eye on the US Tnotes (TYM5), while Yesterday's low is at 109.30, the 4.50% Yield is circa 109.28+, now at 4.496%.

The Yen is unaffected still, but further breakout lower in TYM5 might provide some demand in USDJPY.

• March building permits -4.1% to CAD12.9B, StatsCan says Wed.  
• Decline driven by non-residential sector -15% to CAD4.2B mainly due to a significant drop in commercial with Ontario posting more than half the decrease.
• Residential permits +2% to CAD8.7B on multi-family units, while single-family units -5.3%.
• Permits +15% YOY.
• On a quarterly basis, building permits +2.9% to CAD39.1B, fifth straight gain. Multi-family housing +9.6% to record high CAD17.3 billion, led by Vancouver projects.

Chancellor Merz concluded his inaugural government declaration, overall remaining close to his CDU/CSU/SPD coalition agreement. Generally, he highlighted making competitiveness a key parameter in economic policy, preserving jobs in industrial manufacturing, and budget consolidation (increasing efficiency of measures) as key goals for his administration. Concrete measures announced include the below:

• Accelerated depreciation on private investment: 30% of acquisition costs deductible per year over 3 years, starting to reduce enterprise taxes in 2028
• Imposition of a 12-year infrastructure package
• New free trade initiative proposed in the EU (mentioning MERCOSUR, US)
• Enabling enterprise formation within 24 hours
• Reduction of reporting obligations for enterprises
• Introduction of an 'early start-retirement pension' (Frühstartrente; from 2026, children from age 6 receive E10/month in an individual, publically funded and privately managed retirement savings account. Fiscal costs costs would amount to ca. E1bln/year)
• CO2 pricing as a core component of climate policy, revenues should not flow into the budget but be distributed Sticking to European climate targets
• Maximum weekly working hours instead of daily maximum to increase labour flexibility
• Government believes the E15/h minimum wage by 2026 is achievable and desirable, but will not enshrine the goal in law - minimum wage commission remains in place
• "Trusting" the agricultural sector: Relying on voluntary action and personal responsibility of farms (this announcement saw a positive reaction in German chemical equities)
• Prioritizing integrating immigrants into the labor market as quickly as possible
• More collective bargaining in the labour market
• Intensify cooperation with Asian partners (mentioning China, some other APAC countries)
• Deepening cooperation with UK on defence

Next in the German domestic politics calendar will be finance minister's announcement of updated tax estimates tomorrow - Handelsblatt sources flagged this will result in a downward revision following lower GDP forecasts ('GERMANY: German Tax Revenue Estimates To Be Downwardly Revised - HB' - May 13).