BTP TECHS: (M5) Overbought But Remains Bullish

• RES 4: 5600.00 Round number resistance
• RES 3: 5516.00 High Mar 3 and the bull trigger 
• RES 2: 5471.00 High Mar 19 / 20 
• RES 1: 5359.39 20-day EMA              
• PRICE: 5218.00 @ 06:41 BST Mar 31 
• SUP 1: 5200.00 Round number support                 
• SUP 2: 5160.00 Low Feb 4
• SUP 3: 5079.00 Low Feb 3 and a key support       
• SUP 4: 5040.00 Low Jan 16       

Eurostoxx 50 futures are trading lower today and this has resulted in a breach of key support at 5229.00, the Mar 11 low. The print below this support undermines a bullish theme and signals scope for a deeper retracement. Sights are on the 5200 handle next, where a break would open 5079.00, the Feb 3 low. It is still possible that recent weakness is part of a broader correction. Initial resistance to watch is 5359.39, the 20-day EMA.

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)”.

• 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.