EU CONSUMER STAPLES: Phillip Morris | 1Q24 Results

In the following publication, we provide a summary of ECB-speak between March 18 and March 24: 250324 - Weekly ECB Speak Wrap.pdf

The balance of the past week’s ECB-speak veered in a dovish direction, with several Governing Council members appearing open to the idea of an April cut. The March flash PMIs (released this morning) saw notable upticks in manufacturing components, but subdued demand remains evident in the services sector. On net, the results of the PMIs feel neutral to dovish. ECB-dated OIS price just over a 60% implied probability of a 25bp cut in April. This feels appropriate at this stage, with the March flash inflation data, lending data/the Bank Lending Survey and the April 2 US tariff announcement still to come before April 17. 

• Following comments in last week’s public MNI Connect event, we feel the bar to Bank of Finland Governor Rehn not voting for a cut in April is quite high. Rehn stressed downside growth risks emanating from US trade frictions, while noting that any growth impulse from increased European defence spending would take time to be realised. Meanwhile, he appeared quite relaxed about the balance of risks to inflation. We view Rehn as an important barometer of the median Governing Council view, often striking a centrist/dovish leaning tone.
• Meanwhile, the dovish Stournaras and Demarco argued that recent increases in European bond yields have tightened financial conditions and are thus supportive of further monetary easing.
• Cipollone and Villeroy suggested the ECB has margin for further cuts, while Knot and Muller provided more cautious views.
• Speaking to the Committee on Economic and Monetary Affairs, President Lagarde unveiled staff estimates that estimate “a US tariff of 25% on imports from Europe would lower euro area growth by about 0.3 percentage points in the first year. A European response in the form of raising tariffs on US imports would further increase this to about half a percentage point”. She noted that these policies “could lift inflation by around half a percentage point”…but “the effect would ease in the medium term due to lower economic activity dampening inflationary pressures”. Lagarde provided no meaningful policy signals upcoming decisions. 

Late on Friday J.P.Morgan recommended belly longs on the 5-/10-/30-Year German fly.

• They expect “the 2s/10s curve to continue gradually flattening on pricing out of a large part of the term premia currently in intermediate yields”.
• Further out, they “still find the 10s/30s curve around 5bp too steep after adjusting for monetary policy expectations and the ECB balance sheet composition”.

• In the equity space, the trend condition in S&P E-Minis is bearish and the latest recovery appears corrective. Moving average studies are unchanged -they remain in a bear-mode set-up, highlighting a dominant downtrend. A resumption of weakness would open 5483.50, a 2.00 projection of the Dec 6 ‘24 - Jan 13 - Feb 19 swing. Note that the short-term trend condition is oversold. Recent gains are allowing this set-up to unwind. Initial firm resistance to watch is 5801.77, the 20-day EMA. The bear trigger is 5559.75, Mar 13 low.
• EUROSTOXX 50 futures continue to trade above their recent lows. The medium-term trend direction is up and the recent pullback is considered corrective. Support to watch is the 50-day EMA, at 5285.44. It has recently been pierced. A clear break of it would highlight a stronger short-term bear threat and suggest scope for a retracement towards 5160.00, the Feb 4 low. The bull trigger is 5516.00, the Mar 3 high.