BASIC INDUSTRIES: Stora Enso (STERV Baa3/NR/BBB-): 1Q25 Results

Gilts rally in the wake of the softer-than-expected CPI data detailed earlier, while the potential for larger-than-expected fiscal spending cuts in today’s Spring Statement has increased following press reports pointing to such a move, as the Chancellor looks to stick to the fiscal rules.

• Our full preview of the Spring Statement is here.
• Futures last ~91.45.
• Our technical analyst notes that the short-term technical outlook in the contract remains bearish.
• Yesterday’s low (90.93) protects key support at the Mar 6 low (90.71).
• Key short-term resistance has been defined at 93.01, the Mar 20 high.
• Yields 3.0-7.5bp lower, curve steepens.
• 2s10s still a couple of bp below the psychological 50bp level, although 5s30s has managed to push above the 100bp mark. Next upside level of note in 5s30s is the May ’21 closing high (103.3bp).
• GBP STIRs still around levels we indicated ahead of the gilt open.
• 46bp of BoE cuts showing through year-end vs. ~40bp late yesterday.

The March Economic Tendency Indicator highlighted the difficult trade-off faced by the Riksbank going forward. Consumer confidence fell markedly alongside weaker sentiment in the retail and services sectors, but expected price metrics continued to climb. The March meeting minutes (due at 0830GMT) should provide more colour on how each of the Executive Board members perceive these trade-offs.

• Consumer confidence fell markedly in 89.8 (vs 94.6 prior, revised from 95.0 initial), the lowest since April 2024. This reflected a drop in sentiment in the “micro” (i.e. household’s view of their own situation) and “macro” (i.e. household’s view of the general Swedish economic situation) subindices.
• Industry sentiment fell to 99.1 (vs 101.2 prior), reflecting falls in retail and services sentiment, but increases in manufacturing and construction.
• The expected employment balance fell to 4 (vs 6 the prior two months), with retail trade hiring expectations seeing a large fall to 7 (vs 13 in Feb, 9 in Jan).
• Expected prices moved further above the long-run average to 24 in March (vs 22 prior; LR average of 12), again driven by retail trade. The net balance of grocery wholesalers expecting prices to increase in the next 3 months reached 85 (vs 68 prior, LR average of 39), the highest reading since March 2023. This suggests further upside risks to food CPI inflation in the coming months. 

• As we noted above, The Times has reported that the GBP5bln of welfare cuts announced last week by the government have been assessed by the OBR to only save GBP3.4bln.
• As a consequence it states that Chancellor Reeves will announce further welfare cuts in the Spring Statement today, alongside other larger departmental cuts.
• This brings up some interesting questions. First, there were two full rounds of forecasts that the OBR produced that included all of the measures the government proposed that were sent to the Treasury on 10 March and 21 March. So why did the Treasury not wait for the OBR's costings before putting a figure on the savings when they were this close? Does that mean that these cuts were basically rushed through at the last minute and they didn't run them past the OBR first? Why not just wait for the Spring Statement?
• We suspect that this was to try and get the main bad news out of the way - but we are not sure that this has really helped in this situation. Possibly with the mainstream media the focus will be the total cuts aren't as bad as some had expected, but we don't think this will fool markets.
• The additional measures are expected to be incapacity benefits frozen to 2030 rather than raised in line with inflation (which will be hugely unpopular amongst the backbenchers) and a "small reduction" in the weekly universal credit payments in 2029.
• Other larger departmental cuts will likely not be fully detailed until the Spending Review on 11 June.
• Full Times article here.