EU UTILITIES: Suez: 33s Tapped

Euro Stoxx 50 futures hold onto the bulk of the gains that came after U.S. President Trump delayed the imposition of 50% tariffs on the EU over the weekend, with the market now familiar with Trump pushing back tariff deadlines/moderating tariff sizes as a deadline nears.

• A recent BBG report noted that “the European Union said it agreed to accelerate negotiations with the US to avoid a transatlantic trade war, signalling a more amicable approach just days after President Donald Trump criticized the bloc for taking advantage of the US and slow-walking talks.”
• Euro Stoxx 50 futures closed the gap lower that followed Trump’s 50% tariff threat on Friday, last +1.35% or 72 points.
• Our technical analyst notes that a bullish theme in Euro Stoxx 50 futures remains intact and suggests that the recent pullback appears corrective. Moving average studies are in a bull-mode setup, highlighting a clear uptrend and recent gains maintain the sequence of higher highs and higher lows. Sights are on 5,516.00, the Mar 3 high and key bull trigger. Key support to watch lies at 5,223.87, the 50-day EMA.
• Sector-wise, industrials, IT and materials outperform, while utilities lag, a setup you would probably expect on trade-positive news.
• In terms of stock-specific moves, Thyssenkrupp has rallied over 7% after Bild pointed to a restructuring for the name as it looks to cut overheads and divest units.

Reports that the EU has agreed to accelerate trade negotiations with the US were worth a few ticks of upside in major EGB futures, but it’s hard to read too much into the moves with activity still very muted. EGBs have been happy to grind higher throughout the session.

• BTP and OAT futures still lead the rally intraday. BTPs are now +34 at 120.57, through Friday’s 120.40 high. Key resistance and the bull trigger is at 120.72, the May 8 high. Clearance of this level would solidify the recent uptrend, and expose the Feb 7 high at 121.00 on the continuation chart.
• Bunds have also closed the opening gap, now +9 at 130.74. The technical outlook is bullish, with Friday’s high at 130.94 presenting initial resistance.
• German long-end yields have turned lower on the session, helping the curve twist flatten (versus earlier bear flattening).  Schatz yields are still almost 3bps higher, with year-end ECB implied rates somewhat more hawkish than Friday’s close.
• The 10-year BTP/Bund spread is now 2.5bps tighter at 99.5bps.
• French flash May inflation headlines tomorrow’s regional calendar, with the EC’s May consumer and business survey also set to garner interest.
• EGB supply is due from Italy (BTP Short Term/BTPei auction and the launch of the new 7-year BTP Italia) and the Netherlands, while ECBspeak comes from Villeroy and Nagel.

The Eurozone May flash inflation round kicks off with France tomorrow at 0745BST/0845CET. The data is being released so early this month because of Thursday’s Ascension Day holiday. Current consensus looks for annual HICP inflation to remain steady at 0.9% Y/Y, with a monthly rate of 0.1% M/M.

• The May flash PMI contained soft inflation details:  “Subdued demand conditions were a factor that weighed on companies’ pricing decisions during May. Not only did prices charged fall, but they did so to the greatest extent since January 2021. Discounting was broad-based by sector, underlying survey data revealed. According to panellists, prices charged were reduced as a result of lower interest rates, strong competitive pressures and promotional offers. Notably, output price reductions occurred despite a slight intensification of input price inflation”.
• Goldman Sachs expect French headline HICP at 0.8% Y/Y, with core to ease to 1.7% Y/Y from 1.9% prior. They expect “both core goods and services moving slightly lower on a year-over-year basis”. Specifically, they “expect an 11%mom nsa decline in the airfares component and a 2.6%mom nsa increase in package holidays, partly offset by recreational and accommodation services components”.
• Goldman look for “energy inflation to fall further to -7.9%yoy from -7.4%yoy in April, partly driven by a reported 6.4% gas price decline. We expect processed food inflation to go to 1.0%yoy (from 0.9%yoy in April) and unprocessed food inflation to decline to 2.5%”.
• Meanwhile, SEB write that “the April reading was partly lifted due to Easter effects on recreation and transport. A larger reversal effect is therefore expected in the May numbers”.