SONIA: Upside Call Spread vs Put Spread

Consensus expects Spanish Q1 GDP growth at 0.7% Q/Q, which would follow three consecutive quarters of 0.8% sequential growth. That would keep Spain as the clear Eurozone growth outperformer, with analysts expects more subdued readings in France (0.1%), Germany (0.2%) and Italy (0.2%). This morning’s data is consistent with some softening of momentum compared to last year, but still solid growth overall. 

• Spanish retail sales fell 0.2% M/M in March (SWDA), the third monthly fall in the last five months. Although the Y/Y rate remained solid at 3.6% (vs 3.6% prior), 3m/3m growth eased to 0.3% (vs 0.6% prior).
• The Q1 unemployment rate was 11.4%. That’s a notable rise from Q4’s 10.6%, particularly with Eurostat’s monthly LFS unemployment rates at 10.5% in January and 10.4% in February.  It’s certainly not a cause for concern yet though, with the unemployment rate having drifted lower consistently post-Covid to a near 20-year low.
• Furthermore, employment growth remains relatively solid:  Job growth was -0.4% Q/Q NSA in Q1, but +0.7% Q/Q SA and +2.4% Y/Y (vs +2.2% in Q4)

The IFO employment barometer rose to 93.9 points in April, up from March's 92.8, and this marks the highest print since September. Despite the increase, the indicator remains in contractionary territory, indicating further job cuts.

• “It is still too early to speak of a trend reversal on the labor market [...] we are seeing a sharp rise in uncertainty, which could exacerbate the situation again”, IFO comments.
• Across sectors, improvements were broad-based barring the construction industry - see chart below.
• The Eurozone flash PMI saw "continued falls in employment in the largest two Eurozone economies" in April - also painting a weak picture of the German labour market.
• Specifically in the small- and medium enterprise sector, the German labor market is deteriorating currently, with employment declining 0.7% Y/Y in March according to Datev data seen by newspaper FAZ. The broader monthly labour market update for Germany is due Wednesday, with unemployment expected to tick up by 15k in March, but the u/e rate unchanged at 6.3%.

Goldman Sachs write “a further relaxation of risks from here would be consistent with a renewed swap spread tightening, led by the front-end. In the medium term, we continue to expect the German free-float to increase on rising deficits and ECB QT, but note that foreign official inflows could provide a partial offset. In this context, though any tightening is likely to proceed at a slower pace than what has been seen since H224, we think the hurdle is high for spreads to stay at recent wides”.