COMMODITIES: WTI Futures Still Close to Recent Highs But Bear Threat Present

Reuters reports that Germany's Defence Minister is seeking a drastic increase in the German annual defence budget, aiming for "more than €60bln". 

The Reuters headline raises a few questions: is the €60bln quoted in addition to current defence spending? Per year or across the current parliamentary term?

• An increase in defence spending of sorts is certainly expected - Germany spent ~€90bln on defence in 2024, so an extra €60bln per annum would be a significant ramp higher per year (+67%), but it's not clear whether this is spread across the current parliament, which would be a much more modest increase.
• €150bln per annum would equate to well over 3% of GDP, which is inside the range of some sell-side estimates, albeit at a much faster pace. Goldman Sachs recently estimated military spending would ramping up to 3% of GDP by 2027 and to 3.5% after that.
• Looking for further clarity as the Reuters story raises several timeline questions.

• UK APRIL CONSTRUCTION PMI 46.6 (FCAST 46.0, MARCH 46.4)

German ASWs consolidate/extend on Tuesday’s late narrowing that followed CDU leader Merz’s confirmatory vote as Chancellor (after he failed at the first attempt on Tuesday morning).

• Spreads vs. 3-month Euribor are flat to 0.5bp lower.
• Bobl, Bund & Buxl ASW vs. 3-month Euribor are in the middle of the ~20bp multi-month range covering the “whatever it takes” fiscal moment-driven narrowing in early March and risk-off widening seen in April.
• Meanwhile, Schatz vs. 3-month Euribor is back below 10bp, only a couple of bp wider than levels that prevailed ahead of the volatility seen over the past couple of months.
• In light of yesterday’s German political developments Commerzbank suggest that the domestic political backdrop will “likely to add to the Bund discount vs. swaps longer term as it will not reduce the fiscal spending (where the envelope has already been agreed) while it has become clear that the implementation of structural reforms will become more difficult. This adds weight to our concerns that Germany will mainly end up with more debt and not higher potential growth”.