PLN: Zloty Lags as Headline CPI Misses Expectations on Fuel Price Drop

Goldman Sachs think the EGBs can outperform wider core rates, based on “the resilience of the asset class in the face of recent volatility, the likely dovish ECB response to the growth damage from U.S. tariffs and the possibility of global risk relief in the event of trade de-escalation”.

• They suggest that “this cyclical environment does not preclude a renewed focus on fiscal or political risk, especially in core countries. But we think those risks are likely to become more meaningful only later in the year, when French budget negotiations are in full swing, and we move closer to the inflection in German issuance”.
• Goldman note that “given the significant market focus on diversification away from U.S. assets, the prospect for global portfolio flows into EGBs is worth considering. We argue that the larger economies of Southern Europe (Italy & Spain) are best placed to benefit from inflows, as foreign ownership in those markets still lags the improvements in macro fundamentals or that in the hedge value of government bonds”.
• They continue “to forecast 10y BTP-Bund, OAT-Bund, and Bonos-Bund at 120bp, 70bp, and 60bp respectively at year-end”. However, they see “risks tilted towards tighter spreads into the summer”.

German Q1 flash GDP came in in line with consensus at 0.2% Q/Q (vs 0.2% cons; -0.2% Q4). On an annual basis, GDP printed -0.2% (vs -0.2% cons and prior). Broadly, German real GDP continues to sideline - which it has since about 2022.

• Few details are provided in the flash release, but Destatis notes that private consumption as well as investments contributed positively in Q1. We've flagged a possible positive consumption contribution following this morning's retail sales data.
• IFO sees downside risk for the months ahead as US tariff frontrunning, which they think has contributed to the positive print this time, might reverse soon. They think negative growth is "possible" again.
• For 2025 in total, the (outgoing) government recently downwardly revised its official forecast by 0.3% to 0.0%, now broadly matching the 'joint economic forecast' of a set of research institutes, who are looking for 0.1% growth this year.

Of note:

EURUSD 2.84bn at 1.1375/1.1395.

USDJPY 1.76bn at 142.00.

USDJPY 1.5bn at 143.00/143.10 (thu).

USDCAD 2.45bn at 1.3865/1.3870 (mon).

USDCNY 1.51bn at 7.300 (tue).

• EURUSD: 1.1340 (300mln), 1.1375 (377mln), 1.1380 (600mln), 1.1385 (403mln), 1.1390 (1.12bn), 1.1395 (343mln), 1.1425 (558mln).
• USDJPY: 142.00 (1.76bn), 143.00 (264mln).
• USDCAD: 1.3825 (293mln).
• NZDUSD: 0.5950 (521mln).