The dovish message delivered by Mr Draghi pushed down rates in the Euro area. The German 10-year Bund yield edged lower to 1.45%. Short rates came down substantially. Yields in the periphery continued lower and Italian and Spanish 10-year yields made new all-time lows.
In the US, however, 10-year Treasury yield went up to 2.61%. US yields were driven higher by a weak demand in the 30-year auction.
Pro-Moscow separatists claim to go ahead on Sunday with a referendum in eastern Ukraine to self-rule. Sentiment is likely to remain cautious today, which should support bonds and push yields lower.
And action!
ECB took us and the market by a surprise. Mr Draghi could not have been clearer in hinting towards more easing in the June meeting. We have changed our forecast accordingly, and now expect a refi and a depo rate cut of 10bp in June. Hence, we expect ECB to be the first major central bank to wonder into negative territory in rates.
A deposit rate of -0.10% will push down rates and the value of euro. Short-end of the eonia curve could wonder into negative territory, whereas the sticky euribor rates are likely to stay positive for now.
Muted Chinese numbers
Chinese consumer prices moderated and consumer price index rose 1.8%, when markets had been looking for a rise of 2.1%. In addition, producer prices continued to slide by 2%, which makes it 26th month in a row of decreasing prices. Muted prices are likely to support hopes on People’s Bank of China to ease monetary policy.
And here goes Portugal
S&P revised its outlook on Portuguese BB rating to stable from negative this morning. Later today Moody’s has a chance to take action on Portuguese ratings. Moody’s is behind the curve compared to the other two major rating agencies as it currently rates Portugal Ba3 with a stable outlook. A positive move would not be a huge surprise but would support the bonds further. However, Portuguese bonds are already discounting a lot in as the 10-year yield has come down to 3.5%.
Shaking the Finnish government
The Finnish Social Democratic Party is expected to vote for their next leadership today prior to 11:00 CET. Neither candidate is expected to have a clear majority. Current leader Jutta Urpilainen is the Finnish minister of finance.
With a trade union background, the challenger Antti Rinne could move the party’s political stance more to the left. That could make it even harder to get the structural reforms to the target and bring the debt-to-GDP-ratio to a declining trend.
Government shake-up continues later in the summer as the Finnish prime minister will step down and some ministers are running for the European Parliament.
Uncertainty on Finnish political direction together with lousy incoming economic data is likely to put pressure on Finnish bonds and widen spreads.
The dreadful Finnish numbers
Finnish economy feels the cold wind from the Ukrainian crisis. March was one of the worst export months for Finland during the last 3 years. The value of goods exports fell by 3.2 % y/y while our expectation was an increase in the range of 1-4 %. We expect that net exports did not boost economic growth in Q1.
As our expectation of a Finnish recovery is based on a pick-up in exports, the numbers do not come out encouraging. Most likely the decline in Finnish GDP actually continued in Q1. Our forecast of economic growth of a sheer 0.3 % this year is suddenly looking too optimistic.
No major scheduled events today
Paybacks of ECB’s long-term refinancing operations today at 12:00 CET should stay limited as the liquidity situation remains on the tight side. Last week repayments came in at only 2bn euros.
No major government bond auctions are scheduled for today.
Nordea