Futures Surge As BOJ Goes Full Brrr, States Reopen While Oil Craters

S&P futures climbed alongside stocks in Europe and Asia to start the week after the BOJ went full Brrr earlier when the central bank announced it would buy unlimited amount of bonds (even though nobody actually wants to sell to the BOJ) as more state and countries edged toward reopening, even as earnings season is shaping up to be an even greater disaster than expected (US EPS of -24% yoy is coming in some 9% lower than consensus expectations), while oil prices plunged again, with the June WTI contract plunging below $13.

Futures for the three main US benchmarks all pointed to a second day of gains with the Emini approaching its resistance level around 2850 amid continued talk of easing the lockdowns that have been used to help contain the coronavirus...

... and as investors turned to quarterly earnings reports from marquee companies including Apple and Microsoft later this week, which however Goldman warned over the weekend have surged too much, too fast and that will result in the next market crash.

The Stoxx Europe 600 Index also rose after missing out on a late Wall Street rally on Friday. Deutsche Bank AG rallied after joining other investment banks by beating first quarter earnings expectations, even as it warned about looming loan defaults. Bayer AG raised the specter of “considerable liquidity challenges” as it continues to deal with litigation related to Roundup weedkiller. Still, shares gained as the company said its core earnings per share target is unchanged for now, with the effect of Covid-19 impossible to assess. Adidas AG fluctuated after forecasting the first quarterly loss in over four years as more than two-thirds of the German athletic wear maker’s stores remain closed.

Earlier in the session, Asian stocks gained, led by industrials and materials, after falling in the last session. The Topix gained 1.8%, with Mitani Sangyo and eBook Initiative rising the most after the BOJ announced earlier that it would go "full BRRRR" as it removed limits on its purchases of government bonds and ramped up its scope for buying corporate debt and commercial paper. And in delightful irony to this "all in" easing move, the yen strengthened.

Elsewhere, the Shanghai Composite Index rose 0.2%, with Kingswood Enterprise and China First Heavy Industries posting the biggest advances.

Data over the weekend showed coronavirus deaths slowed the most in more than a month in Spain, Italy and France, and all three countries have signaled tentative moves to reopen their economies. Italian stocks were among the biggest winners and its bonds outperformed after the nation dodged a credit rating downgrade late on Friday.

In the US too, many more U.S. states have looked to reopen businesses as the health crisis wreaks havoc on the economy, with the White House forecasting a staggering jump in the nation’s monthly jobless rate.  Although trillions of dollars in stimulus have helped the benchmark S&P 500 recover nearly 30% from its March trough, analysts say further gains might be limited unless there is progress on developing treatments for the deadly disease.

In commodities, as noted earlier, the big mover was again oil which did buckled the general risk on mood and plunged below $14, which as noted over the weekend is a problem as "The Oil Price Is A Rare Indicator Of What Is Still Real In This Market"

It’s a busy week, with the Federal Reserve and European Central Bank due to announce policy decisions following the BOJ as the battle against the pandemic continues. Several major economies will release GDP numbers, while corporate earnings will keep flooding in.

“This coming week will be huge from a macro data perspective and the extent to which the global economy has been floored by Covid-19,” said Simon Ballard, chief economist at First Abu Dhabi Bank. “Until we are clearly past the peak of the outbreak, on a global scale, and can feasibly deem the pathogen to be contained and there to be no meaningful risk of a second wave of infection, we believe a defensive investment strategy will remain the most appropriate.”

Focus this week will also be on a two-day Federal Reserve meeting ending on Wednesday, although expectations are low for more easing by the central bank. About a third, or some 173 companies in the S&P 500 are scheduled to report quarterly earnings later in the week, including Apple, Amazon.com, Microsoft, Boeing, Ford, General Electric and Chevron. Overall analysts expect a decline of nearly 15% in first-quarter earnings of S&P 500 companies -  a number which so far is roughly 25% - with profits for the energy sector estimated to have slumped 68%.

In FX, the dollar weakened broadly and Treasuries slipped as risk sentiment improved on the prospect of an easing of lockdown restrictions around the globe. The Bloomberg Dollar Spot Index dropped the most in more than a week, with the greenback weakening against all Group-of-10 peers; EUR/USD rose a second day. Bunds slipped while European peripheral debt continued to lead euro-area gains; Italian bonds and stocks climbed after S&P Global Ratings left the nation’s credit rating unchanged, delaying the risk of a downgrade toward junk to later this year. The pound rose in its longest winning streak in a month as U.K. Prime Minister Boris Johnson’s return to work fueled speculation he may consider moving toward lifting the lockdown. The Australian dollar outperformed all G-10 peers and rose to a 6-week high versus the greenback as easing coronavirus-related restrictions in two states spurred optimism that the outbreak was slowing in the nation. The New Zealand dollar also advanced, partly by cross flows versus Aussie amid thin liquidity due to public holiday. Japan’s bonds advanced, led by five- and 10-year maturities, as the Bank of Japan scrapped the limitation on its JGB purchases to support the economy; the BOJ also ramped up its purchases of corporate debt

Expected data include Dallas Fed Manufacturing Activity. F5 Networks and Universal Health are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.9% to 2,855.00
  • STOXX Europe 600 up 1.4% to 334.34
  • MXAP up 1.9% to 144.33
  • MXAPJ up 1.8% to 464.18
  • Nikkei up 2.7% to 19,783.22
  • Topix up 1.8% to 1,447.25
  • Hang Seng Index up 1.9% to 24,280.14
  • Shanghai Composite up 0.3% to 2,815.50
  • Sensex up 1.9% to 31,910.86
  • Australia S&P/ASX 200 up 1.5% to 5,321.40
  • Kospi up 1.8% to 1,922.77
  • German 10Y yield rose 0.5 bps to -0.468%
  • Euro up 0.2% to $1.0842
  • Brent Futures down 4.3% to $20.52/bbl
  • Italian 10Y yield fell 14.6 bps to 1.664%
  • Spanish 10Y yield fell 6.5 bps to 0.887%
  • Brent Futures down 2.5% to $20.90/bbl
  • Gold spot down 0.5% to $1,721.49
  • U.S. Dollar Index down 0.4% to 99.94

Top Overnight News from Bloomberg

  • Italy will start easing lockdown restrictions next week and Germany reopened some schools on Monday as new cases and fatalities drop in Europe. In Britain, Premier Johnson returned to work and urged the public not to let up on social distancing measures
  • Despite the Bank of Japan ramping up its stimulus measures on Monday, the dollar-yen has slid into a bearish death cross technical pattern. The currency pair’s 50-day moving average dropped below its 200-day equivalent, which could signal more downside if the move holds
  • Nearly one-third of U.S. business economists expect operations at their companies will return to normal within five to eight weeks, though almost as many say it’s likely to be three to six months before coronavirus- mitigation efforts wind down in earnest
  • The top two trade groups representing major retailers such as Walmart Inc., Target Corp. and Best Buy Co. are calling on U.S. governors to adopt uniform reopening standards as the pandemic subsides
  • Market manipulation is still on the rise in the U.K. even after a decade of crackdowns onschemes to rig foreign-exchange rates and other key benchmarks. And the coronavirus pandemic could make things worse
  • A collapse in the volume of short-term IOUs issued by European companies and a dramatic shortening in their maturities show the region’s commercial paper market remains under stress

Asian equity markets were mostly positive with sentiment underpinned by optimism regarding the reopening of global economies after some US states began to reopen businesses and with Italy, Spain and France preparing to ease restrictions after recording their lowest death tolls in a month. ASX 200 (+1.5%) was led higher by tech and industrials with sentiment also supported by loosening of lockdown measures after Queensland announced to permit some outings from next Saturday. However, upside was initially restricted by weakness in the largest weighted financials sector after big 4 bank NAB posted a 51% slump in cash profit and unveiled plans for a substantial share placement, while Nikkei 225 (+2.7%) outperformed amid a weaker currency and the BoJ policy announcement where the central bank announced further measures including a shift to unlimited bond buying as widely speculated. Hang Seng (+1.9%) and Shanghai Comp. (+0.3%) were also higher with Hong Kong surging as its government was said to consider easing social distancing controls and the mainland somewhat lagged after weak Chinese Industrial Profits which contracted by almost 35% Y/Y. Finally, 10yr JGBs were initially lower amid the gains in stocks and similar pressure in T-notes, although JGBs prices were later boosted after the BoJ policy announcement in which the central bank also upped its corporate bond and commercial paper purchases with the maximum limits of purchases from a single issuer upped to JPY 500bln and JPY 300bln respectively from JPY 100bln.

Top Asian News

  • BOJ Vows to Buy as Many Bonds as Needed in Stimulus Move
  • China Industrial Profits Dropped by More Than a Third in March
  • Alibaba Is Said to Demote Top Exec After Probe into Scandal
  • India Will Probably Miss Deficit Goal, RBI Chief Tells Cogencis

European equities trade comfortably on a firmer footing [Euro Stoxx 50 +2.2%], as the risk-appetite from the APAC session followed through and intensifies as European economies near an easing lockdown measures – with Italy to begin its lifting from May 4th, Spain relieving some of its strictest measures and UK to reportedly update on measures as early as this week. Bourses see broad-based gains but Italy’s FTSE MIB (+2.5%) modestly outperforms after S&P refrained from downgrading the country’s rating on Friday. Sectors all reside in positive territory, with Financials leading the gains – propped up by Deutsche Bank (+11.2%) earnings – whilst energy underperforms amid price action in the oil complex. This performance is also reflected in the sector breakdown with Banks the outperformer and Oil & Gas the laggard, Travel & Leisure resides towards the top amid lockdown lifts across Europe and US. In terms of individual movers, earnings see more focus on German firms; DAX-giant Bayer (+2.7%) sees impetus from Q1 revenue and adj. EBITDA topping analyst estimates, and improvement in EPS and gains across all its units – the Co. accounts for 6.8% of the DAX 30. Adidas (+2.5%) conformed to the broad risk-appetite after nursing opening losses of over 3%, which initially emanated from dismal earnings alongside a failure to provide FY20 guidance. Adidas noted that 70% of its global stores remain shut. Deutsche Bank (+11.2%) shares soar on an early earnings release in which Q1 pre-tax posted a profit of EUR 206mln vs. Exp. loss 269mln, albeit the group notes that it is unlikely to meet its FY20 leverage ratio target of 4.5%. A spokesman said the release of key metrics was due to a significant divergence with analyst forecasts – Commerzbank (+6.5%) rises in sympathy. Elsewhere, Lufthansa (+7.2%) was propelled at the open after Germany’s Economy Minister stated the group must get a chance to return to profitability, whilst the Co. is also seeking a EUR 290mln loan from the Belgium gov’t for its Belgian subsidiary. Similarly, Air France-KLM (+4.7%) and Renault (+5%) see upside after the French gov’t announced a EUR 7bln package for the former, whilst mulling a EUR 5bln loan guarantee for the latter. On the flip side, Airbus (-1.5%) is pressured amid comments from its CEO regarding the severity of the group’s position – stating that the Co. is “bleeding cash” at a rate which threatens the Co’s existence, adding that a third of its business has been lost in the past few weeks.

Top European News

  • Why the World’s Highest Virus Death Rate Is in Europe’s Capital
  • Deutsche Bank Warns of Loan Defaults After Surprise Profit
  • Johnson Returns to Work Urging Britain to Maintain Lockdown
  • Rally in Italy’s Bonds Is Only Knee-Jerk Reprieve: Markets Live

In FX, the Greenback has retreated further against G10 counterparts and almost across the board, with the DXY struggling to retain grip or sight of the 100.000 mark within a 100.320-99.847 range amidst an upturn in broad risk sentiment that is only really being tainted by more weakness in crude oil on bearish supply/storage-demand dynamics.

  • AUD/NZD - The Aussie and Kiwi are both seemingly reaping the rewards of relative progress and success on the coronavirus front as the respective Governments eye reopening schedules. Aud/Usd is now firmly back above 0.6400 and pivoting 0.6450, while Nzd/Usd is straddling 0.6050 and Aud/Nzd is probing above 1.0650 on Anzac Day. Note, NZ markets return on Tuesday and will be looking towards trade data for some fundamental direction/impetus in the same vein as Australia’s preliminary report last week.
  • GBP - The next best major and the Pound could well be receiving another Boris boost as the UK PM returns to his official residence to resume duties with an encouraging update on Britain’s battle to combat COVID-19. Cable has reclaimed 1.2400+ status and Eur/Gbp is meandering between 0.8754-10 parameters with the cross retreating below its 200 DMA again.
  • CAD/JPY/EUR - The Loonie is also outpacing its US peer even though oil prices are tanking again, with Usd/Cad under 1.4100 ahead of somewhat dated Canadian securities balances for February, while the Yen has strengthened in wake of the BoJ policy meeting despite further stimulus via QE as speculated ahead of the event. Usd/Jpy got close to 107.00 before a mild bounce that could have been option expiry related given 1.2 bn rolling off at the strike, but also technical as strong chart support sits just beneath the round number circa 106.93/92 (April 15th and 1st lows). On the flip-side, 2 bn expiries from 107.50 to 107.60 may cap the headline pair, while the Euro has 1.1 bn at 1.0800 to provide a cushion alongside a raft of options in to the Fed and ECB on Wednesday and Thursday respectively.
  • CHF/NOK/SEK - The Swiss Franc and Norwegian Krona are marginal underperformers following latest weekly sight deposits revealing another significant rise in bank coffers, while the latter is eyeing the aforementioned weakness in crude, like the Russian Rouble. However, the Swedish Crown continues to hold up better on the premise that the Riksbank will stick to its guns on rates tomorrow in favour of non-standard policy measures should the situation warrant more than already implemented. Hence, Usd/Chf idling within a 0.9744-13 band, Eur/Chf off recent near 1.0500 lows between 1.0532-58, Eur/Nok rotating around 11.5000, Usd/RUB encircling 74.5000 and Eur/Sek still suppressed sub-10.9000.
  • EM - Some much needed respite for the Rand that has pared declines from 19.1000+ amidst the aforementioned revival in risk appetite, but Usd/Zar may be impacted by thinner than normal volumes due to SA’s Freedom Day holiday, while the Hong Dollar remains close to the top of its peg vs the Dollar prompting the HKMA to intervene again.

Inn commodities, WTI and Brent front-month futures have resumed selling off as storage scarcity continues to weigh on investor sentiment – with the former underperforming amid reports that Cushing, Oklahoma, may hit full capacity soon.  Goldman Sachs believes that storage capacity limits could be tested in as little as three weeks. This week also sees the official implementation of the OPEC+ reduction pact, but some members, including Saudi, have brought forward cuts in a bid to somewhat stabilise the price rout. ING, among other desks, believes that the move is “helpful, [but] it will have little impact on the oil balance in the short term.” Nonetheless, despite the recent geopolitically induced upside in prices – underlying fundamentals remain unchanged. That being said, with major economies set to loosen lockdown restrictions, pressure on demand could start to ease – early signs could be seen in China as refinery activity at independent refiners has been hitting record levels in the Shandong region. WTI June briefly dipped below USD 14.50/bbl to a current base at USD 14.18/bbl (vs. high USD 16.98/bbl), whilst its Brent counterpart sees declines in tandem having tested USD 20/bbl to the downside in early trade (vs. high USD 21.91/bbl). Elsewhere, spot gold sees losses despite a softer Buck, with desks attributing the pressure to improved risk appetite on countries lifting COVID-19 measures. The yellow metal remains comfortably north of USD 1700/oz, having waned off highs of around USD 1720/oz. Copper prices meanwhile remain in the green but somewhat subdued amid a slump in Chinese Industrial profits – prices edging towards USD 2.37/lb vs. high of around USD 2.39/lb. Finally, Dalian iron ore futures recovered as stocks of the raw material fell to their lowest in over 9 months.

US Event Calendar

  • 10am: Revisions: Retail Trade
  • 10:30am: Dallas Fed Manf. Activity, est. -75, prior -70

DB's Jim Reid concludes the overnight wrap

It’s hard to believe it’ll be May on Friday. It only feel like yesterday that it was January and the age of innocence. This week we’ll be bombarded with a peak week of Q1 earnings, the big 3 central banks having policy meetings, China PMIs and Q1 GDP growth in Europe/US. Our annual 2020 Default Study has also just been published so please keep an eye out for that.

Before we preview all of the above, one of the most interesting things I read this weekend was a fairly simple piece that explained that the saviour of the world’s health services - namely PPE - is a product of polypropylene and thus the oil and gas sector. It is in effect single-use plastic. Yet I’ve not heard anyone complain about the impact on the environment of trying to produce as much of it as possible. When we discussed in our 2020 climate change related Davos note (link here ) about the difficult global warming dilemmas ahead, we noted that the very things that have helped pollute the atmosphere over the last couple of centuries have also improved the health and wealth of all humans beyond recognition relative to our forefathers. Before the industrial revolutions being a human was a bleak existence for the vast majority. In the Davos note we speculated as to whether humans would soon realise the economic trade-offs necessary if they really wanted to halt global warming. The covid-19 experience has kicked the debate into the long grass for now but I suppose we’re learning a bit more about what life would be like without growth during these lockdowns and also interestingly that single use plastics can be worshiped if used to save lives. Fascinating to see and think about.

Onto slightly less deep things. This morning we have published our annual default study. This is the 22nd year I’ve published the note (with my colleague Nick Burns helping to co-author most of this time) and this one is entitled “Defaults seem to be the hardest word”. Although we’re about to hit the worst economic crash since either WWII or the Great Depression, after many arguments within the team we think that HY defaults (US at 11% and Europe at 7%) will be lower than their previous three modern day recessionary peaks and noticeably so in Europe. With all the intervention out there, authorities are clearly loathed to see companies go to the wall. So 2020/21 will be a supercharged version of the last 17 years where the default beta to GDP has become lower and lower as explicit intervention and ultra-low yields have made it pretty tough for companies issuing in the capital markets to fall over. The risks are if there is a rolling pandemic that lasts say 12-36 months and where governments run out of balance sheet. At this point sovereign default risk could be realistic especially if central banks can’t intervene for some reason at this point. Then the sky could fall in for many companies. See the note here.

Onto this week and central banks can be expected to dominate the headlines even if for now they are more in reflective mode, and waiting to see the impact of their various spectacular interventions so far. The Bank of Japan have got the ball rolling this morning and has removed the limit on buying of JGBs (previously JPY 80tn per year) thereby confirming last week’s news. The BoJ also ramped up its scope for buying corporate bonds and commercial paper by raising its ceiling on holdings to JPY 20tn while keeping its short- and long-term interest rate targets unchanged.

In other weekend news, the US Small Business Administration announced that it is limiting the maximum dollar amount of loans each bank can issue to $60 billion, or 10% of $600 billion allocated so far in two rounds of funding for the Paycheck Protection Program. The cap is intended to help all lenders have equal access for their small business clients. Meanwhile, the EU Economy and Financial Affairs Commissioner Paolo Gentiloni said in a weekend interview with Italy’s Rai 3 television that an EU recovery fund worth around 1.5 trillion euros ($1.62 trillion) needs to be available by mid-September and include loans as well as a portion of non-repayable money.

We also heard from the PBoC governor Yi overnight and he said that “too aggressive” macro stimulus may bring inflation risks and cause too rapid an increase in the macro leverage ratio, in an article on China’s financial assets structure. He added that China should strike a balance between stabilizing growth and preventing risks while, keeping the leverage ratio basically stable is a proper choice.

Asian markets have kicked off the week on the front foot this morning with the Nikkei (+2.21%), Hang Seng (+1.64%), Shanghai Comp (+0.70%) and Kospi (+1.71%) all up. Elsewhere, futures on the S&P 500 are up +0.35% while yields on 10y USTs are up +2.8bps to 0.630% and the US dollar index is down -0.28%. WTI oil prices are down -7.91% this morning to $15.60.

Late on Friday S&P decide to affirm Italy’s BBB rating and not downgrade as most would have expected. They cited the country’s diversified and wealthy economy, net external creditor position and low levels of private debt in partly offsetting the higher public finances. Importantly they also said the ECB were “backstopping this additional public borrowing”. This followed an earlier affirmation of the Baa3 rating from Moody’s who said that the rating should be “broadly unaffected” by the pandemic. Given that their debt/GDP is likely to go up 15-25% over the next 18 months depending on the severity of the shock this is an impressive statement. However it should give the market confidence that Italy will not be downgraded to HY now unless the facts change. The most likely would be a big market led spread widening or a break down in domestic politics.

Back to central banks and we’ll hear from the Federal Reserve on Wednesday and the ECB on Thursday). Our US economists (link here) are expecting that this meeting will primarily provide a status update on the Fed’s actions to date and the Committee’s evolving views about the economic outlook. Attention will then turn to the ECB the following day. While they have been super active of late, the last time they met near the start of the market sell-off there was a big communication error with the ‘we’re not here to close spreads’ type comment. So expect this to be a very carefully worded statement and press conference. Some attention will be as to whether they include fallen angels in their list of purchases following the Fed earlier this com month.

Turning to economic data, this week sees a number of high profile releases that will be of interest to investors. The first look at Q1 GDP readings will be closely watched, with the US (DB at -2.3%) reporting on Wednesday, and the Euro Area then following on Thursday. Even though lockdowns only started in March expect the numbers to help shape economists as they refine their 2020 and 2021 growth forecasts.

Also of interest will be a number of PMI readings out towards the end of the week. On Thursday we’ll get the composite, manufacturing and nonmanufacturing PMIs from China, which will give us an indication of how their economy has recovered as lockdown measures have been eased, and what that might mean for elsewhere. Friday sees the release of the final PMIs from Japan, the UK and the US, and there’s also the ISM manufacturing reading from the US on Friday as well. Europe is on holiday so its PMIs are delayed until next week. The rest of the data is in the day by day guide at the end. China is also on holiday on Friday.

Earnings season kicks up another gear this week, with 173 companies in the S&P 500 reporting, along with a further 95 in the STOXX 600. Looking at the highlights we begin today with Adidas. Then tomorrow things move into full flow, with Alphabet, Novartis, Merck & Co., Pfizer, PepsiCo, HSBC, Starbucks, BP, Caterpillar, UBS, Santander and Ford all reporting. Then on Wednesday, we’ll hear from Microsoft, Facebook, Mastercard, AstraZeneca, American Tower, GlaxoSmithKline, Boeing, Volkswagen, General Electric, Daimler, Barclays, Samsung and Tesla. Thursday sees Apple, Amazon, Visa, Comcast, McDonald’s, Amgen, Royal Dutch Shell, Gilead Sciences, Lloyds Banking Group, Nokia, Twitter all reporting. And finally on Friday, we’ll get ExxonMobil, Chevron, Charter Communications, AbbVie, Honeywell International and RBS.

Recapping last week and it was truly one for the history books. In a year that has seen markets move in once-in-a-generation fashion across asset classes, oil’s move into negative territory stands out. May WTI futures, which expired this past Tuesday, closed in negative territory on Monday. Due to the global demand shock and the lack of prompt storage capacity, the oversupply manifested in negative futures prices – with holders effectively paying to not take delivery. WTI ended Monday at -$37.63/barrel. WTI recovered +$54.57 by the end of the week to finish the down ‘just’ -7.28% (+2.67% Friday) over the five days, this follows two weeks of over -19% drops. Brent crude fell -23.65% on the week (+0.52% Friday).

Global equities retreated on the week with the S&P 500 falling -1.32% (+1.39% Friday), after rising over 15% over the previous two weeks. It was the smallest absolute weekly move for the index since the first week in March. Technology stocks continue to outperform as earning season progresses with the NASDAQ falling just -0.18% (+1.65% Friday) on the week. European equities also fell, with the Stoxx 600 down -1.16% (-1.10% Friday). Equity performance across Europe was fairly correlated. The DAX fell -2.73% (-1.69% Friday), the Italian FTSE MIB fell -1.15% (-0.89% Friday) and the FTSE fell -0.60% (-1.28% Friday). In Asia the Nikkei declined -3.19% (-0.86% Friday), while the CSI 300 fell -1.11% (-0.86% Friday) and the Kospi lost -1.33% (-1.34% Friday) on the week. It was the first weekly decline for Chinese equities - using the CSI 300 - since March 20.

In a sign that equity markets are calming down for now, equity index volatility fell on the week even as spot prices fell. The VIX fell -2.22pts to finish at 35.93 (-5.45 Friday), the lowest closing weekly level for the index since February. On the other hand credit spreads widened on the week. US HY cash spreads were +72bps wider on the week (+16bps Friday), while IG was +2bps wider on the week (unchanged Friday). In Europe, HY cash spreads were +12bps wider over the 5days (+3bps Friday), while IG was -5bps tighter on the week (-2bps Thursday).

Core sovereign bond yields fell slightly in both Europe and the US. US 10yr Treasury yields fell -4.1bps (-0.1bps Friday) to finish at 0.60%, just 6bps from all-time lows. 10yr Bund yields were essentially unchanged (-4.9bps Friday) at -0.47%. Meanwhile, Gilt yields fell -1.3 bps over the 5 days (-0.1 bps Friday). With European leaders unable to reach agreement on the EU Recovery Fund late in the week peripheral spreads widened on the week. Italian yields widened +4.6bps over the 5 days (-9.8bps Friday), and the Bund spread to Spanish 10yr bonds grew +13.7bps (-4.8bps Friday).

On the economic data front last Friday, UK retail sales fell by -5.1% in March, the largest monthly decline since the series began. The German Ifo business climate indicator fell to 74.3 in April, a record low and well below consensus expectations of a 79.7 reading. In the US, the University of Michigan Sentiment survey came in better than expected at 71.8, compared to the expected 68.0 and slightly better than the prior reading of 71.0. US durable goods orders for March fell -14.4% versus the -12.0% expected and 1.2% the prior month, the biggest one month drop since August 2014.