Big German Pay Rises

Market movers today

A quiet day in terms of data releases, US Conference Board’s consumer confidence index will be released for April. The University of Michigan survey released earlier pointed towards modestly improving consumer sentiment.

The National Bank of Hungary is expected to maintain rates unchanged in its meeting today.

The 60 second overview

Pay rises: German public sector wage negotiations (covering some 2.5 million workers) has reached an agreement. The deal has several elements: (1) no permanent wage increase in 2023, but a EUR 1240 one-off payment in June 2023, followed by monthly payments of EUR 220 from July 2023-February 2024; and (2) from March 2024 a permanent wage increase of EUR 200 plus 5.5%. Overall, for a 24 month agreement the union talks about wage increases between 8.2% and 16.9%, with the average wage increase around 11.5%. Overall, it marks yet another agreement with significantly higher wage growth that could further delay the return of core inflation to ECB’s target. Nor will it be the last high-wage agreement: Verdi union has just started with a 15% wage demand for the retail sector negotiations covering another 2.6 million workers.

German business climate: Ifo improved for a sixth straight month in April. While business expectations continued to improve, the current situation assessment weakened a tad, especially for construction, which is feeling the heat from higher rates. Overall, Ifo continues to send a less upbeat signal for the state of the economy than PMIs. The good news is that the German economy seems to have edged further away from recession territory at the start of Q2, but on the downside Ifo suggests a strong rebound in activity is not yet in sight either.

Bank of Japan: Once again, the new governor Ueda stressed the need to keep monetary policy accommodative for now. “We see the risk of inflation undershooting forecasts as bigger than the risk of overshooting”, he said, ahead of the policy meeting ending Friday. “But if wage growth and inflation accelerates faster than expected and warrants tightening monetary policy, the BOJ stands ready to respond such as by raising interest rates”. See Reuters. We expect the BoJ to stay put on Friday, see Bank of Japan Preview – Risk of tightening too soon still dominates, 21 April.

Equities: Global equities marginally higher yesterday lifted by Europe and US. Tech sector underperforming ahead of the pick-up in Q1 tech reporting season the coming days. Regional banks on the weak side as well and they could come in focus today after the earnings result from First Regional (came after the bell) showed as deposit outflow of 41% in Q1. Energy the biggest outperformer followed by the group of classic defensive sectors. In US Dow +0.2%, S&P 500 +0.1%, Nasdaq -0.3% and Russell 2000 -0.2%.

Asian markets are mostly lower this morning led by tech-heavy South Korea. European and US futures 0.2%-0.3% lower.

FI: It was a mixed day in the global bond markets, where European yields rose across the curve, while US Treasury yields declined across the curve. Hence, the 10Y US-German government yield spread is testing the 100bp-level, which we have not seen since the Covid crisis in the spring 2020.

FX: The EUR continues to shine and yesterday in particular vis-à-vis USD, JPY, AUD and CAD on a day where short-term EUR rates rose to the highest level in over a month ahead of next week’s ECB meeting. Scandi currencies held steady for a change and looks to be in wait-and-see mode before the Riksbank meeting and the announcement on NOK fiscal transactions later this week.

Credit: Overall a quiet session in the credit market with limited activity in secondary markets. iTraxx Main was unchanged at 83bp while iTraxx Xover was 1bp tighter at 439bp. The primary market activity was relatively high with more than 10 new deals announced – among others the Federal Republic of Germany announced a 10-year EUR benchmark Green bond offering and in the Nordics TDC NET announced intention to issue an 8-year EUR benchmark senior secured sustainability-linked bond.

Danske Bank
Danske Bank
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