Leading indicator: Belgium post lowest inflation in 4 years - 1st EUROZONE report for May

If Belgium is any indication – and it normally is – then inflation will notch down in May – Belgium reported as first country in the Eurozone this morning:

 

 

Trend is clear – inflation is down 400 bps since 2011!!!

 

 

 

Belgium CPI & 10 Year Germany..

 

 

ECB June 5^th:

 

Still making up my mind on ECB – what we know is:

 

·         Draghi & ECB likes to talk more than act – leaving them likely to wait-and-see

·         Lending remain subdued – action also reflecting a "social need" for addressing inequality

·         Bank of Italy is working on some measures to include SME asset into collateral program – (Reuters May 12^th) – indicating it could be part of "solution"

·         Negative rates & REPO cut will be futile as measures to re-activate the growth, reform and increase consumer demand but…. Action is better than opposite for policy makers

 

Consensus:

 

·         Repo cut by 10 bps

·         Negative deposit rates -10 bps

·         Targeted lending to SME related business

 

Positioning:

 

The bond market have an "economic put" built is for free:

 

1.    If ECB does not move – inflation will be unanchored to downside – making bonds very attractive.

2.    If ECB does move – will be seen as monetary easing…

3.    EP-2014: Was one big exercise of increasing complexity, increasing compromise and moving further away from reform, simplicity and listening to the voters of Europe. Leaving victims in the shape of lower growth, no reforms.

 

 

On beneath all of this Germany export orders needs to be watched – we are nearing the zenith in growth, export and production coming from the "over optimism" which kick started the year – reality is close by…..

 

Bunds should test 1.20% in June and ultimately break 1.00% - our JABA model is now looking for an acceleration to the downside in yields, despite my fixed income "friends" telling the game is over, but then again, the same crowd in January sold bought yield steepners and reduced duration. Any set back will see me add to already 70% long fixed income position towards 90% - now mainly buying US bond market.

 

Safe travels,

 

Steen

 

 

 

 

 

 

 

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

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