14th May 2025

European markets are poised for a softer start today, with EuroStoxx500 futures dipping 0.204%, despite a strong performance in US markets where the S&P500 gained 0.72% and the Nasdaq surged 1.61%. Asian markets largely advanced, though Japan's Nikkei bucked the trend with a 0.35% decline.

The prevailing market sentiment continues to lean towards risk-on, supported by progress in US trade negotiations with major partners and a relatively quiet near-term risk calendar. This positive mood was further bolstered by President Trump's announcement of an arms deal with Saudi Arabia, accompanied by a substantial USD600bn investment commitment from the Kingdom.

Gold's recent weakness persisted, with the precious metal trading around USD3,230 per ounce, significantly below its April 22 record high of USD3,500.10. Tuesday's US inflation data showed core CPI holding steady at 2.8% year-over-year, while headline inflation came in slightly below expectations at 2.3%, marking the lowest readings for both measures since 2021.

The inflation report revealed that shelter costs drove more than half of the headline increase, with furnishings, medical care, and car insurance contributing significantly to core inflation. Notably, indicators of potential tariff impacts remained subdued, though markets await future data for a more comprehensive assessment as retailers adjust their inventory strategies.

Despite the moderating inflation picture, rate cut expectations have been scaled back considerably. Fed funds futures now price in approximately 53 basis points of cuts through year-end 2025, implying two 25-basis-point reductions – a significant reduction from the 100 basis points of cuts priced in at the month's start. Market participants remain cautious about aggressive rate cut positioning, given uncertainties surrounding trade disputes and tariff policies.

Looking ahead to today's European session, sovereign debt supply will be in focus with the UK set to auction GBP4.25bn of 2035 Gilts, while Germany follows with a EUR2.5bn offering of longer dated 2048 and 2054 Bunds.

Across the morning Germany, Sweden, and Spain will release their finalized April CPI figures, though significant revisions aren't expected. Central bank commentary will feature prominently, with BOE's Breeden speaking early, followed by ECB officials Escriva, Nagel, Villeroy, and Holzmann throughout the day.

The US session appears relatively quiet on the data front, with only weekly mortgage applications scheduled. However, market participants will closely monitor speeches from several Fed officials, including Governor Waller, Vice Chair Jefferson, San Francisco Fed President Daly, and Chicago Fed President Goolsbee, for further insights into monetary policy direction.

For more on latest developments see the European Breakfast Briefing.

Wednesday's supply prospects

The European primary bond market was another crowded affair on Tuesday as issuers flocked to the market to tap into what is strong demand for fresh paper. The final euro haul on the day came in at an eye-catching EUR27.525bn, which was the fourth largest daily total of 2025 so far. Spearheading Tuesday’s total were SSA names The European Union and KfW which printed EUR7bn and EUR4bn respectively. Tuesday’s activity means that after just two days the overall weekly total is already at EUR47.325bn from 50 tranches, whilst the IG haul of EUR44.375bn (44 lines) is already within striking distance of the EUR51.5bn average estimate put forward in our issuance poll. The pipeline was replenished, and then some, on Tuesday, with another flood of issuers ready to go today and more than likely propel us beyond even the highest combined guesstimate of EUR67bn. SSA issuers will remain prominent today whilst Pfizer Inc is set to go big with what is its first euro offering since 2017.

** Belgium EUR Oct 2030 OLO

** Latvia EUR 5yr

** EIB EUR4bn no grow 3yr EARN

** BNG Bank EUR 5yr

** Eurofima EUR 15yr green

** AIIB USD1bn no grow 10yr Global SDB at SOFR m/s +65 area IPTs

** Pfizer EUR 4/7/12/20yr four-part

** DVI EUR350m (exp) 5.25yr green

** Transdev Group EUR300m no grow 3yr and EUR500m no grow 7yr bond debuts

** Nexi S.p.A EUR 6yr

** Resa SA EUR500m no grow 6yr

** Prysmian debut EUR PNC5.25 hybrid

** IG Group GBP250m (exp) Oct 2030s

** Raiffeisenbank Austria d.d EUR300m no grow 4NC3 Senior Preferred

** Credito Emiliano EUR200m no grow 12NC7 Tier 2

** LBBW EUR500m no grow 10yr OF covered

Taking advantage of the softer-than-expected inflationary data and an abrupt drop in credit spreads, seven high-grade corporate borrowers tapped the US market yesterday adding USD6.6bn to Monday’s USD18.85bn. For more colour, see THE ENDGAME.

What to watch Wednesday

** Key Data: GE Apr F CPI (07:00), SP Apr F CPI (08:00), US Weekly MBA Mortgage Applications (12:00)

** Key Events: BoE’s Breeden (08:15), ECB’s Escriva (09:00), Nagel (09:00), Villeroy (14:00) & Holzmann (15:00) and Fed’s Waller (10:15), Jefferson (14:10) & Daly (22:40) all speak

** Auctions: UK to sell GBP4.25bn 2035 Gilts (10:00) and GE to sell EUR2.5bn of 2048 & 2054 Bunds (10:30)

** Earnings: 19 Stoxx600 & 2 S&P500 companies release results

All times BST