CREDIT OPEN: Pipeline thin as Fed steps up

European futures (Euro Stoxx 50) are pointing to a very modest weaker opening. That comes after US markets appeared to further decouple with S&P500 and Nasdaq shedding -1.07% and 1.71% respectively while at the time of writing Asian markets moved into negative territory (with Hang Seng and CSI300 the 'largest' movers at -0.12% / -0.13%).

Recent geopolitical developments, including the Russia-Ukraine energy infrastructure ceasefire, have had limited market impact so far, with investors remaining focused on the possibility of a comprehensive ceasefire. Despite this, gold prices reached a new peak of approximately USD3,039.01/oz, indicating persistent concerns about geopolitical risks.

The Bank of Japan's decision to maintain its current policy was largely anticipated, resulting in minimal market reaction, with Governor Ueda's upcoming press conference potentially providing further insights into the bank's stance.

Today's European session will feature the release of Q4 labor costs and finalized Eurozone CPI data, while several ECB officials are scheduled to speak, potentially offering clues about future monetary policy direction.

The day's main event is undoubtedly the Federal Open Market Committee (FOMC) rate decision, with markets expecting rates to remain unchanged but focusing on the Fed's updated economic projections and any shifts in the policy trajectory outlined in the dot plot. Three potential scenarios are emerging: easing inflation or economic slowdown paving the way for rate cuts, persistent above-target inflation maintaining a tighter monetary policy stance, or a stagflation risk challenging the Fed's dual mandate.

Market speculation is growing about a possible earlier-than-expected halt to the Fed's balance sheet reduction, with recent communications hinting at discussions to pause or slow QT until the debt ceiling situation is resolved.

Given the focus on the Fed's decision and potential changes to QT, bond markets could be particularly sensitive today, with any indications of a shift in monetary policy or balance sheet management potentially impacting bond yields and issuance conditions significantly. Investors and issuers alike will be closely monitoring these developments for opportunities or challenges, as the outcome could have far-reaching implications for both the US and global financial landscapes.

Given that backdrop, and the recent news that Merz' EUR500bn fiscal stimulus package had been accepted in the Bundestag (next step a vote in the Bundesrat - but seen passing after certain obstacles were moved earlier in the week), Germany are looking to place up to EUR2.5bn 2050 and 2053 bonds via auction. The long end has borne the brunt of recent moves higher (and lower) as sentiment has ebbed and flowed and so today's transaction will be watched closely.

For more on latest developments see the European Breakfast Briefing.

Wednesday's supply prospects

The public pipeline is looking rather sparse heading into today’s session with just two IG names (Banque Cantonale de Geneve and Hamburg) present. That after a two-day flurry which saw EUR15.95bn of euro IG paper price and make a dent in the average EUR28.5bn supply estimate given in our most recent issuance poll. Given the strong reception seen for the deals so far this week though we wouldn’t be surprised to see more opportunistic issuers make the most of the pre-FOMC window.

** Hamburg EUR 5yr LSA

** Banque Cantonale de Geneve EUR300m exp 5yr senior

All-in-all, 10 borrowers raised USD16.05bn in the US Tuesday to bring ex-SSA issuance for the week to USD27.05bn. That was enough to top the lowest weekly estimate of USD22bn and just shy of the average weekly estimate of USD30bn as we go into Fed Day today which could keep issuance to a minimum. For more colour, see THE ENDGAME.

What to watch Wednesday - Eurozone CPI & The FOMC

** Key Data: EC Feb F CPI (10:00), EC Feb F CPI Core (10:00), US Mar 14 MBA Mortgage Applications (11:00)

** Key Events: ECB's Centeno speaks in Lisbon (11:30), Guindos in Madrid (12:00), Villeroy in Paris (13:00) and Elderson in London (13:00). US Mar FOMC Rate Decision (18:00)

** Government Auctions: Germany to sell EUR2.5bn 2050 and 2053 bonds

** Earnings: 7 Stoxx600 and 1 S&P500 companies release results

All times GMT

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