UniCredit Macro & Markets Weekly - ECB: Too early to discuss the next steps

Macro: It is still too early for the ECB to provide clues on the next policy steps; therefore, Thursday’s meeting is unlikely to bring major news. S&P’s rating review for Italy on Friday will probably be a non-event. We expect the eurozone composite PMI to ease marginally in April, although remaining in expansionary territory (due on Friday).
FI: With regard to the US, we view the risk skew of our 10Y UST forecast (2% at YE 2021) as neutral and well-balanced. In the euro area, we see the risk to our forecast for 10Y Bunds (-0.2% at YE 2021) as skewed towards higher rates, although the potential for overshooting might not be large.
FX: EUR-USD is likely to trade close to the 1.20 handle, as neither the ECB meeting outcome nor the eurozone PMIs are expected to offer additional support to the currency. In EM, a second 25bp rate hike in a row by the CBR, to 4.75%, is not expected to offer the RUB a significant boost.
Equities: A recent strong increase in analysts’ earnings upgrades has set the bar high for positive surprises during the upcoming earnings season. Overbought equity index levels suggest some risk of imminent profit taking.
Credit: European default rates have stabilized at low levels; we continue to prefer BB rated credit given underperformance YTD and fair valuations relative to BBB rated bonds.