Macro Analysis /

UniCredit Macro & Markets Weekly - EGBs and BEs remain vulnerable to inflation surprises

    Marco Valli
    Marco Valli

    Head of Macro Research

    25 March 2022
    Published by
    • Macro: Eurozone headline inflation for March likely jumped by 1pp, to 6.9% yoy, amid surging energy prices. We forecast a rise in US nonfarm payrolls of 475k. Both sets of data are to be published on Friday.
    • FI: Accelerating inflation is reflected in a steep path for ECB rates being priced in but EGBs and EUR BEs remain vulnerable in the short term to upside surprises in inflation. Over a medium-term horizon, we expect the ECB to act more gradually compared to market expectations and we see limited upside risks for EGB yields.
    • FX: Positioning confirms that the EUR-USD remains sticky, which may limit the drag coming from another solid US jobs report. Market exposure also suggests that there is room for a firmer USD-JPY, but probably not much.
    • Equities: The trend in earnings estimates remains solid so far, although growth rates are slowing. The upcoming 1Q22 earnings season will be the litmus test for the still-solid earnings estimates.
    • Credit: European credit spreads have normalized to levels not seen since the start of the Ukraine conflict, but sentiment remains vulnerable.