Market Views

GLOBAL CREDIT BULLETS | Monday, 27 November 2023

Eurozone – Disinflation story to continue
European PMIs for November rose slightly to 47.1 from 46.5 prior, indicating a bottoming of sentiment albeit at low levels. Similarly, consumer confidence improved from -17.9 to -16.9, while Germany’s IFO (research institute) expectations survey increased from 84.7 to 85.2. This week’s CPI on Thursday is likely to fall from 2.9% to 2.7% YoY, whereby consensus sees core inflation to fall from 4.2% to 3.9%, and the MoM headline print to even fall by -0.2%. Nonetheless, ECB speakers continued to push back against the markets pricing of rate cuts and declared the fight against inflation is not yet over. Markets price cuts of 25bps by June and 85bps by December 2024.

Germany – Budget Fiasco
German courts ruled that the transfer of €60bn Covid-funds into special-purpose vehicles funding the climate transition was unlawful, resulting in an immediate budget hole of ca. €30bn. The €60bn spending power only corresponds to about 1.5% of GDP and would be split over several years, but the ruling questions amounts over €800bn held in government approved German SPVs (Special Purpose Vehicles) and puts the three-party coalition on a weak footing. The government has now decided to suspend the debt-brake in hindsight for 2023 to bridge the gap, but we believe this will be questioned by the opposition centre-right party CDU. The outlook is uncertain but presents downside risks to the German economic and political outlook, as the 2024 budget to be agreed before year-end may be unlawful too. Bloomberg consensus sees German GDP growth at 0.4% in 2024, below the Eurozone aggregate of 0.7%.

Algebris Investments’ Global Credit Team

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