European Investors Should Mark Their Diaries for a Big Thursday

(Bloomberg) -- There’s a lot at stake for investors this Thursday, when global data will start to reveal the economic hit from the coronavirus in April, the European Union is set to hold a summit to agree its rescue package and the U.K. is going to revise its borrowing plans.

Traders will be on the lookout for discussion of proposals for joint issuance -- so-called coronabonds -- at a virtual summit of EU leaders, after opposition from the likes of Germany. Bonds from Europe’s periphery such as Italy and Greece, the region’s most indebted nations, were roiled in the past week on worries the bloc is not doing enough to prop them up.

Insight into the scale of the economic hit is likely to come from preliminary purchasing managers data for April. It is expected to show euro-zone readings contracting further, despite stimulus efforts taken in recent weeks by the European Central Bank and governments. Italy’s economy shrank about 5% in the first quarter, even before the full impact of lockdowns, according to the Bank of Italy.

It’s a similar picture for the PMI figures in the U.K. The government is planning to fund much of its crisis spending through bonds, with the debt management office seen revising its issuance up by about 220 billion pounds ($275 billion) on Thursday, according to Mark Capleton, a strategist at Bank of America Merrill Lynch.

The U.K. will hold four gilt auctions next week and buy back bonds at a steady rate of 1.5 billion pounds per operation. Euro-area bond sales are set to total around 14.5 billion euros for the week, including from Germany, Italy, Belgium and Finland, according to Commerzbank AG.

The European Financial Stability Facility is also expected to hold a syndicated sale, subject to market conditions. Italy and France redeem bonds totaling more than 41 billion euros, while France also pays coupons of 12 billion euros.

At the end of the week, rating agencies will have their say on the sustainability of all this sovereign debt. S&P Global Ratings will review the U.K., Greece and Italy on Friday, with the latter already having a negative outlook.

“It is imperative that funding costs are kept in check, or cheaper funding is accessed, to prevent downgrades,” wrote Jamie Searle, a rates strategist at Citigroup Inc., in a note. While “immediate downgrades seem highly unlikely, rating agencies may need to be given reasons to not act later this year.”

Next week:

• Euro-area, German, French and U.K. preliminary manufacturing and services PMI for April are due Thursday
• Germany’s ZEW survey for April is published Tuesday and Ifo’s April survey on Friday
• U.K. consumer price index inflation data for March are due Wednesday followed by March retail sales Friday
• ECB’s Yannis Stournaras participates in an online panel on Tuesday, to discuss the role of banks in the Covid-19 era; ECB policy makers enter a “quiet period” on Thursday to avoid making comments that could influence expectations about monetary policy decisions ahead of the rate announcement on April 30
  • BOE’s Andy Haldane and Ben Broadbent hold a briefing on Monday
• S&P Global Ratings reviews Italy, U.K., Greece and EFSF, Fitch Ratings reviews Netherlands and DBRS Ltd. reviews Greece Friday

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