Sunset Market Commentary – ActionForex

Markets

ECB chief economist Lane pitched the idea of expanding the supply of euro assets in a keynote speech today, one of our long-term views. He argues that the existence of a benchmark safe asset that serves as the anchor for asset pricing is a foundational element of any autonomous monetary system. Such an asset should be highly liquid and rise in relative value during stress episodes. The current EMU financial structure lacks such safe asset given that the stock of German Bunds is too small relatively to the size of the euro area or the global financial system. Lane says that common bonds backed by the combined fiscal capacity of the EU member states are capable of providing safe asset services, but the current stock of such bonds is too small at the moment even as it exploded from around €80bn outstanding before the Covid-pandemic to currently over €700bn. There’s sufficient room to expand it further though with the 2024 EU competitiveness report by Mario Draghi estimating the annual cross-border mutual funding need at €750bn. This includes European-wide public goods, but common policy imperatives such as the urgent funding of Ukraine also warrant joint borrowing. Lane floats other options as well like the recently proposed “blue bond/red bond” reform. Under this approach, each member country would ring-fence a dedicated revenue stream (a certain amount of indirect tax revenues, for example) that could be used to service commonly issued bonds. In turn, the proceeds from issuing blue bonds would be deployed to purchase a given amount of the national bonds of each participating Member State. This would result in a larger stock of common bonds (blue bonds) and a lower stock of national bonds (red bonds). Another proposal envisages that financial intermediaries (whether public or private) could bundle a portfolio of national bonds and issue tranched securities, with the senior slice constituting a highly safe asset.

Turning to today’s market moves, the stalemate persists after US president Trump announced an extension to the cease-fire last week. He believes talks are possible as soon as Friday. Visibility is extremely low though with Iran calling the US naval blockade the same as a bombardment and thus an infringement of the cease-fire. Brent crude grinds back above the $100/b mark as the headline roulette keeps spinning with EUR/USD moving further away from the 1.18 resistance mark. Stock markets are treading water with core bond yield curves flattening marginally.

News & Views

Belgian consumer confidence decline for a third consecutive month in April. At -9 (from -6), it hit the lowest level since April 2025. On a macro level, fears of unemployment are growing with the unemployment sub-index rising from -3 to 6. On a personal level; households turned more negative about their capacity to save (18 from 22) and on their overall financial situation (-5 from -3), with both subindices also touching lowest levels since April last year. Expectations concerning the general economic situation in Belgium have improved slightly compared with last month (subindex at -43 from -45) though sentiment remains pessimistic in a broader perspective (e.g. was -25 in February before the start of the conflict in the Middle East).

• The Central Bank of Turkey (CBRT) kept its policy rate unchanged at 37.5%. The CBRT also kept its overnight borrowing and lending rates unchanged at 35.5% and 40% respectively. As the central bank recently didn’t hold one-week repo auctions, the overnight rate gained importance in determining money market rates. It was the second consecutive month that the CBRT kept its policy stable after easing the policy rate from 46% to 37% over the July 2025 – Jan 2026 period. Turkish inflation eased to 1.94% M/M and 30.87% Y/Y in March to be compared with a level of 42.1 % at the start of 2025. The CBTR assesses that while the underlying trend of inflation still declined in March, leading indicators suggest a slight increase in the underlying trend in April. Geopolitical developments and resulting uncertainties are keeping energy prices elevated and are a source of volatility. Even as the recent indictors point to a slowdown in activity, the central bank indicates that potential second-round effects of recent developments on the inflation outlook will be of importance and that the committee remains highly attentive to upside inflation risks. The reaction of the Turkish lira to the rate decision was limited. At EUR/TRY 52.7; the Turkish currency still trades near historic low levels reached over the previous week.