GERMAN AUCTION RESULTS: 2.50% Aug-46 / 2.50% Aug-54 Bunds

J.P.Morgan recommended tactical fronts/reds SONIA curve flatteners (3Mx1Y/15Mx1Y) late on Friday.

• This recommendation is based on “RV dislocation (1Y/1Yx1Y SONIA now looks 6bp too steep on a relative basis vs. 1Yx1Y SONIA)” and their view that last week’s data “doesn’t warrant the BoE shifting to a faster easing pace than the current quarterly pace”.

• JPY outperforms headed into the NY crossover, with USD/JPY gapping lower at the open in response to the ruling coalition losing its upper house majority. Focus will be on whether Ishiba is able to stay in the PM role - while recent LDP PMs that lost their upper house majority have failed to hold office for much longer than two months - the split nature of the opposition means any stable alternative against Ishiba's leadership is unlikely for now.
• An uptick in volumes was responsible for a bid in GBP; with GBP futures seeing near 1,200 contracts trade inside three minutes (cash equivalent of over $90mln) for the best volumes of the session so far. This adds to the evidence that markets are building a base at the mid-July pullback lows of 1.3365 after last week's data which - while not ruling out an August BoE rate cut - has dented the pricing for sequential cuts later this year.
• NOK/SEK trades softer, with NOK among the poorest performers on the day. Softer crude oil prices are largely responsible and keep the recent rally highs of 11.9862 in EUR/NOK in focus for now.
• Datapoints are few and far between Monday and, with the Fed inside their pre-decision media blackout period, central bank speak is seen quieter also. Market interest picks up toward the tail end of the week, however, with prelim PMI data for July due Thursday as well as the ECB rate decision.