ISRAEL: 60k To Be Called Up For Gaza City Op That Could Start Within Weeks

J.P.Morgan recommend longs in 10-Year OLOs on an evenly weighted France/Belgium/Germany 10-Year butterfly.

• They suggest that Belgian paper is likely to richen on this structure as they “expect the market to price increased political uncertainty and associated rating downgrade risks for France as the 2026 budget discussion picks up”.

TYU5 112.50 calls vs 111-03, paper paid 0-17 on 30K.

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The volume of ECB speak has reduced notably since our last update two weeks ago. The main development since then has been US President Trump’s threat of 30% tariffs on EU exports from August 1. However, Reuters sources suggested that while this threat has “complicated” decision making for the ECB, it is not likely to “derail plans for a pause in rate cuts” at this Thursday’s decision. 

• Market pricing remains consistent with one more 25bp cut this cycle, which is in line with the implied rate curve embedded within the ECB's June macroeconomic projections.
• However, the Governing Council is appearing increasingly divided as to whether more easing is justified at this stage, and even if another cut is warranted, whether it should be delivered in September or later in the year.