OIL: Aramco Sees Healthy Global Oil Demand Despite Tariff Impacts

The pullback in major EGB futures has gathered pace over the last ~30 minutes, with NY desks potentially opting to fade this morning’s rally. Bund futures are +9 ticks at 130.46, with early BTP outperformance also fading (+9 ticks at 120.72).

• Both Bund and BTP futures pierced initial resistance levels this morning, but were unable to meaningfully extend to the topside.
• Meanwhile, the 2021 low (~90.4bps) contained downside in the 10-year BTP/Bund spread.
• These technical rejections alongside an intraday move higher for oil prices have likely contributed to the retracement in futures.
• Market moving regional headline flow has been fairly limited through the European session so far. A reminder that the Whit Monday holiday may be limiting broader activity.
• A Reuters source report noting the Japanese government is considering buybacks of some super-long JGBs lent light support to JGB futures earlier, but that move has also faded. 

• In the FI space, the latest pullback in Bund futures appears corrective - for now - and the trend condition remains bullish. The recovery that started May 14 suggests the move down between Apr 22 - May 14, has been a correction. A resumption of gains would signal scope for a climb towards 131.85, the Apr 22 high. Key short-term support to watch is 128.97, the May 14 low. First support lies at 130.12, the Jun 5 low.
• The latest rally in Gilt futures undermines the recent bearish theme - a key short-term resistance at 91.87, the May 20 high, has been cleared signalling scope for an extension higher and sights are on 92.79, the 1.236 projection of the May 22 - 27 - 29 price swing. Initial firm support has been defined at 91.44, the Jun 4 low. A break of this support is required to signal a possible reversal.

No tangible impact in the 10-year Gilt/Bund spread to the expected confirmation of the Winter Fuel payment U-turn. The spread remains just over 2bps wider today at 209bps, with the latest upward pressure in Gilt yields (now unch today at 4.645%) seemingly led by movements in the EGB space.

• Our Political Risk team notes that with regards to impact on future policy, there is the prospect that backbenchers and ministers on the left of PM Sir Keir Starmer's Labour party see the U-turn as a signal that the gov't will not keep to hard-lines on welfare cutting measures. Given Reeves' almost non-existent fiscal headroom, this could bolster the chances of tax hikes coming further down the line rather than spending reductions.
• Domestic fiscal focus remains on Wednesday's spending review.