PERU: BCRP Seen Cautiously On Hold

Couple of Gilt Block trades, suggested buyers:

• G U5 1.64k bought for 92.47.
• G U5 ~1.29k bought for 92.48.

• Italian industrial production was stronger-than-expected at 1.0% M/M in April (vs -0.1% cons, 0.0% prior), contrasting with weaker-than-expected reads from Germany, Spain and France last week. As such, there doesn’t seem to be an immediate negative impact from US Liberation Day at play. Indeed, Italian production appears to be entering a shallow, but visible, recovery.
• However, surveys paint a more subdued outlook ahead. Although the manufacturing PMI was close to neutral territory in May (49.2), ISTAT’s industrial survey remains below the 2010-2019 average.
• On a WDA Y/Y basis, growth of 0.3% was the first positive reading since January 2023. 3m/3m growth was also positive at 0.4% (vs 0.6% in March, -0.6% in February).
• In May, there was positive sequential production growth in all major sub-sectors other than energy. However, 3m/3m growth in consumer and capital goods remains negative.
• Italian industry is sensitive to the outcome of EU-US tariff negotiations. In its latest forecast update, ISTAT noted that although trade “tensions are expected to ease gradually in the second half of 2025, they will still hurt the economic cycle, with more pronounced effects on investment and foreign trade, and to a lesser extent on household consumption”. The agency's forecast for 2025 growth was revised down to 0.6% from 0.8% in December

• In the FI space, the trend condition Bund futures remains bullish. The recovery that started May 14 suggests the move down between Apr 22 - May 14, has been a correction. A stronger 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.
• Gilt futures continue to trade closer to their recent highs. The latest rally undermines the recent bearish theme - a key short-term resistance at 91.87, the May 20 high, has been cleared. This signals 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 to watch is unchanged at 91.44, the Jun 4 low. A break of this level is required to signal a possible reversal.