BTP: Block Trades in 2yr and 10yr

UBS no longer expect the ECB to cut rates by 25bp later this month.

• They now look for this cut to be delivered in September.
• They think this will be the final cut of the easing cycle and note that their call for a July cut was “firmly anti-consensus since the ECB meeting on 5 June, but we had maintained our dovish expectation amid concerns that the U.S.-EU trade negotiations might be overshadowed by new tensions around early/mid July, when previously declared moratoria expired. But we had been clear that our call for a July cut would no longer be tenable if either an U.S.-EU trade agreement or an extension of the negotiations were to ensue. This now seems to be the case”.
• They note that their call for a September cut “is based on (1) the likely disinflation path over the coming quarters, with headline inflation easing to 1.6% y/y or even less in Q126, (2) the strong euro (which recently prompted the ECB to start verbal interventions), and (3) the likely growth slowdown resulting from U.S. tariffs”.

As noted above, quarterly earnings season kicks off in earnest today, and it's an unusually busy start to the quarter. 9.4% of the S&P 500's market cap is set to report, with the usual early focus on big banks and financials. Our full quarterly earnings schedule found here, including EPS, revenue expectations and full timings: https://mni.marketnews.com/44tWRA8

Highlights are:

• TUES: JP Morgan, Citigroup, BNY Mellon, Wells Fargo, Blackrock
• WEDS: Johnson & Johnson, Bank of America, Morgan Stanley, Goldman Sachs
• THURS: General Electric, Netflix, PepsiCo
• FRI: American Express, 3M, Charles Schwab

Tariffs remain a key buzzword in corporate reports. Heavy industry including General Electric, Snap-On and 3M which be watched for possible impacts, Markets will be particularly focused on any signs of frontloading of corporate purchases, the rate at which firms will passthrough costs to the consumer, and the expected impacts of tariffs on the bottom-line for consumer staples.

Commenting on last week’s price action, Goldman Sachs wrote “yields have yet to reverse the prior week’s underperformance, which we think is a reflection of a narrower path to gilt outperformance. Despite significant front-end rate relief, 10-Year (and long-end) gilts are hovering around the same levels vs. the start of the year”.

• Going into summer, they expect “little news on fiscal policy as parliament goes into recess. A slowdown in issuance and potential relief from the BoE’s next QT decision offers a relatively benign backdrop for the coming months, and with 10s30s reaching fresh local highs, the risk reward is improving for long-end curve flattening”.
• Goldman continue to think “the clearest pathway to lower yields will come from further disinflationary progress and incremental loosening of the labour market, and thus from the front-end”.
• They continue to recommend receiving December MPC-dated OIS, with this week’s data having the potential to drive fresh dovish repricing.
• Meanwhile, they suggest that “the upcoming Mansion House speech is unlikely to provide a major impulse to gilts, with a reemphasis of the fiscal rules, or hints at potential fiscal consolidation potentially a slight positive”.