ECB: Bloomberg Sources Point To September Hold; Markets Steady

DUQ5 107.40/107.50/107.60 call fly paper paid 0.75 on 2K.

Overnight developments in Japan alongside more recent news of a China-US trade meeting have supported risk sentiment and weighed on Bund futures this morning. However, the RXU5 contract (-38 ticks at 130.36) remains above the 50-day EMA, which was pierced on Monday. This has undermined a bearish theme and highlights a possible reversal. Initial support is 129.73 (July 21 low), followed by 129.08 (July 14 low). 

• Overnight, Japan and the US struck a trade deal to reduce tariffs on Japanese goods to 15%. Taken alongside the China-US meeting news, European equity futures are up 1.5%.
• Meanwhile, a weak 40-year JGB auction and reports that Japanese PM Ishiba is set to resign this weekend have added further idiosyncratic pressure to broader core FI.
• The German curve has bear steepened, with 2-year yields up 2bps and 30-year yields up 4bps. Germany sold E5bln of the 10-year 2.60% Aug-35 Bund this morning. Results were mixed, with the 1.49x bid-to-cover ratio softer than the 1.63x launch, but the lowest accepted price still above the pre-auction mid.
• 10-year EGB spreads to Bunds are biased tighter, with PGBs currently outperforming (-1.5bps at 42.5bps).
• Today’s regional calendar has been relatively light, with main focus on tomorrow’s July flash PMIs and the ECB decision.

17:00 ET 22:00 BST: President Donald Trump will deliver a keynote address to the ‘Winning the AI Race’ summit in Washington D.C, where he is expected to unveil his administration’s 'AI Action Plan' strategy and sign an executive order that will “direct the Energy Department to kick-start data center construction on federal sites,” per Politico. 

• The plan is expected to relax industry regulation, moving away from a Biden-era harm mitigation strategy, and accelerate the export of American AI technology abroad.
• The plan is also expected to relax environmental and permitting policies to make it easier to build data centers and power infrastructure, which Politico notes, “reflects both the tech industry’s reality that the greatest barrier to AI deployment is access to reliable power — and Trump’s enthusiasm for boosting fossil fuel production.”  
• According to Reuters, the plan will bar federal AI funding from "states with tough AI rules and ask the [FCC] to assess whether state laws conflict with its mandate."
• Janet Egan, at The Center for a New American Security, said the plan represents a market shift in strategy from "a primarily restrictive approach to AI" under Biden to a focus on answering the question "how do you start spreading the infrastructure and the technology that will underpin the globe?"
• The Washington Examiner notes: "Soon after taking office, [Trump] scrapped Biden-era attempts to regulate AI and called for a new framework to be developed within 180 days. That time has now passed..."