EGB OPTIONS: Bund call fly

Former UK Prime Minister Liz Truss is set to visit Taiwan from 16-20 May, and deliver a speech at the Prospect Foundation think tank in Taipei on 17 May. She will also meet with senior gov't officials according to the Taiwanese foreign ministry. Truss, a well-known China hawk within the UK's governing Conservative Party, could derail the Sunak gov'ts recent attempts to signal a small thaw by moderating its language on Sino-British relations.

• Beijing is unlikely to approve of Truss' visit, but the level of response from China will be less overt than that seen following former Speaker of the US House of Representatives Nancy Pelosi's visit to Taiwan in 2022.
• At that point, Pelosi was still in office and the third highest-ranking elected official in the US behind President Biden and VP Harris. Truss on the other hand is the UK's shortest-ever serving PM and now sits on the backbenches without holding ministerial office.
• There have been some small but noticeable signs of a thaw in tensions between China and the West in recent weeks. UK Foreign Sec James Cleverly's Mansion House speech in April was seen as an effort to move away from the hardline hawkishness of the Truss premiership towards a more pragmatic stance (albeit still viewing China with a wary eye).

Hawkish rhetoric from the ECB, including that from Lane late yesterday (noting there is still “a lot of momentum” in inflation, albeit with a hat tip to the disinflation expected later in ’23), as well as the usually hawkish Kazimir (highlighting plenty of ground left to cover, while noting that the battle against inflation is far from won & the ability to hike for longer given its downshift to 25bp hiking increments) & Kazaks (noting quite some ground left to cover, while stressing that the risk of doing too little dominates, pushing back against market pricing of rate cuts in early ’24) has biased ECB-dated OIS 1-3bp higher today, although the market remains reluctant to fully price in 2 further 25bprate hikes. Comments from Schnabel, Villeroy, Vujcic & Vasle are still due to cross through the remainder of the day.

source: MNI - Market News/Bloomberg