EGBS: Bund Futures Consolidate Early Rally; ECB Pullback Considered Corrective
Jun-10 09:16
Bund futures have consolidated the early rally, which came on the back of softer-than-expected UK labour market data and weak European equity sentiment. Futures are +36 ticks at 130.66, with initial resistance at 130.99 (yesterday’s high). The technical picture remains unchanged, with the ECB-driven pullback still appearing corrective - for now - and the trend condition remaining bullish.
- Regional headline flow has been light. ECB speakers (Villeroy, Rehn) have not shifted sentiment, nor did the stronger-than-expected June Sentix survey (0.2 vs -5.5 cons, -8.1 prior).
- The German curve has bull flattened, with 30-year Bund yields down 3bps and Schatz yields down 1bp. Germany will sell E4bln of the 2.40% Apr-30 Bobl at 1030BST.
- Meanwhile, the Netherlands sold 10-year DSLs earlier and the ESM is holding a E2bln WNG long 3-year syndication. Finland will sell RFGBs at 1100BST.
- 10-year EGB spreads to Bunds are within 1bp of yesterday’s closing levels. Overnight, French President Macron did not rule out another dissolution of the National Assembly to hold snap elections (he is legally allowed to do so as of July). While this has had limited impact on OAT spreads intraday (+1bps at 68bps), it serves as a reminder that French political (and fiscal) risks are still lurking in the background.
- Broader macro focus remains on the outcome of US-China trade talks, which have entered their second day.
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MACRO OUTLOOK: US PPI/Retail Sales And Powell Follow On Thursday [2/2]
May-09 20:17
- Core PCE implications will then be watched closely in Thursday’s PPI report, and we expect with additional focus on portfolio management after last month’s huge upward revision to February.
- Retail sales, whilst only reported in nominal terms, will offer a keenly awaited look at consumer behavior.
- Real spending moderated to 1.8% annualized in Q1 after 4.0% in Q4 despite likely tariff front-running, with April a good test of how much discretionary spending was pulled forward.
- Finally, Powell provides “Opening Remarks” at the Second Thomas Laubach Research Conference, although he’s allotted twenty minutes so there is scope for more substantive remarks than you’d usually expect. His message at Wednesday’s FOMC press conference was one firmly of being in no hurry to cut rates amidst huge uncertainty. He also appeared to put more weight on hard data over soft indicators that appear more stagflationary in nature.
MACRO OUTLOOK: US CPI Offers Look At April Tariff Distortions on Tuesday [1/2]
May-09 20:15
- The week’s US data calendar is highlighted by CPI inflation on Tuesday although PPI inflation and retail sales reports on Thursday are in close second. All three releases are going to be important, offering further hard data for April in the first month under reciprocal tariffs. What’s more, PPI and retail sales are followed by Fed Chair Powell just ten minutes after their release (more on that below).
- Core CPI inflation is seen accelerating to 0.3% M/M in April, with six unrounded estimates we’ve seen to date averaging 0.27% M/M.
- A potential for a ‘low’ 0.3% aside, it’s still likely a swift acceleration from a particularly soft 0.06% M/M in March which was in large part down to surprisingly abrupt declines in lodging away from home (-3.5%) and airfare (-5.3%) prices.
- This lodging weakness carried over to core PCE inflation back in March, at just 0.03% M/M after a particularly strong 0.50% M/M in February in a large wedge with core CPI at 0.23% M/M.
- Markets currently price a next Fed cut with the September FOMC meeting.
USDCAD TECHS: Pressuring Resistance
May-09 20:00
- RES 4: 1.4296 High Apr 7
- RES 3: 1.4111 High Apr 4
- RES 2: 1.4041 50-day EMA
- RES 1: 1.3943 High May 9
- PRICE: 1.3930 @ 16:06 BST May 9
- SUP 1: 1.3751 Low May 6
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
USDCAD has recovered from its recent lows. Despite the recovery, the trend condition remains bearish and short-term gains are considered corrective. A fresh cycle low on Tuesday reinforces the bearish theme. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Note that moving average studies are in a bear mode position, highlighting a dominant downtrend. Key resistance is seen at 1.4041, the 50-day EMA.
