EURIBOR OPTIONS: Call spread buyer

Bund and Gilt futures have retraced opening gains to trade near intraday lows.

• The morning rally was aided by the unexpected PBoC rate cut overnight.
• There hasn’t been an obvious headline/macro driver to explain the reversal, though similar price action in UST futures suggests markets may be reacting to renewed US election uncertainty following Biden’s withdrawal yesterday.
• Bund futures are -11 at 131.99, with bears targeting the first support at 131.65 (50-day EMA)
• Gilt futures underperform Bunds a little, currently -25 at 97.85 but still above the first support at 97.63 (Jul 11 low). Weekend news flow saw Chancellor Reeves hint at an above-inflation pay increase for public sector workers, which has weighed on SONIA and Gilt futures this morning.
• ECB speakers (Makhlouf yesterday and Kazimir this morning) and today’s Q1 Eurozone deficit/debt data were not major market movers. 
• The German and UK cash curves have bear flattened (with Gilts seeing a more pronounced flattening on the above Reeves comments).
• 10-year peripheral spreads to Bunds have tightened, with BTPs outperforming, as European equities partially reverse last week’s selloff.
• Regional macro focus remains on Wednesday’s flash PMI today. 

Spanish Prime Minister Pedro Sanchez has been summoned to deliver testimony as part of a criminal investigation into his wife Begona Gomez's business dealings. Judge Juan Carlos Peinado will hear from Sanchez at the PM's gov't office at Moncloa at 1100CET on 30 July. Gomez was invited to deliver her testimony in court on 19 July, but refused to speak. No charges have been filed against Gomez, and the gov't denies any wrongdoing on her part.

• Potentially of greater threat to Sanchez's position are the souring relations among the parties propping up the minority gov't led by his centre-left PSOE. The current session of parliament comes to an end on 23 July, with a series of votes set to take place, but no guarantee that they will pass. Most notably, proposed reforms to Art.35 of the Immigration Law regarding the mandatory distribution of child immigrants across all Spanish regions.
• Gabriel Ruffian from the pro-independence Republican Left of Catalonia (ERC), which backs Sanchez's gov't said that support for the gov't has been based on 'better the devil you know', claiming that "People have been voting for the lesser evil for too long to avoid the worse. And that is coming to an end."