POLITICAL RISK: Centre-Left Leaders Set To Address Summit In London

• Datapoints are few and far between Wednesday - and it's a similar case for both the central bank speaker schedule as well as Trump's official timetable, which may keep headline risk subdued throughout today. As a result, focus may remain on political machinations in Paris as the government look increasingly fragile. French bonds continue to trade sensitively and underperform broader European markets - highlighting the risks to the French economy (and thereby the EUR) from any decrease in fiscal credibility from the French government.
• While EURUSD weakness on Wednesday has primarily been driven by broader dollar dynamics, the French political situation will be adding weight. The latest polling from Ifop found a large majority of respondents in favour of the dissolution of the National Assembly and snap legislative elections. In total, 63% of respondents favoured dissolution. Data from Polymarket shows bettors assigning a 20% implied probability that fresh elections are called by 15 September, rising to 41% by year-end.
• Accordingly, the wider French-German 10y yield spread remains a solid proxy for European political risk, and is worth monitoring for intraday inflection points in the single currency.
• The USD Index is firmer within the recent range. Should prices close at current or higher levels today,  it could mark the beginning of an upside correction, marking a break above the downtrendline drawn off the early August highs on the 15min candle chart.
• NZD is worse-off against all others in G10. NZD/USD is back below the 200-dma of 0.5832, but it's the 0.5800 that should provide firmer support on any further phases of weakness. Clearance here puts prices at the lowest since April, and another spell of soft equities could trigger a test. NVIDIA earnings are due after-market, and could have a sizeable impact on headline indices. 

Bonds have rallied this morning, with European equities on the defensive and no meaningful concession in the lead up to 7-Year German supply.

• Bund futures have registered the highest level of the week. Bulls have pushed the contract through initial lower tier resistance points. switching focus to the nearby 50-day EMA (129.78). A break above there would heighten the chances of a bullish reversal.
• German yields are 1-3bp lower, curve bull flattens. 5s30s back from yesterday’s fresh cycle closing high, but still comfortably above 100bp.
• EGB spreads to Bunds little changed to ~1.5bp wider given the broader risk aversion.
• OATs widen the most, spreads testing yesterday’s intraday high, last ~78.5bp, while 10-Year BTP/OAT narrows to ~5bp.
• ECB-dated OIS subjected to modest dovish repricing alongside the rally in wider bonds, with ~20bp of easing showing through June ’26.
• Gilts off early session lows given the cues from wider core global FI.
• Futures registered fresh cycle lows before bouncing. Bulls need to retake 91.24 to start turning the tide in their favour.
• Yields ~1.5-3.0bp lower across the curve, light flattening bias on the day.
• Well defined yield resistance points intact across the curve.
• 3-Year gilt supply went fairly smoothly, although the cover ratio moderated vs. prev. auction.
• The minutes of the latest DMO consultation with market participants showed ongoing preference for a reduction in WAM.
• GBP STIR pricing still at the hawkish of the recent range, showing ~10bp of easing through year-end.
• Little in the way of tier 1 macro releases scheduled for today, leaving focus on headlines and cross-market flow.

• USD2bln WNG of the new 5-year Sep-30 ESM-Bond
• Spread set at SOFR MS+39 (SA 30/360) (guidance was SOFR+40 Area, IPT was MS+42 area, that was equiv. to CT5 + ~7.3bp)
• Books in excess of $10.2bn excl. JLM interest
• Issuer: European Stability Mechanism (TICKER: ESM)
• Issuer Ratings: Aaa (stable) (Moody's) / AAA (stable) (S&P) / AAA (stable) (Fitch)/ AAA (stable) (Scope)
• Format: Registered Notes, Reg S (NSS) / 144A
• Ranking: Senior, Unsecured, Unsubordinated
• Listing: Luxembourg
• Settlement: 4 September 2025 (T+6 (TARGET) / T+5 (NY))
• Maturity Date: 4 September 2030 (5Y)
• ISIN: Reg S: XS3171756128 / 144A: US29881WAG78
• Coupon: Fixed, Semi-annual, 30/360, Following, Unadjusted
• Bookrunners: CACIB(DM/B&D) / DB / JPM
• Timing: EMEA/ASIA books to close at 11.30CET/10.30UKT. Americas books to close 8.30EST/14.30CET/13.30UKT.

The transaction comes ahead of a USD3bln redemption for the ESM in September. That line also had a 5-year maturity initially.