US-EU: Commission Publishes Consultation & Next Steps On Tariff Countermeasures

US Equities are set for a positive Open, Emini is at session high and just short of that huge Equity move seen Yesterday following that erroneous social media Post.

ESM5 printed a 5286.50 high Yesterday, and for the SPX, that level stands at 5246.57.

• Calls: SPX: 5,241.8 (+3.5%); DJIA: 39,330 (+3.6%/+1364pts); NDX: 18,033.9 (+3.5%).

Jake Sherman at Punchbowl reporting that President Trump will meet House Republicans at 13:00 ET 18:00 BST today to discuss the Senate-approved budget blueprint that needs to pass the House this week to unlock the next stage of budget reconciliation. 

• The meeting comes as Speaker Mike Johnson (R-LA) attempts to overcome a rebellion from roughly a dozen deficit hawks (and his Budget Committee chair). Johnson can only drop three votes on the floor, so Trump is likely to exert maximum pressure on wavering lawmakers to fall in line.
• Republican deficit hawks are uncomfortable with what they see as insufficient spending cuts in the Senate budget. They are also unconvinced by the Senate’s decision to endorse ‘current policy base’ to score the renewal of the 2017 Tax Cuts and Jobs Act at $0.
• CRFB notes: “The Senate’s instructions also allow the Senate to increase the debt ceiling by up to $5 trillion, versus the House’s $4 trillion increase. Previously, lawmakers have often coupled debt ceiling increases with deficit-reducing measures or other budget reforms. This budget, however, would couple a debt ceiling increase with measures that would increase deficits by multiple trillions of dollars.”
• Should the House reject the Senate blueprint, it would be amended and returned, compelling re-running the full gamut of Senate procedure, potentially imperilling Trump’s agenda.

Figure 1: Senate/House Reconciliation Instructions Compared

Source: Committee for a Responsible Federal Budget

Bund futures remain under pressure alongside USTs, with US President Trump’s latest post around tariff negotiations with South Korea and China helping the sell-off extend a little.

• Bunds are now -77 ticks today at 129.59. Initial firm support to watch is 129.15, the 20-day EMA. Today’s FI weakness appears to be tied to the stabilisation in risk sentiment given the lack of further escalation in trade tensions, in contrast to yesterday’s more aggressive US long-end led sell-off.
• Following yesterday’s twist steepening, the German curve has bear flattened, with Schatz and Bobl yields up over 8bps each. The 2s10s curve is back at 80.5bps after reaching a multi-year high of 86.2bps yesterday.                            
• The modest stabilisation in risk sentiment promotes a continued retracement of recent widening in German ASWs (vs 3-month Euribor). The Bund ASW briefly marked above 0bps for the first time this year yesterday, but has since narrowed back to -5.0bps.
• The 10-year BTP/Bund spread is ~5bps narrower at 120bps after marking above 130bps for the first time since early November yesterday morning. The spread has nonetheless broken outside of the 105-115bp range that contained price action through February and March.
• According to Reuters sources, the ECB has been reassured by bank feedback on market funding/liquidity conditions. They also view recent EGB spread widening as “under control”.