EU: Council Agrees To Open Talks w/UK & Canada On SAFE Defence Instrument
The Danish Presidency of the Council of the European Union posts on X: "Coreper unanimously agrees on mandate to Commission to open negotiations with the UK and Canada on their participation in the SAFE-instrument." The Security Action for Europe (SAFE) instrument is an EUR150bln loan instrument indended to boost defence production across the Union. Initially, in order to gain approval for EU funding, at least 65% of the value of the weapon system being acquired has to be made in an EU member state, Ukraine, or in a EEA/EFTA country (Norway, Iceland, Liechtenstein, Switzerland), leaving a limit of 35% of components from other nations.
- Following the signing of the EU-UK security and defence partnership in May, the 35% limit for the UK was removed. The Guardian reported earlier that France is pushing for a ceiling to be imposed at 50% British components in any SAFE-financed project.
- The French demands risk intra-EU friction. Paris has long favoured EU 'strategic autonomy' in issues such as defence procuruement, primarily targeted at reducing reliance on US material. Since Brexit, this drive has also been focused at the UK.
- However, most member states are opposed to restrictions on UK involvement, arguing the inclusion of the sizeable and advanced British defence contracting sector is crucial for swift rearmament in the face of an increasingly dangerous geopolitical landscape.
- Guardian: "The UK does not intend to apply for loans, which are earmarked for EU member states, but hopes British defence companies will benefit from the spending bonanza."
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OUTLOOK: Price Signal Summary - Bear Threat In Gilts Remains Present
- In the FI space, Bund futures traded sharply lower Friday resulting in a breach of support at 128.84, the Jul 25 low and bear trigger. Note that the 129.00 handle marks the base of a broad range and a clear range breakout would strengthen a bearish threat. This would open 128.40 initially, the Apr 9 low. Strength above the 50-day EMA of 129.97, is required to signal a reversal. Resistance at the 20-day EMA is at 129.72.
- Gilt futures traded sharply lower Friday, alongside global bonds. The move down resulted in a print below key short-term support and a bear trigger at 91.08, the Jul 18 low. This once again highlights a bearish threat and signals scope for an extension towards 90.59, the May 29 low. On the upside, resistance to watch is seen at 92.05, the 50-day EMA. Clearance of this average is required to highlight a potential reversal.
EUROZONE DATA: Indeed Wage Tracker Continues To Soften; But Data Has Caveats
The trend in Eurozone wage growth remains to the downside, according to Indeed job posting data for July (released on Friday). The 3mma of Y/Y Eurozone wage growth eased to 2.53% Y/Y, down from 2.64% in June for the lowest since late 2021. While a useful monthly series to track, it’s worth noting that the Indeed wage tracker’s importance to markets has declined since the ECB started publishing its own forward-looking negotiated wages tracker. Overall, the signals from Indeed are broadly consistent with the ECB tracker excluding one-off payments.
- A reminder that French job postings make up the bulk of the observations for the Eurozone-wide index (see chart), followed by Germany. Spanish and Italian samples are much smaller, and the Italian data often (questionably) reports wage growth of 0.00% Y/Y.
- With these caveats in mind, July 3mma Y/Y Indeed tracker wage growth eased to 3.35% in Germany (vs 3.49% prior) and 1.84% in France (vs 1.87% prior).
- The ECB’s Q2 negotiated wages series is released on Friday. It is expected to rebound from the soft 2.45% Y/Y seen in Q1. The ECB’s wage tracker with unsmoothed one-off payments (which best tracks the actual negotiated wages series) points to a rebound of ~4.0% Y/Y.
SONIA OPTIONS: SFIZ5 Call Fly Liquidation
From a little earlier: SFIZ5 96.40/96.65/96.90 call fly, sold for 1.25 in 2k (suggested liquidation).
