GILTS: Early Bull Flattening Holds
The early rally in gilts holds, with cues from wider core global FI markets providing support.
- The breakdown of the Q2 GDP was more worrying than the firmer than expected headline figures, with public spending doing a lot of the heavy lifting, while business investment and private consumption were soft. This may have factored into the rally in gilts as well.
- Elsewhere, June’s monthly economic activity data was firmer than expected.
- Futures have traded through yesterday’s high, topping out at 92.15 so far, but have still not closed Tuesday’s opening gap lower (~92.25).
- Bulls need to close that gap before targeting the August 5 high (92.84). A break there would help negate Tuesday’s bearish close.
- To the downside, initial support comes in at the August 12 low (91.51).
- Yields +1bp to -1bp, curve biased flatter.
- 2s10s and 5s30s remain above nearest round numbers (70bp & 140bp, respectively).
- SONIA futures -2.0 to +0.5, while BoE-dated OIS contracts are little changed to 1bp less dovish vs. closing levels, showing 15bp of easing through December and 26bp of cuts through February.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Sep-25 | 3.970 | +0.3 |
Nov-25 | 3.876 | -9.1 |
Dec-25 | 3.815 | -15.2 |
Feb-26 | 3.705 | -26.2 |
Mar-26 | 3.656 | -31.1 |
Apr-26 | 3.574 | -39.3 |
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EGBS: German Curve Bull Flattens; French Budget Eyed This Afternoon
Bund futures are up 45 ticks today at 129.63, but remain below initial resistance at 130.06 (20-day EMA). That keeps a bearish theme intact, with support to monitor at 129.08 (July 14 low). Market moving headline flow has been relatively light, with no obvious trigger for today’s strength in major EGB futures.
- The German curve has bear flattened, with 30-year yields down 4.5bps at 3.197%. A reminder that 30-year yields met resistance at the April 2023 high of 3.263% yesterday.
- Germany will sell E5bln of the new 1.90% Sep-27 Schatz at 1030BST today.
- At 1500BST/1600CET, French PM Bayrou is set to unveil the main proposals of the 2026 state budget, including spending cuts and tax hikes that risk collapsing his minority government. French political risks gradually been priced back into OATs in recent weeks, particularly when assessing French debt against semi-core/periphery peers.
- 10-year EGB spreads to Bunds are within 0.5bps of yesterday’s closing levels.
- Eurozone industrial production was much stronger-than-expected in May, with volatile Irish data once again a likely culprit. On a monthly SA basis, production rose 1.7% M/M, above the 1.0% consensus and April’s -2.2% (revised up from -2.4% initial).
- Meanwhile, the German July ZEW survey was also stronger-than-expected.
- Global macro focus remains on today’s US CPI report.
COMMODITIES: Gold Holds Well Above 50-dma
A bull cycle in Gold that started Jun 30, remains intact and the yellow metal is holding on to its recent gains. Note that medium-term trend conditions are bullish - moving average studies are in a bull-mode position highlighting a dominant uptrend. WTI futures maintain a bearish tone following the reversal from the Jun 23 high, and recent gains still appear corrective. Support to watch is the 50-day EMA, at $65.46. The average has been pierced, a clear break of it would signal scope for a deeper retracement.
- WTI Crude down $0.21 or -0.31% at $66.73
- Natural Gas down $0.04 or -1.04% at $3.431
- Gold spot up $17.43 or +0.52% at $3361.14
- Copper up $0.05 or +0.01% at $555.2
- Silver up $0.12 or +0.32% at $38.2789
- Platinum up $7.89 or +0.58% at $1378.02
US-RUSSIA: FT-Trump Indicates Support For Ukrainian Strikes On Moscow
The FT reports that US President Donald Trump privately encouraged Ukrainian President Volodymyr Zelenskyy to strike Moscow if possible in a phone call on 4 July, according to people briefed on discussions. FT reports that in the call, Trump asked, “Volodymyr, can you hit Moscow? . . . Can you hit St Petersburg too?” Trump asked on the call, according to the people. They said Zelenskyy replied: “Absolutely. We can if you give us the weapons.” Trump signalled his backing for the idea, describing the strategy as intended to “make them [Russians] feel the pain” and force the Kremlin to the negotiating table, according to the two people briefed on the call."
- In recent weeks, despite Trump's increasingly aggressive rhetoric towards Russia, the Russian gov't has not criticised the US president, often talking up peace talks and Trump's deal-making capacities. Open US support for strikes on Russia's major cities could change this stance significantly.
- The story comes hours after Trump announced the provision of "top of the line" weapons that will be sold to NATO partners and, in turn, sent on to Ukraine. The US President also threatened major sanctions on Russia if they do not return to the negotiating table within 50 days.
- CNN: “A White House official clarified to CNN that when the president referred to “secondary tariffs,” he meant 100% tariffs on Russia and secondary sanctions on other countries that buy Russian oil. The US conducts very little trade with Russia, making the secondary sanctions the piece with potentially the most bite."
