ECB: ECB Accounts: Leaving Rates On Hold Was A Robust Approach
Aug-28 11:41
The accounts of the July 23-24 ECB meeting note that “a view” was expressed about cutting rates but that keeping rates unchanged was deemed a “robust approach”. Communication was decided to be “deliberatively uninformative” about future rate decisions, which of course was encapsulated by Lagarde signing off the press conference with “I wish you all a nice wait and see holiday”. That said, her remarks of “you could argue that we are on hold” had helped drive a hawkish reaction at the time. The Governing Council sees it looking at potential marginal adjustments for the remainder of 2025.
- “While a view was expressed that the current conditions would also be consistent with a further rate cut, owing to increasing downside risks to output and inflation, keeping interest rates unchanged was seen as a robust approach to managing shocks and two-sided inflation risks across a wide range of plausible scenarios. Overall, there was currently a high option value to waiting for more information and the resolution of some uncertainty.”
- “Given the exceptional uncertainty and the risks of large inflationary and growth shocks in both directions, it was important for the Governing Council to have a two-sided perspective, maintaining full optionality for future meetings and being agile in order to react quickly to large shocks if necessary. Communication should maintain a careful, neutral tone and be deliberately uninformative about future interest rate decisions. At the same time, with the previous disinflationary cycle essentially at an end, the discussion had moved from the speed at which interest rates should be normalised, as part of a rate-cutting campaign, to potential marginal adjustments for the remainder of 2025 in view of the economic outlook and prevailing uncertainties. This called for data dependence in terms of how the incoming data would influence the medium-term outlook, rather than overreacting to individual data points.”
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US TSY FUTURES: Following Bunds Higher
Jul-29 11:40
- Treasury futures are following German Bund's lead ahead of the NY open, climbing off modest overnight lows, albeit on light volumes ahead flurry of morning data ahead tomorrow's FOMC rate announcement.
- Tsy Sep'25 10Y futures currently +5.5 at 110-30 on volume of 215k (+30k over the last hour). Technical resistance at 111-14+, Jul 22 high. A clear break of it would highlight a stronger reversal and open 111-28, the Jul 3 high.
US-EU: Commission Doc Offers Little Concrete Info On Trade & Tariffs Deal
Jul-29 11:35
The European Commission has published a Q&A sheet on the deal on tariffs and trade announced over the weekend. The deal has been talked up as a compromise that will avoid the worst-case scenario of 30% US tariffs on EU goods and EU retaliation via the 'anti-coercion instrument'. Nevertheless, there remain holes with regard to details of what the deal will cover and how it will be implemented.
- The most important section of the document may indeed come at the end, where it notes, "The political agreement of 27 July 2025 is not legally binding. Beyond taking the immediate actions committed, the EU and the US will further negotiate, in line with their relevant internal procedures, to fully implement the political agreement."
- The document highlights the "single, all-inclusive US tariff ceiling of 15% for EU goods", which includes the most-favoured nation tariff rate. However, it then notes that if the MFN tariff is higher than 15%, only the MFN tariff will apply, not the 15% ceiling (implying that 15% is not in fact an all-inclusive ceiling). The 15% rate will apply to vehicles, and, when they are implemented by the US, on pharmaceuticals.
- As MNI's Policy team noted on 28 July, the US itself has yet to confirm the 15% ceiling, while there are also potential legal pitfalls should the Commission seek to push a deal through without a full ratification process by member states (see 'MNI: EU States Broadly Back EU-U.S. Deal - Officials', 28 July).
OUTLOOK: Price Signal Summary - Candlestick Reversal Signal In Bunds
Jul-29 11:32
- In the FI space, Bund futures have recovered from last Friday’s 128.84 low. Friday’s activity resulted in a test of the base of a 3.5-month range at the 129.00 handle. This key support remains intact for now. A hammer candle formation on Jul 25 followed by a bullish engulfing candle yesterday signals a potential reversal.Initial resistance to watch is 129.95, the 20-day EMA. A break of the Jul 25 low is required to confirm a resumption of the bear trend.
- Gilt futures continue to trade below the Jul 22 high and the contract remains above its recent lows. A rally early last week resulted in a break of the 20-day EMA. A resumption of gains would signal scope for a climb towards 92.42 next, a 50.0% retracement of the Jul 1 - 18 bear leg. On the downside, key support and the bear trigger has been defined at 91.08, the Jul 18 low. Clearance of this level would resume the bear cycle that started Jul 1.
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