STIR: ECB Expected To Cut At 1315BST, Focus On July Clues

• Weakness for major equity benchmarks on Tuesday is providing a beneficial backdrop for the Japanese Yen, which extends gains in recent trade. USDJPY slides back below 143.00 and has now eroded the entirety of last Thursday’s BOJ inspired upswing.
• The trend direction in USDJPY remains bearish and gains since Apr 22 are considered corrective. This refocuses short-term attention on initial support at 141.97, the Apr 29 low.
• Divergence between the low yielders is also notable today, as CHFJPY extends intra-day declines to 0.9%. 176.00 has provided an important pivot point this year, and this week’s selloff bolsters the short-term significance of that resistance level.
• Moves have been underpinned by the comments on Swiss Franc strength from SNB President Schlegel this morning, potentially alerting markets to the potential that excessive CHF strength is very much on the SNB’s radar, and the risk reward for further Franc gains may be diminishing at this juncture. Support for CHFJPY is not seen until the 50-day EMA, intersecting at 172.00.

SOFR & Treasury option volumes rather muted despite UK return from spring holiday, leaning towards low delta put structures earlier. Underlying futures mixed, curves steeper with short- to intermediate rates rising after EU trade headline (will target E100B US goods if negotiations fail). Projected rate cut pricing gains slightly vs. late Monday levels (*) as follows: May'25 steady at -0.5bp, Jun'25 at -8.4bp (-7.3bp), Jul'25 at -25.2bp (-23.3bp), Sep'25 -45.3bp (-42.2bp).

• SOFR Options:
  • 2,500 SFRN5 95.68/95.75/95.87 2x3x1 put flys
  • 5,000 SFRK5 95.75/95.81 put spds ref 95.795
  • 6,000 SFRN5 96.25/97.25 call spds ref 96.15
  • 3,000 SFRV5 95.62/95.75 2x1 put spds
  • 2,500 SFRM5 95.75 puts ref 95.79
  • 2,000 SFRK5 95.75/95.87 strangles, ref 95.785
• Treasury Options:
  • 1,000 FVM5 107.25/108.25 put spds vs. 108.25/109.25 call spds ref 108-12
  • over 5,300 wk2 TY 110.5 puts, 9 ref 110-29.5 (exp 5/9)
  • 1,600 TYM5 109.25 puts, ref 111-00

Chris Lunday at Politico posts on X: "A second chancellor vote is back on the table. CDU/CSU and SPD are discussing a second round today with Greens and the Left party. All four factions began a meeting at 1 PM [half an hour ago]. No formal request yet". Taggespeigel notes the process that would be required in order for a second vote to take place today "An election today would definitely require a shortened deadline, for which the CDU/CSU and the SPD are dependent on the other parties. According to information from parliamentary sources reported to Tagesspiegel, all parliamentary groups would have to agree to a shortened deadline. To subsequently schedule a second round of voting, only a two-thirds majority of parliamentarians is required, meaning the rules of procedure, which prohibit such short-notice scheduling of agenda items, are not applied. The CDU/CSU and SPD, along with the Greens and the Left Party, would have this majority."

• The possible obstacle here is the fact that all parliamentary groups have to agree to a shortened deadline, even if only a 2/3 majority is then required to schedule a second round of voting on a chancellor. The 'grand coalition' parties may prove unwilling to rely on the far-right Alternative for Germany (AfD) even its support would expedite a swifter election process.
• Such an agreement would also break the CDU/CSU's long-standing policy of not working with the far-left Die Linke at the federal level.