BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform Bunds After EU-US Trade Pact
EGBs outperformed Gilts Monday as the implications of the EU-US trade pact agreed over the weekend were digested.
- Yields headed lower in early trade on the growth concerns implied by an increased tariff on EU exports to the US and the diminished prospects for EU retaliation on US imports, but the rest of the session saw a pronounced divergence between Gilts and Bunds.
- An MNI Policy sources piece ("MNI SOURCES: Markets Overplaying ECB's Hawkish Shift") boosted EGBs, led by the short end.
- German yields spiked briefly on defence spending headlines, but the move faded as there was nothing new (previously reported in June).
- The German curve bull steepened, with the UK's bear flattening.
- Periphery/semi-core EGB spreads were mostly lower.
- Tuesday's calendar includes UK money supply/consumer credit data, ECB CPI expectations, and Spanish retail sales.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 3bps at 1.918%, 5-Yr is down 3.1bps at 2.267%, 10-Yr is down 2.9bps at 2.689%, and 30-Yr is down 1.1bps at 3.196%.
- UK: The 2-Yr yield is up 2.2bps at 3.906%, 5-Yr is up 1.7bps at 4.075%, 10-Yr is up 1.2bps at 4.647%, and 30-Yr is up 0.5bps at 5.454%.
- Italian BTP spread down 1.7bps at 81.7bps / Spanish down 1.1bps at 58.5bps
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
