BONDS: EGBs-GILTS CASH CLOSE: Pressure On Long End Abates

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Services Inflation Moderates Further

• Eurozone July flash headline HICP printed slightly above expectations on Friday, at an unchanged 2.0% Y/Y (2.02% after 1.99%), while the median analyst was looking for a marginally lower 1.9% print.
• Underlying the headline ‘beat’ was a set of moving parts: Services inflation, at 3.13%, decelerated to a greater extent than expected, to its lowest Y/Y reading since March 2022 on a rounded basis, but non-energy industrial goods (‘core goods’) came in notably above consensus, at 0.75%, with changing or less significant seasonal summer clothing sales likely being at work. This made for a little changed and in line ‘core’ reading of 2.29% Y/Y in July.
• Services 3M/3M momentum meanwhile eased to 3.1% annualised after three months at circa 4.0% according to separate ECB seasonally adjusted data.
• Near-term ECB market-implied expectations currently stand at a mere 15% implied odds for another cut by the September meeting. A repricing thereof would likely have to be motivated through a material deterioration in sentiment amid the 15% US-EU trade deal or a significant undershoot in the August inflation round – especially in categories considered as indicative for persistent inflation pressures.
• Further out, markets continue to expect almost one more cut for the ECB current cycle which would mean a 1.75% terminal for the deposit rate, with 22bps of easing priced through March 2026.

• US Data/Speaker Calendar (prior, estimate)
• 08/05 0830 Trade Balance (-$71.5B, -$61.1B)
• 08/05 0830 Exports MoM (-4.0%, --), Imports MoM (-0.10%, --)
• 08/05 0945 S&P Global US Services PMI (55.2, 55.2)
• 08/05 0945 S&P Global US Composite PMI (54.6, 54.6)
• 08/05 1000 ISM Services Index (50.8, 51.5)
• 08/05 1000 ISM Services Prices Paid (67.5, 67.0)
• 08/05 1000 ISM Services New Orders (51.3, --)
• 08/05 1000 ISM Services Employment (47.2, --)
• 08/05 1130 US Tsy $85B 6W & $50B 52W bill auctions
• 08/05 1300 US Tsy $58B 3Y Note auction (91282CNU1)
• Source: Bloomberg Finance L.P. / MNI

The Netherlands will be the first country to contribute (500 million euros) to NATO’s new "Priority Ukraine Requirements List" (PURL) financing mechanism for Ukraine, per Reuters.

• Comes after President Donald Trump said last month that the US and NATO would develop a mechanism for the United States to maintain military support for Ukraine via NATO partners in Europe. The financing initiative is part of a two-pronged approach to push Russia to the negotiating table with Ukraine.
• Reuters reported last week, “Ukraine would prioritize the weapons it needs in tranches of roughly $500 million, and NATO allies... would then negotiate among themselves who would donate or pay for items on the list. Through this approach, NATO allies hope to provide $10 billion in arms for Ukraine... It was unclear over what timeframe they hope to supply the arms.”
• Trump negotiator Steve Witkoff is expected to meet Russian officials in Moscow on August 6, just days before the Friday deadline for Russia to agree a ceasefire with Ukraine.
• If Russia does not commit to a ceasefire, Trump has promised sanctions and secondary tariffs, but it is unclear if a final decision has been taken on the scope of the measures. Trump also downplayed the effectiveness of sanctions, telling reporters Russia seems to be “pretty good at avoiding sanctions."
• Senator Jim Rische (R-ID), the chair of the Senate Foreign Relations Committee, said: “When and if secondary sanctions hit, it’s going to be shock and awe,” adding that “things are going to change dramatically” as a result.