BONDS: EGBs-GILTS CASH CLOSE: Yields Pull Back Despite Strong Data

Core EGB / Gilt yields erased much of their early drop late in the session Tuesday.

• An early bid stemmed in part from a strong 10Y JGB auction overnight (recall, weak long-end Japan dynamics had weighed in previous sessions), with Dutch inflation likewise on the weak side bringing down Eurozone-wide HICP, and some pointing to the OECD's global growth forecast cuts / collapse of the Netherlands Government as supportive.
• Global FI softened throughout the rest of the day, with rising equities and oil, and EUR supply weighing.
• After looking to finish with decent gains, Bunds and Gilts sold off in the minutes before the European cash close  with no clear catalyst, some identifying an (apparent) rumour that US Pres Trump was scheduled to call China's Xi on Friday.
• The German curve twist steepened, with the UK's bull flattening. One takeaway from the BOE's TSC hearing was that Deputy Gov Breeden positioned herself as a little more dovish than Gov Bailey.
• Periphery / semi-core EGB spreads closed mixed, with 10Y BTPs at the tightest closing levels to Bunds since April 2021.
• Wednesday brings final Services PMIs. The ECB decision Thursday is the week's main event - MNI's preview is here. Along with the expected 25bp cut, focus will be on any clues around the willingness or lack thereof to highlight a potential pause in July.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.3bps at 1.786%, 5-Yr is down 0.1bps at 2.082%, 10-Yr is up 0.1bps at 2.525%, and 30-Yr is up 0.5bps at 3.017%.
• UK: The 2-Yr yield is down 0.1bps at 4.028%, 5-Yr is down 2bps at 4.143%, 10-Yr is down 2.9bps at 4.638%, and 30-Yr is down 4.3bps at 5.367%.
• Italian BTP spread down 0.6bps at 97bps / French OAT up 0.6bps at 67bps  
   

• Stocks have gradually climbed off early Tuesday morning lows, the S&P eminis currently trading at the highest level since May 29 with Information Technology and Energy sectors outperforming.
• Currently, the DJIA trades up 201.08 points (0.48%) at 42508.23, S&P E-Minis up 35.5 points (0.6%) at 5982.5, Nasdaq up 178.8 points (0.9%) at 19421.06.
• IT stocks led gainers in the first half with Super Micro Computer +6.38%, First Solar +4.63%, Microchip Technology +4.45% and Arista Networks +4.23%.
• Oil and gas shares were buoyed on the back of stronger crude prices (WTI +1.10 at 63.62): APA Corp +4.50%, Occidental Petroleum +3.50%, Diamondback Energy +3.40% and Devon Energy +3.37%.
• On the flipside, interactive media and entertainment weighed on the Communication sector with Charter Communications -1.82%, Live Nation Entertainment -1.57%, Alphabet -1.06% and Verizon -0.84%.
• Meanwhile, the Consumer Staples sector was weighed down by Kenvue -6.93%, Kroger -2.51%, Coca-Cola -1.54% and Philip Morris Int -1.53%.

• The USD underwent a mild corrective bounce early Tuesday, reversing a small part of the Monday underperformance as catalysts for a further phase of USD weakness dried up somewhat. Firmer US data and a constructive tone for major equity benchmarks then provided additional tailwinds for the greenback, leaving the USD index roughly 0.5% higher as we approach the APAC crossover.
• US JOLTS job openings came in above expectations, and despite the data potentially providing a stale view of the US labour market, the data spurred a more protracted intra-day recovery for the dollar. This prompted the likes of USDJPY(+0.88%) to extend its bounce to over 1% from session lows, and close back in on the 144 handle. In similar vein, USDCHF has rallied back to 0.8240 up 0.77% on the session. While the Swiss CPI data was in line with expectations, it did confirm that annual inflation slipped below the central bank’s target range at -0.1% Y/y.
• The Euro has traded on the backfoot as below expectation Eurozone inflation data may also be weighing on the single currency ahead of this week’s ECB meeting. The ECB’s June macroeconomic projections will be key in shaping the initial market reaction to Thursday’s policy statement, given a 25bp rate reduction is unanimously expected.
• EURUSD has spent the US session consolidating back below the 1.14 mark. In terms of support, the 20-day EMA provides short-term significance on a closing basis and currently intersects at 1.1316.
• After being among the best performing currencies on Monday, the likes of AUD and NZD have given up a solid portion of those advances today, as the relief rally for the greenback extends, and weighs on antipodean FX. For AUDUSD, that’s another test/rejection of the 0.6500 handle, a level spot has been unable to close above this year despite several tests of the psychological mark.
• Australian GDP highlights Wednesday’s APAC calendar, before the Bank of Canada decision later in the session. US ADP and ISM Services PMI are other notable data points.