POWER: Eneco Extends Lifespan of Two Dutch Gas Co-Generation Units

Gilts are a little firmer, seemingly driven by U.S. President Trump’s critique of Chinese counterpart Xi.

• Futures as high as 91.90, before fading back to 91.80.
• The recent gains in the contract have allowed short-term oversold conditions to unwind, with the uptick considered corrective from a technical perspective.
• Initial support and resistance located at 91.16/92.11.
• Yields little changed to 1bp lower.
• 10s spread vs. Bunds ~1bp wider at ~212bp after gilt bulls failed to force a close below 210bp despite yesterday’s tightening.
• GBP STIRs around pre-gilt open levels, showing ~39bp of cuts through year-end.
• Final services and composite PMI data headline a limited UK calendar today, with wider focus set to fall on the U.S. ISM services survey and macro inputs (tariff matters and European fiscal issues remain front and centre there).
• On the supply front, GBP4.75bn of 4.375% Mar-28 gilt supply is due this morning.

The Spanish services PMI was weaker-than-expected at 51.3 (vs 52.9 cons, 53.4 prior), the lowest in 18 months and in contrast to the stronger-than-expected manufacturing reading on Monday. Curiously, there appears to be a larger negative impact from tariffs in the services PMI (see below) compared to the manufacturing counterpart, which noted "several panellists noted a relative improvement in European and US demand, albeit still characterised by some hesitation in committing to new work amid the uncertain tariff outlook".

The composite reading was 51.4 (vs 52.3 cons, 53.5 prior), the lowest since December 2023.

Key notes from the release:

• New orders "increased only modestly and to the weakest degree for 18 months. Although commercial activities helped to support sales, panellists reported a heightened degree of uncertainty amongst clients which limited growth."..."International demand was especially weak, as signalled by a drop in new export business for the first time since last November. Concerns over the impact on trade of tariffs was noted as a factor weighing on market demand and activity".
• "Confidence in the outlook was impacted by the increasingly challenging economic environment"...."That said, most firms still expect activity to be higher than present levels amid hopes of a more stable business environment".
• "This helped to support ongoing recruitment amongst service providers, with employment increasing again in May. Growth was solid, despite easing to its lowest level in over a year".
• "Input prices were reported to have risen again during May. The rate of inflation maintained its recent downward trend, falling for a third month running to its lowest level since last November".
• "Panellists also reported a slower increase in their own prices, with the rate of inflation dropping to a six-month low. Competitive pressures served to limit efforts by service providers to raise charges and offset increased operating expenses".

• SPAIN MAY SERVICES PMI 51.3 (52.9 FCAST, 53.4 APRIL)