ECB: Escriva Headlines Aren't Too Different From His Prior Stance

Headlines from Finance Minister Svantesson's ongoing press conference:

• "*SWEDISH GOVERNMENT PROPOSES REDUCTION TO TAX ON EARNED INCOME"
• "*SWEDISH GOVERNMENT PROPOSES CUT TO PENSION TAX AHEAD OF BUDGET"
• "*SWEDISH GOVERNMENT PROPOSES CUT TO TAX ON ELECTRICITY BILLS"

Follows last week's announcement for a temporary halving of food VAT to 6% from April 2026.

These policies form part of the SEK80bln of expansionary measures announced at the end of the August, set to be formally presented at the Autumn budget on September 22.

Uneventful start to the week for Gilt futures, currently +7 ticks at 91.30 with volumes running below recent averages for this time of day. Last week’s rally has highlighted a stronger technical corrective cycle, with the move higher also allowing an oversold trend condition to unwind. Friday’s high was pierced at the open, exposing 91.45 as the next upside target (Aug 15 high).

• The UK curve has lightly bull flattened, with 2/5-year yields little changed and 30-year yields around 0.5bps lower.
• 5s30s is 0.7bps lower at 144.7bps, extending the run of relief flattening that began last Wednesday. The spread is currently hovering around trendline support drawn from the November 2024 low. A clear breach of this support would leave scope for a retracement back towards ~140bps (Aug 14 low).
• 10-year yields are little changed at 4.643%, now 20bps below last Wednesday’s 4.845% high.
• A reminder that the KPMG-REC jobs report released overnight was weak, but had little market impact. The BRC shop sales monitor is released overnight, with monthly activity data for July due on Friday. Most data interest remains on next week’s labour market and inflation data.
• This week, Gilts will likely take cues from global core FI moves, with some focus reserved for political headline flow following Starmer’s reshuffle last Friday. 

Figure 1: UK 5s30s Curve (Source: Bloomberg Finance L.P)

Bund futures are testing Friday's 129.20 high (currently +8 ticks at 129.17), clearance of which would expose the August 6 high at 129.31.

• Headline flow has been relatively light this morning, while there was little impact from the stronger-than-expected German industrial production reading earlier.

In cash markets, the German curve leans bull flatter, with yields flat to 1.5bps lower.

• 5s30s is 1.1bps lower at 106.5bps, after marking a fresh multi-year high of 111bps on Wednesday.
• Global core FI curves have seen modest relief flattening over the past few sessions, but the technical trend remains for a steeper curve across the US, UK and Germany.

As noted earlier, the JGB curve twist steepened overnight following the resignation of LDP leader Ishiba on Sunday.

• Thatcherite MP Sanae Takaichi is a front-runner among many opinion polls - and also ran against Ishiba in the last leadership race. While politically conservative, she's made clear her preference for easy monetary policy and a bigger role for fiscal spending - reminiscent of the Abenomics policy set from 2012 - 2020.
• These dynamics clearly lean in favour of lower short-end, but higher long-end yields.