EU HEALTHCARE: European Pharma - correction

J.P.Morgan recommended initiating Dec25/Dec26 conditional bull steepeners (buying ERZ5 98.0625 calls vs. selling 0RZ5 98.0625 calls) late on Friday.

• They noted that “with the ERZ5/Z6 curve now inverted, we have a bias towards some steepening. We believe that if increased ECB easing expectations are priced into the curve it will likely be front loaded into 4Q25 or 1Q26”. They also noted that “the Dec25/Dec26 curve exhibits a strong negative directionality versus yields and is currently too flat on a 3-month regression basis”.

These will not show in Today's pace, but the Eurex rolls are dominating in German Govies, some big Volumes in Bund, already 339k lots traded in September, but all spread related, which makes sense given the heavy Data Week ahead.

PACE:

• Buxl: 17%.
• Bund: 15%.
• Bobl: 16%.
• Schatz: 14%.
• BTP: 9%.
• BTS: 10%.
• OAT: 15%.

• Spanish August manufacturing PMI firmer than expected at 54.3 (52.1 consensus, 51.9 July) in a very strong report. Key highlights: "Fastest growth of the manufacturing sector since last October [...] output, new orders and employment all rose to stronger degrees compared to July. Expectations were positive that growth will be sustained, although buying activity increased only slightly amid ongoing supply-side challenges"
• "Positive projections for growth also helped to support recruitment activity, with firms typically predicting a rise in output from
  present levels in 12 months’ time. Confidence overall improved since July to a six-month high and was notably above the
  survey’s long-term trend."
• On prices: "Another modest increase in input prices was registered during August. Firms reported that inflation reflected
  higher prices for foodstuffs and metals. Increased costs were passed on by manufacturers to clients wherever possible via a
  rise in output charges. The rate of inflation was also modest despite rising to the highest level in five months."