US: FED Reverse Repo Operation

The Italian seasonally adjusted goods trade surplus was E4.4bln in June, comprising of a E0.5bln deficit with EU member states and a E4.9bln surplus with non-EU states. Smoothing over Q2, an export decline of 2.6% outpaced the 1.7% decline in imports, consistent with Istat's commentary on Italian Q2 GDP being dragged lower by net exports.

• Looking at mid-term trends, exports in 1H25 increased vs 2024 to constituencies including Switzerland (+13.4% Y/Y), middle eastern countries (+8.7%), and the US (+7.8%). A 10.3% Y/Y increase of exports to the US looking at June in isolation suggests that the upward here trend was continuing in latest data. H1 declines could be observed to Russia (-17.3%), Turkey (-18.2%), and China (-11.7%).
• On imports, a 31.1% H1 Y/Y increase in goods from China stood out (June in isolation was +25.8% Y/Y). More generally, imports grew strongly from non-EU countries (+8.7%) while they saw less of a clear trend from EU-countries (+1.6%).
• Looking by category, the 11.9% H1 Y/Y increase in consumer non-durable exports stands out - food should be a key component here. Consumer durables fared much worse, though, at -7.5%.
• Imports meanwhile saw increases led by consumer durables and non-durables in H1 (+7.3% and +15.8%, respectively) whilst other categories saw comparatively minor moves.

• Fed Funds implied rates for near-term meetings have seen little movement so far today, with focus firmly on tomorrow’s CPI report.
• MNI US CPI Preview: https://media.marketnews.com/USCPI_Prev_Aug2025_2fe4cdf4a1.pdf
• Cumulative cuts from 4.33% effective: 22bp Sep, 37.5bp Oct, 58bp Dec, 69bp Jan and 81.5bp Mar.
• The SOFR implied terminal yield of 3.10% (SFRH7) is 1bp lower after Friday’s 3.11% marked the highest since the July NFP report. It has in recent days ticked to just under five cuts priced from current levels.
• We see more sensitivity to a downside surprise in July CPI, particularly in core goods components seen sensitive to tariffs. That would set up a replay of the 2024 episode in which after holding in July, the FOMC cut 50bp in Sept (a decision which was, going into the meeting, a “close call” vs 25bp) after a July jobs report saw the u/e rate rise by 0.2pp to 4.25%, even as core PCE appeared to stabilize at 2.6/2.7% Y/Y.
• Next scheduled Fedspeak comes after US CPI, with Barkin (non-voter) at 1000ET and Schmid (’25 voter, hawk) at 1030ET.

Gilts outperformed Bunds Monday ahead of key UK labour market data.

• The session low for yields was set in early trade, with some focus on the potential disinflationary implications of a resolution to the Russia-Ukraine conflict ahead of a Trump-Putin meeting scheduled for end-week.
• That said, the pullback in yields looked corrective in nature, coming after Friday's rise and amid limited macro / data / headline news flow. Yields crept up for most of the remainder of the session.
• That left the German curve relatively unchanged on the day, though Gilts benefited in part from a KPMG-REC report on jobs suggesting weak labour market dynamics / restrained wage growth.
• Periphery/semi-core EGB spreads closed mixed, with Spain outperforming and Greece underperforming. MNI published an exclusive on Greek issuance ("Greek 2026 New Issuance Lower End Of EUR8-10 Bln-Source").
• Tuesday's scheduled highlight is the UK labour market report. MNI's preview is here (PDF): primary focus is on private regular average earnings which are expected at 4.8%Y/Y in the 3-months to June.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.8bps at 1.964%, 5-Yr is up 0.6bps at 2.289%, 10-Yr is up 0.6bps at 2.696%, and 30-Yr is up 2bps at 3.226%.
• UK: The 2-Yr yield is down 3.6bps at 3.863%, 5-Yr is down 3.6bps at 4.001%, 10-Yr is down 3.6bps at 4.565%, and 30-Yr is down 3.6bps at 5.392%.
• Spanish bond spread down 0.3bps at 56.4bps  / Greek up 1.1bps at 65.3bps