GILTS: Flatter, Paring Most Of Yesterday's Curve Steepening

WSJ reports that according to people familiar with the matter, "Ahead of U.S.-China talks in London, President Trump authorized Treasury Secretary Scott Bessent's team to negotiate away recent restrictions on the sale of a wide variety of technology and other products to China," These comments would seem to chime with those from NEC Director Kevin Hassett, who said earlier that if a deal is reached "any export controls from the US will be eased" (see 'US-CHINA: Hassett-Chip Controls Could Be Relaxed If Rare Earth Deal Reached', 1510BST).

• WSJ: “Historically, export controls have never been used as leverage for trade negotiations,” said Kevin Wolf, a partner at Akin Gump Strauss Hauer & Feld who specializes in international trade. “There is no precedent for this.”
• WSJ: "The products covered by recent U.S. restrictions—never publicly announced by the administration—include jet engines and related parts, which China needs to make its own commercial aircraft; software required by Chinese companies to produce chips; and ethane, a component of natural gas important in manufacturing plastics..."
• Speaking in May, Nvidia chief Jensen Huang labelled US export controls on chips to China "a failure", saying the controls gave domestic manufacturers "the spirit, the energy and the government support to accelerate their development/"

Prime Minister Mark Carney is announcing a major increase in military spending, committing to hitting NATO's (current) 2% of GDP spending on defence target in the 2025-26 fiscal year ending March 2026, bringing up the schedule significantly. Previous PM Justin Trudeau said that the 2% target would be hit by 2032, while on the campaign trail in May, Carney said he would advance this target to 2030 if elected. As the Globe and Mail reports, "Canadian experts have previously estimated Ottawa would require $15-billion to $20-billion in additional annual military spending to reach the 2-per-cent target."

• Carney says that Canada "should no longer send 75% of defence capital to the US", saying that defence manufacturing will use Canadian steel and aluminium.
• The PM says that the significant increase in funding will see Canada buy new submarines, ships, armed vehicles, drones, aircraft, artillery and radar systems.
• Canada's defence spending equated to 1.45% of GDP in 2024 according to NATO estimates.
• Part of the increase could come in the form of the gov'ts folding of the Canadian Coast Guard into the Department of National Defence (in line with other countries), with the Coast Guard's CAD2.5B annual budget then counting towards defence expenditure.
• Speaking at the University of Toronto’s Munk School of Global Affairs, Carney said “Broadly, we are too reliant on the United States...Now the United States is beginning to monetise its hegemony: Charging for access to its markets and reducing its relative contributions to our collective security,”

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