CHINA-EU: Foreign Min-EU Needs To Readjust Attitude, Not China

• Continued unwind in Bonds, no new headline as such, the price action in EGBs was and is still BTP led, with interest to tighten the BTP/Bund spread, this is now trading at 90.5bps, and we are getting at levels last seen since 2015.
• Immediate small resistance in Bund is hear at 130.85, and a push all the way back to 131.28 would reverse the US NFP sell off.

Goldman Sachs “continue to like Euribor Z5/Z7 steepeners as near-term risks still point towards cuts, whereas the skew of risks further into 2026/27 will be towards better growth and higher inflation vs. current pricing. This deserves an upward sloping money market curve, and this bearish view on the rates expectation curve should limit the declines in core yields other than the very front-end”.

ECB-dated OIS continue to price just over one full 25bp cut through year-end, with only 3bps of easing priced through the July decision. Following the more hawkish-than-expected stance at President Lagarde’s press conference last Thursday, the bar to another sequential 25bp cut appears high. However, it’s worth remembering that a lot can change between now and July 24, particularly with tariff reprieve deadlines set to expire in this period. 

• The MNI Policy Team’s sources piece last Friday noted that tariffs are pivotal for determining [the ECB’s] next moves in 2025, though one more 25-basis-point cut in either September or December is the base-case scenario.
• Euribor futures are flat to +3.0 ticks through the blues, with a flattening bias seen at the front-end. Volumes may be limited by today’s Whit Monday public holiday in some Eurozone states, alongside and the thin data calendar.
• Weekend ECBspeak saw Nagel and Vujcic note that rates were now in neutral territory (a question Lagarde avoided answering at last Thursday’s press conference). Meanwhile, Escriva remains “very comfortable with gradualism, that is, accompanying improvements in inflation with successive 25-basis-point rate cuts”.
• This week's Eurozone calendar is fairly limited, with most interest probably in Wednesday's ECB wage tracker release. The April vintage saw negotiated wages excluding one-off payments falling to 3.024% by Q4 2024.