IRAN: Foreign Min-'Serious & Heavy Damage' At Fordow

J.P.Morgan have recommended entering tactical 10s30s gilt steepeners, as they see “potential for further bouts of uncertainty over long end demand dynamics globally against a backdrop of ongoing focus on the limited fiscal headroom in the UK”.

• They note that “the 10s/30s gilt curve has exhibited similar behaviour to the 2s/10s curve over the past couple of weeks and is back at the flat end of the range seen since early April”.
• On their metrics, “the 10s/30s gilt curve is now back to fair value vs. the level of front end yields, 30Y gilt yields and adjusting for the 10s/30s U.S. Tsy curve, having screened too steep a couple of weeks ago”.
• J.P.Morgan also flag that “this curve has exhibited only weak positive directionality with the level of front-end yields, albeit with a shifting beta post the April tariff announcement, and we expect that this relatively limited positive directionality will persist”.
• Finally, they believe that that recent long end issuance cut is already fully priced into the curve.

The UK May manufacturing PMI saw a notable upward revision to 46.4 (vs 45.1 cons and prior), but the details of the report remain weak. The index has been in contraction since September 2024.

Key notes from the release:

• “There were some tentative signs that the sector may have turned a corner, however. Survey indices monitoring trends in output and new business rose for the second month in a row, signalling an easing in their respective downturns”.
• “Manufacturing production contracted for the seventh consecutive month in May, as companies scaled back production in response to reduced intakes of new work from both domestic and overseas clients”.
• “Weak global market conditions, trade uncertainty, low customer confidence and cost pressures resulting from recent increases to UK employer NICs and minimum wages also contributed to clients' reluctance to spend”.
• “Tariff uncertainty, government policy and global market turbulence were all mentioned by panellists as factors underlying a further decrease in new export orders during May”.
• “Lacklustre conditions at present combined with an increasingly uncertain outlook fixed manufacturers on a cost-conscious course during May. Employment, purchasing activity, input stocks and finished goods inventories were all lowered, as companies acted to protect margins and offset the impact of rising cost burdens from employer NICs”.

• UK MAY FINAL MANUFACTURING PMI 46.4 (45.1 FLASH, 45.4 APRIL)