GILTS: Futures Still In Tuesday's Range, Macro Cues Eyed
Gilts a touch softer, in line with global peers as equities markets recover from lows.
- Futures -10 at 98.61.
- Tuesday’s extremes still present initial support and resistance (98.54 & 99.21).
- Yields ~1bp higher across the curve.
- Little to add on the news flow front, with Nvidia earnings dominating since yesterday’s close.
- The local calendar is empty until tomorrow, with the release of the DMO’s quarterly issuance calendar headlining on Friday.
- That means that wider macro releases are set to drive things today, with German state and national CPI due.
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SPAIN: GDP Outperformance Consistent With Survey Data
Spanish GDP rose 0.8% Q/Q for the second consecutive quarter according to the preliminary Q2 release. Bloomberg consensus had expected a 0.5% Q/Q reading. Spain is thus likely on track to outperform the other three major Eurozone economies again (based on the French Q2 prelim release and the German/Italian consensus prints), consistent with recent PMI data.
- INE noted that external demand contributed 0.5pp to GDP (with exports growing 1.2% Q/Q and imports falling 0.2% Q/Q), while domestic demand contributed the remaining 0.3pp.
- Within domestic demand, gross fixed capital investment grew 0.9% Q/Q while household consumption grew 0.3% Q/Q. Government consumption was 0.2% Q/Q.
- The softer household consumption growth (relative to other components) is consistent with recent survey evidence (e.g. consumer and retail sales) and hard data (e.g. retail sales).
- On the production side, all major sectors of the economy registered positive sequential growth in value added, led by manufacturing (1.1% Q/Q) and services (0.9% Q/Q). However, INE notes that the Q/Q growth rates for manufacturing and construction were over 1pp below the Q1 level.
- We will provide additional analysis on the income breakdown of GDP (i.e. the GDP deflator and its components) in the coming days.
USD: The Yen remains the worst performer
- Overall there's very little change for the Dollar against G10s so far, NZD was in the lead overnight and extended higher in early trade, and looks to challenge 0.5906, Friday's high, now up 0.39% vs 0.26% pre Cash European Govie open.
- The Yen is still the standout Currency, but has paired some of its weakness in the past 20 minutes or so, with the street looking pretty split on Dovish/Hawkish risks from the BoJ tomorrow.
EUROPEAN INFLATION: Spain July Inflation Driven Lower By Electricity Prices
Spanish preliminary July HICP came in significantly lower than expected on the yearly rate at +2.9% Y/Y (vs +3.2% cons; +3.6% prior) and the sequential reading at -0.7 M/M (-0.4% cons; +0.4% prior). The national CPI also came in below expectations at +2.8% Y/Y (vs 3.0% cons; 3.4% prior) and -0.5% M/M (vs -0.3% cons; +0.4% prior).
Core CPI came in in line with expectations, at +2.8% Y/Y (vs 2.8% cons; 3.0% prior).
The headline rate was driven lower by electricity, food, and (to a lesser extent) leisure and culture prices.
Ahead of the release, analysts had a divergence of opinion regarding electricity prices - some expected a drop (due to a reduction in the related VAT) while others saw prices increasing - that might explain parts of the print coming in lower than consensus for headline.
Overall, there is little colour in the press release, so for full detail, especially on services prices, we will have to await the final data. Disinflation on leisure and culture prices seems like a positive sign in that regard, however.
For context, Spain represents 11% of the Eurozone HICP basket in 2024.
