OIL: Global Oil Demand Surged in the Final Week of July: JP Morgan

Bund futures have followed US Treasuries higher through the European morning, now +49 ticks at 130.64. Futures reached a session high of 130.73 earlier, leaving initial resistance at 130.80 (June 26 high) untested. Key resistance has been defined at 131.95, the Jun 13 high. Clearance of this level is required to reinstate a bullish theme.

• The German curve has bull flattened, with 30-year yields down 6bps to 3.04%.
• There have been several ECB speakers this morning, with the annual Sintra forum well underway. Most notably, Vice President de Guindos suggested a EURUSD exchange rate above 1.20 would be “complicated”, hinting at weaker imported price pressures and less competitive export markets.
• Indeed, while the Eurozone June manufacturing PMI essentially confirmed flash estimates (49.5 vs 49.4 flash and prior), both the Spanish and German readings referenced disinflationary forces from the exchange rate.
• Eurozone flash June headline and core inflation were in line with consensus at 2.0% Y/Y and 2.3% respectively. Services ticked up modestly to 3.3% YY (vs 3.2% prior). ECB 1-year ahead May consumer inflation expectations fell to 2.8% (vs 3.1% prior).
• 10-year EGB spreads to Bunds are within 1bp of yesterday’s closing levels. Ireland will hold one auction in Q3 (in September), but did not comment on whether we will see further auctions in Q4 or not.
• The remainder of today’s session includes appearances from ECB’s Schnabel and Lagarde. The ECB’s seasonally adjusted inflation metrics will also be released in due course.

BTP Basis trade, suggest Cash seller:

• IKU5 ~1.67k at 121.51.

• JPY is comfortably the strongest performer in G10 early Tuesday, with the USD Index extending recent losses to move to new cycle lows. The latest phase of USD sales coincides with an adjustment lower for the US curve, as US 10yr yields slipp to a 2-month low below 4.2% this morning.
• This leaves USD/JPY almost 3.5% off last week's highs, aided by a cleaner positioning profile following last Monday's spike to 148.03. The shooting star candle formation highlights a reversal of the recent recovery and today's weakness in particular has been exacerbated on a break of short-term trendline support, drawn from the May lows.
• For GBP, the latest press lower for the USD has prompted GBP/USD to show to a new cycle high at 1.37893 - this is now the best marked levels since October 2021 and extends the bull cycle in the pair. An uptick in futures volumes on the break to new highs clearly helping here, and shifts focus to 1.38 round number resistance and then the October 20th 2021 high beyond at 1.3835
• The difficulty of passage of today's welfare bill in the House of Commons may not be directly market relevant, but the scale of opposition will serve as a further reminder of the hurdles facing the PM's pro-growth agenda.
• Eurozone CPI estimate came in alongside expectations at 2.0% for June - confirming the ECB's views that inflation should continue to converge with target. ISM Manufacturing data is the scheduled data highlight Tuesday, with markets expecting only a modest improvement in activity for June. Central bank speak is headlined by the ongoing Sintra ECB policy forum, at which central bank heads Lagarde, Powell, Ueda, Bailey and Rhee are all set to make appearances.