SPAIN: Gov't Shelves F-35 Jet Purchases, Risks Further Strain On US Relations
El Pais reports that the gov't has shelved the purchase of US-made F-35 Lightning II fighter jets for an indefinite period of time. The about-turn comes as a surprise, given that in 2024 the gov't allocated EUR10.471bln to increased defence spending. However, the gov'ts decision that 85% of these funds should be spent in the EU is seen to have nixed the prospect of the Lockheed Martin jets being purchased.
- The decision could leave the Spanish Navy with no fighter aircraft from 2030, with its McDonnell Douglas AV8B Harrier II's set to be decommissioned by 2030 and the F-35B the only vertical takeoff jet capable of taking over.
- The Spanish Air and Space Force also risks being depleted. As El Pais notes, the Air Force "set its sights on the F-35 A version to replace the F-18, as a bridge until the European FCAS (Future Combat Air System) becomes a reality, a sixth-generation fighter that will not be operational until 2040 at best. "
- The minority left-wing gov't of PM Pedro Sanchez has come in for varying criticism from its NATO allies for its backtracking on the '3.5%+1.5% GDP' defence spending target. US President Donald Trump singled out Spain during the June NATO summit, saying, "They're the only ones who refuse to pay. We're going to make them pay double,".
- With Trump's focus on not only making NATO countries pay more for European defence, but also increasing purchases of US equipment, the shelving of the F-35 purchases could risk further deterioration in relations.
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CHINA: PBoC Conducted Survey on USD Weakness, According to Sources
"EXCLUSIVE - CHINA'S CENTRAL BANK SURVEYED SOME FINANCIAL INSTITUTIONS ABOUT THEIR VIEWS ON RECENT U.S. DOLLAR WEAKNESS, SOURCES SAY" - Reuters
Piece writes that a survey was conducted last week, in which the PBOC asked questions related to the U.S. dollar's movements and the causes of its recent weakness and outlook for the Chinese yuan exchange rate, the sources said.
- One of the sources said he interpreted it as a sign authorities are concerned about a sharp appreciation of the yuan against the weakening dollar.
- Another source directly involved in the survey said it seemed to be an assessment of the dollar's outlook as trade negotiations with the U.S. progress.
NETHERLANDS: 3/4-month DTC Results
| Type | 3-month DTC | 4-month DTC |
| Maturity | Sep 29, 2025 | Oct 30, 2025 |
| Amount | E1.21bln | E1.39bln |
| Target | E0.5-1.5bln | E1.0-2.0bln |
| Previous | E1.34bln | E1.27bln |
| Avg yield | 1.905% | 1.900% |
| Previous | 1.938% | 1.915% |
| Bid-to-cover | 2.05x | 1.67x |
| Previous | 2.73x | 2.92x |
| Previous date | Jun 16, 2025 | Jun 02, 2025 |
GILTS: Yields A Little Lower, Focus On Macro & Cross-Market Cues
Cross-asset cues dominate, with gilts sticking to tight ranges after the recovery from Wednesday’s low through the latter half of last week.
- Oil has recovered from session lows, limiting any rallies.
- Futures last +11 at 92.49.
- Initial support and resistance (92.12 & 92.79) untouched.
- Yields 1-2bp lower, modest steepening of the curve. Cycle highs in 2s10s and 5s30s untouched.
- Macro focus centred on President Trump’s tariff letters, which will be sent to countries today (12:00 NY).
- Domestically, focus remains on the fragile fiscal situation with last week’s events underscoring the difficulty of enacting meaningful public spending cuts and increasing the odds of tax hikes in the Autumn (a negative for GDP growth).
- There are increasing odds that Reeves will have to hike at least one of the big three taxes (national insurance, income tax & VAT).
- Front end pricing little changed on the day, 21bp cuts priced for August, 28bp through September, 46bp through November and 54bp through year-end.
- We continue to look for cuts in August and November at this stage, with risks skewed dovishly.
- Further softening in the labour market presents the most likely dovish catalyst, with fresh developments on that front likely needed to promote the pricing of a more aggressive easing cycle through year-end.
- Monthly economic activity data (Friday) headlines this week’s local data calendar, while BoEspeak will come via Breeden on Thursday.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 4.005 | -21.3 |
Sep-25 | 3.937 | -28.1 |
Nov-25 | 3.762 | -45.6 |
Dec-25 | 3.675 | -54.2 |
Feb-26 | 3.542 | -67.6 |
Mar-26 | 3.510 | -70.7 |
