EU TRANSPORTATION: IAG/British Airways: 1H results

SFRU5 96.00/96.3125 call spread 5K given at 6.0.

Politico reports that the UK and Germany will sign a wide-ranging defence pact in the coming weeks that will pledge mutual support in the case of a strategic threat to either. This will provide Germany with mutual assistance clauses with both European nuclear powers, and moves towards Chancellor Friedrich Merz's goal of bolstering deterrents to an attack on the European continent away from the US. 

• The report says the treaty will build on the joint declaration from 2024 between UK PM Sir Keir Starmer and Merz's predecessor, Olaf Scholz. Claims that the pact will be signed on 17 July, ahead of their respective legislatures going into summer recess.
• The article notes that while sections on countering illegal migration, aiding research and development, and boosting transport links will prove uncontroversial, the inclusion of a section on boosting cross-border exchanges could raise hackles in Westminster. The Starmer gov't is under pressure to reduce both legal and illegal migration to the UK.
• Despite US President Donald Trump's apparent warming towards NATO at last week's summit, European countries remain critically aware that the US is looking to draw down its commitments to protecting the continent. As such, these forms of bilateral pacts, alongside the overarching NATO structure, could become more common. This is especially the case for France and the UK, with countries potentially looking to come under their 'nuclear umbrella' (not just Article 5 mutual response in case of attack, but an active pledge to defend a non-nuclear ally). 

German real machinery orders increased 9% Y/Y in May according to VDMA data. Base effects underpinned the print as last May was a particularly weak month. On a broader YTD basis, machinery orders rose 3%, with a 4% rise in foreign orders and domestic orders unchanged.

• "This development confirms our slight optimism for the second half of the year. The order situation underpins our production forecast of a real decline of 2 percent for 2025. Global uncertainty remains high. This makes it all the more important for the EU to quickly reach an agreement with the US on ending the ongoing trade disputes and to prevent further escalation", VDMA comments.
• Overall May German factory orders data is due Friday, with consensus looking for -0.2% M/M (following April's +0.6%).