EGBS: Impending 10-year Supply Caps Rallies In Bund Futures
Bund futures have recovered from yesterday evening’s Russia-Ukraine ceasefire and US-Canada tariff reprieve inspired lows. Rallies have been capped by today’s 10-year Bund supply, due at 1030GMT. Futures are -7 ticks at 127.00, with a bearish technical theme still intact.
- The German curve has bear flattened, with 2-year yields 2bps higher and 30-year yields 0.5bps higher. Green leader Habeck re-stated his party’s position that debt brake reform for defence spending is not acceptable, but remains open to negotiation.
- 10-year EGB spreads to Bunds are biased slightly tighter, with the exception of DSLs. The 10-year OAT/Bund spread has pushed below 70bp for the first time since September in recent days.
- PGBs lag peripheral peers at the margin after the expected ousting of the Portuguese government and with 10- & 13-Year paper set to be auctioned this morning.
- Comments from ECB President Lagarde were not market moving, while Simkus and Centeno stuck to previous rhetoric.
- The ECB’s forward-looking wage tracker is due at 1100GMT, though broader macro focus remains on the US CPI report at 1330GMT.
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US-EU: Commission-No Justificaton For Tariffs, Will React To Protect Interests
The European Commission has released a short statement following the announcement by US President Donald Trump of 25% tariffs on all aluminium and steel imports into the US. The Commission says that it has not yet received and official notification regarding the imposition of tariffs, adding that it will not respond to 'broad announcements' without additional detail. Nevertheless, the statement says: "The EU sees no justification for the imposition of tariffs on its exports. We will react to protect the interests of European businesses, workers and consumers from unjustified measures."
- Commission: "The imposition of tariffs would be unlawful and economically counterproductive, especially given the deeply integrated production chains the EU and US established through Transatlantic trade and investment."
- Commission: "Tariffs are essentially taxes. By imposing tariffs, the US would be taxing its own citizens, raising costs for business, and fuelling inflation. Moreover, tariffs heighten economic uncertainty and disrupt the efficiency and integration of global markets."
The EU and its member states will be bracing for further announcements on tariffs that Trump has trailed on 'Tuesday or Wednesday'. As the FT reported last week, the EU has the option of using its 'anti-coercion instrument', the so-called 'bazooka' to target US firms. This risks bringing services into the burgeoning trade spat, rather than just goods - a risky move some EU countries will be reluctant to back.
JPY: AUDJPY is testing Friday's high
The Yen is printing further broader base lows, the Scandis are still leading against the Yen in G10, but AUDJPY is now also breaking above Friday's high, although initial resistance is seen at 96.02, now trading at 95.65.
BOE: Mann due to speak tomorrow at 8:45GMT: A dove now, but for how long? (2/2)
- However, it was also qualified that Mann thought that the 50bp cut was appropriate at “this meeting” – indicating that she may not repeat a vote for the same magnitude of cut at future meetings. The full part of this passage in the Minutes noted that “a more activist approach at this meeting would give a clearer signal of financial conditions appropriate for the United Kingdom.”
- The wider MPC updated its estimates for the neutral rate (model-based estimates suggest 2.25-3.75%) but it is not clear exactly where Mann believes the neutral rate will be and whether she fully endorses this range. If she does, after last week's cut we are only 75bp away from rates potentially not being restrictive any more.
- She is due to deliver a speech entitled “Economic Prospects” at Leeds Beckett University tomorrow at 8:45GMT and we will be watching this closely for any hints surrounding her voting intentions past the next couple of meetings.
- There is a link to register for virtual tickets for the speech here.
- For more on our interpretation of last week's BOE meeting, see our BOE review here.
