INDIA: Fitch Affirms India at 'BBB-'; Outlook Stable

Bunds slightly outperform Gilts this morning, but both futures remain lower versus yesterday’s settlement levels (Bunds -10 ticks, Gilts -20 ticks).

• Although Spanish flash July inflation was lower-than-expected, Bunds retraced modest gains after the German state-level inflation data suggested modest upside risks to the national print due at 1300BST/1400CET.
• Preliminary Q2 GDP prints were a mixed bag, with German growth softer than consensus, Spanish and French growth stronger, and Italy in-line. Overall, Eurozone Q2 GDP was estimated at 0.3% Q/Q (vs 0.2% cons, 0.3% prior).
• Supply will have also factored into this morning’s price action, with heavy Italian supply likely weighing on EGBs and the 10-year 4.25% Jul-34 Gilt re-open pressuring Gilts.
• The Italian supply was well digested, with improved bid-to-covers across the re-openings, while the Gilt re-opening was the first since the June syndicated launch.
• German and UK cash yields are each around 1bp higher across the curve, while 10-year peripheral spreads to Bunds are slightly tighter.
• This week’s key risk events are still upcoming, with the Fed and BoJ decisions tomorrow and the BoE on Thursday. before the US jobs report on Friday.

BTP Block trade, suggest seller:

• IKU4 1.4k at 118.44.

On the evening of 29 July the centre-left Socialists' Party of Catalonia (PSC) and the left-wing pro-independence Republican Left of Catalonia (ERC) reached a preliminary agreement that could see PSC leader Salvador Illa elected as the next President of the Gov't of Catalonia.

• El Pais reports that under the prospective deal, approved by the gov't of PM Pedro Sanchez in Madrid, "The Generalitat will have control over the finances, managing, collecting, settling, and inspecting all taxes, [...]. The transfer of tax control will be "gradual," marking progress in fiscal sovereignty, though no specific completion date was provided. The agreement is seen as preparation for potential Catalan independence."
• The proposal now goes to around 8,700 ERC members who will vote on whether to back the agreement. Members will be allowed to assess the text of the deal from today, with the result expected by around 2000CET on Friday 2 August. If ERC members approve, an investiture vote could be called as soon as the middle of next week.
• The nascent alliance would also need the backing of the left-wing Comuns Sumar to carry a majority.
• A PSC-led gov't is likely to be viewed positively by markets in terms of stability in the short-term at least, with any immediate push towards Catalan independence and the associated economic and political upheaval put off for now. However, as El Pais notes, the agreement's shift of tax control away from Madrid and to Barcelona could be seen to lay groundwork for an eventual Catalan independence push.

Source: Government of Catalonia