POWER: Italy July Power Tracks Sharp W/W Increase

France will look to hold a LT OAT auction this morning. On offer will be a combined E10-12bln of the on-the-run 10-year 3.20% May-35 OAT (ISIN: FR001400X8V5), the 1.25% May-38 OAT (ISIN: FR0014009O62) and the 4.50% Apr-41 OAT (ISIN: FR0010773192).

• The on-the-run 10-year 3.20% May-35 OAT has attracted an average bid-to-cover ratio of 2.71x in its three auctions since February, for amounts issued between E5.9bln and E8.6bln. The April re-opening saw a 3.04x cover, with the low price of 98.520 exceeding the 98.431 pre-auction mid-price.
• The May-38 OAT was last re-opened in February, seeing a 4.83x bid-to-cover for the E1.6bln issued. The Apr-41 OAT was last re-opened in 2021.
• Danske Bank “expect that the auction will go well as France still trades with a solid discount to peers and in case there are flows out of the US, France is likely to benefit as it is one of the most liquid bond markets”.
• We wrote last week that a gradual consolidation of French public finances is intact, but officials have still highlighted the need to find E40bln of savings to meet its 4.6% 2026 budget deficit target. Over the weekend, PM Bayrou did not rule out a referendum to obtain public support for his future proposals.
• Timing: Results will be available shortly after the bidding deadline of 0950BST/1050CET. 

• RES 4: $36.000 - Round number resistance 
• RES 3: $34.903 - High Oct 23 ‘24 and the bull trigger
• RES 2: $34.590 - High Mar 28  
• RES 1: $33.686 - High Apr 25                                        
• PRICE: $33.064 @ 08:07 BST May 7
• SUP 1: $31.668 -  Low May 1
• SUP 2: $30.915/28.351 - Low Apr 11 / 7 and the bear trigger
• SUP 3: $27.686 - Low Sep 6 ‘24   
• SUP 4: $27.180 - Low Aug 14 ‘24   

A strong rally in Silver on Apr 23 reinforced the current bullish theme. This suggests the latest pullback that started Apr 25, is a correction. Key short-term support has been defined at $31.668, the May 1 low. A break of this level would signal scope for a deeper retracement and open $30.915, the Apr 11 low. For bulls, resistance to watch is $33.686, the Apr 24 high. Clearance of this level would confirm a resumption of the uptrend.

Euribor futures are flat to -1.0 ticks through the blues versus yesterday's settlement levels. There hasn't been a tangible reaction to overnight news that the US and China will hold formal trade talks in Switzerland at the weekend, nor the PBOC's latest monetary easing measures.

• ECB-dated OIS continue to price just over 60bps of easing through year-end. A 25bp cut is essentially fully priced through June, and this will likely remain the case unless the ECB see evidence that downside growth risks are smaller than feared.
• German factory orders rose 3.6% M/M (vs 0.0% prior). This was above the 1.3% median estimate, but the skew of forecasts was exceptionally wide. The data wasn’t a market mover.
• Today’s regional data calendar is light (Eurozone March retail sales are due at 1000BST, consensus -0.1% M/M), with primary focus on this evening’s FOMC decision.