EU CONSUMER STAPLES: Kellanova: Moody's note

Citi note that “migration from USD assets to EUR assets has been the key market narrative since the ‘Liberation Day’, but this is yet to show up in fixed income flow data. Yesterday’s Japan flow data for May was the latest dataset that showed net buying of EGBs worth only EUR2bn alongside a much larger USD20bn buying of U.S. Tsys (including agencies)”.

• They highlight that this “more than reverses the USD8bn of Tsy selling in April but still doesn’t pare the EUR8bn of EGB selling (both perhaps driven by derisking). This is consistent with the lack of de-dollarisation visible in the latest TIC data for April”.
• Finally, they flag that “net inflows into EUR were also not evident from the ECB’s portfolio flow data with -€10bn of net selling of Euro area 1-Year+ debt by non-Euro area investors over the month of April. This follows the small net selling seen in March that was a first since July 2024 and suggests that the ECB policy rate cycle perhaps remains a greater determinant of this flow so far. Net, while some sentiment indicators like fund manager positioning preferences suggest weakened sentiment towards U.S. Tsys), hard data doesn’t yet corroborate this”.

• RES 4: 0.6700 76.4% retracement of the Sep 30 ‘24 - Apr 9 bear leg
• RES 3: 0.6688 High Nov 7 ‘24
• RES 2: 0.6603 High Nov 11 ‘24
• RES 1: 0.6590 High Jul 01 and the bull trigger
• PRICE: 0.6544 @ 08:03 BST Jul 09
• SUP 1: 0.6486 Low Jul 07
• SUP 2: 0.6474/6373 50-day EMA / Low Jun 23 and a reversal trigger
• SUP 3: 0.6357 Low May 12
• SUP 4: 0.6275 Low Apr 14

The trend set-up in AUDUSD remains bullish and recent weakness is considered corrective. A fresh cycle high earlier this month maintains the bullish price sequence of higher highs and higher lows. Note too that moving average studies remain in a bull-mode position, highlighting a dominant uptrend. Scope is seen for a climb towards 0.6603 next, the Nov 11 2024 high. Initial firm support to watch is 0.6474, the 50-day EMA.

Little net change in ECB-dated OIS this morning, with one more 25bp cut this cycle still fully priced – in line with the rate path embedded in the ECB’s June projections. Markets have looked through yesterday evenings tariff headlines. Although US President Trump’s threat of a 200% pharma tariff would have significant ramifications for the likes of Ireland, Italy and Germany if implemented, the market impact is dampened by (i) Trump’s history of pulling back from his most extreme threats and (ii) yesterday’s comments already suggesting there would be a 1/1.5-year phase in period.

• The FT reported this morning that EU negotiators are closing in on a framework agreement with the US. This would include the baseline 10% reciprocal tariff but no carve outs for specific sectors (compared with e.g. the UK). Trump said yesterday that the EU's  "tariff letter" could come in the next few days.
• The next ECB decision is due in just over 2 weeks (July 24). Markets assign virtually zero chance of a cut. Overnight, ECB’s Vujcic told Handelsblatt that the bank can “wait for further data”, pointing to the September meeting as the next opportunity to properly assess the policy stance.
• Euribor futures are little changed through the blues. The U5/U6 spread remains above the trendline drawn from the April high, after piercing this resistance yesterday.
• Very light regional data calendar today, leaving focus on ECB speakers (Lane, de Guindos, Nagel).