EM ASIA CREDIT: Korea Gas: IPTs

Gilts sell off with oil prices firming and Spanish manufacturing PMI data topping expectations.

• Ukrainian missile attacks on Russia and U.S. President Trump’s latest tariff threats (a doubling of aluminium tariffs) are also being digested.
• Futures as low as 91.27.
• First support of note not seen until the May 29 low (90.59).
• The bearish technical cycle in the contract remains in play, with our technical analyst still deeming the recent recovery to be corrective.
• Initial resistance located at 91.87.
• Yields 3.5-5.5bp higher, curve steeper.
• 2s10s and 5s30s still ~15bp off respective cycle closing highs.
• Hawkish pressure seen in GBP STIRs as core global FI softens further, leaving SONIA futures little changed to -2.0.
• Boe-dated OIS showing ~35bp of cuts through year-end, with the next 25bp step still fully discounted through November.
• Final manufacturing PMIs and the U.S. ISM manufacturing survey are eyed today.
• Comments from BoE’s Greene (18:00 London) & Mann (text released at 15:00 London) are also due.
• Mann’s comments will come under particular scrutiny, with her only post-May MPC appearance (where she provided hawkish dissent, voting for unchanged rates) providing little in the way of details.

• Higher European Yields and the continued pressure on the Dollar is helping the EURUSD back towards the best traded level in May.
• The next immediate resistance is right here at 1.1419 High May 26 and a bull trigger.
• Further upside traction through that level will open to 1.1453 76.4% retracement of the Apr 21 - May 12 bear leg.
• The Kiwi is still the best performer in G10s, up 0.96% and is now set to test that November high at 0.6038.

Thursday’s ECB decision headlines this week’s regional calendar, with a 25bp cut to 2.00% very likely. Markets have essentially fully priced such an outcome since the April decision, with focus now whether another sequential cut will be delivered in July or if the Governing Council can initiate its first pause in almost a year. 

• ECB-dated OIS price a ~25% implied probability of a sequential 25bp cut in July. The policy statement is unlikely to provide clear guidance around the path for policy rates, leaving markets to focus on the tone of the statement/press conference in the context of the June macroeconomic projections (and scenario analysis).
• Euribor futures are a touch weaker than Friday’s settlement levels, following Bunds to fresh session lows at typing. The market is weighing several cross-currents from the weekend: OPEC+’s supply hike, the US threat of 50% steel/aluminium tariffs and fresh Russia/Ukraine escalation.
• May manufacturing PMIs are due through this morning. Spain was stronger-than-expected at 50.5 (vs 48.4 cons, 48.1 prior).
• The Eurozone-wide flash May HICP print is due tomorrow. Consensus looks for headline at 2.0% Y/Y (vs 2.2% prior), but there are risks of a 1.9% reading after last week’s country-level data. Core HICP is expected at 2.5% Y/Y (vs 2.7% prior), with April's Easter effects unwinding.
• Final Eurozone Q1 GDP, which includes the first full breakdown of GDP components, is due on Friday.