CZK: Koruna Firms, Elections On Radar

Core global FI markets hold lower but are off worst levels of the day, with gilt and Bund futures piercing, but failing to hold below, initial support levels (129.16 & 90.22, respectively).

• Early weakness came on the back of focus on impending EUR supply, French political risk and ongoing questions surrounding Fed independence.
• Firmer-than-expected manufacturing PMI data across much of Europe & a move higher in crude oil prices have limited recoveries at this stage.
• Bund futures last -30 at 128.23 vs, lows of 128.05, German yields 1-2bp higher, bear steepening.
• EGB spreads to Bunds generally ~0.5bp tighter, with a bounce from lows in e-minis helping the narrowing.
• Little in the way of meaningful reaction to weekend comments out of France, which reaffirmed the idea that PM Bayrou’s government may fall.
• Gilt futures -18 at 90.34 vs. lows of 90.20.
• UK yields 0.5-2.5bp higher. 5s30s is on track for its first close above 150bp in the current cycle, trading less than 2bp off the Feb ’17 high (152.63bp).
• Fiscal risks remain front and centre in the UK.
• A reminder that the DMO will introduce the new 4.75% Oct-35 gilt via syndication this week.
• Little net movement in EUR & GBP STIRs, modest hawkish moves on the back of weakness in the long end. The former still leans towards one further cut in the current cycle (17bp of cuts priced through June ’26), while the latter shows under 10bp of easing through year-end.
• Broader liquidity is thinned out by the U.S. Labour Day holiday.
• Note that ECB’s Lagarde, Schnabel & Cipollone will appear at the ECB’s legal conference later but may not touch on monetary policy given the topic of the meeting.

• In the equity space, S&P E-Minis bulls remain in the driver’s seat and the contract traded to a fresh cycle high last week. This maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode position too, highlighting a clear uptrend and positive market sentiment. Attention is on 6543.75, a 2.00 projection of the Apr 7 - 10 - 21 price swing. Support to watch lies at 6332.47, the 50-day EMA. First support is at 6439.95, the 20-day EMA.
• The trend set-up in EUROSTOXX 50 futures is bullish and the pullback from the Aug 22 high appears corrective - for now. Note that support at 5376.13, the 50-day EMA, has been pierced. A clear break of this average would strengthen a S/T bearish threat and signal scope for a deeper retracement towards 5166.00, the Aug 1 low and a key support. On the upside, resistance to watch is 5522.00, the Aug 22 high. A break of it resumes the uptrend.