FRANCE: Lecornu Survices First No Confidence Motion (As Expected)

Bund futures weakened into this morning’s E4.5bln 2.20% Oct-30 Bobl auction before stabilising. Futures are currently -9 ticks at 128.64, off earlier session highs of 128.90. Initial support is Friday’s low at 128.51, which shields the Sep 4 low at 128.25.

• The German auction saw slightly softer cover ratios than last month's outing, but the lowest accepted price was nonetheless in excess of the pre-auction mid price. Finland will sell bonds later this morning, while Slovakia has also already come to the market today.
• Bunds found light support from a pullback in equities and crude oil futures earlier, but moves have generally lacked conviction.
• The German curve has bear steepened, with yields +0.5 to +2.5bps higher.
• 10-year EGB spreads to Bunds are biased slightly tighter. The BTP/Bund spread is eyeing a test of the August low of ~76.7bps (currently -0.5bps at 77.5bps).
• The September German ZEW survey’s expectations component was much stronger-than-expected at 37.3 (vs 25.0 cons), but was only a little higher than August’s 34.7 reading. Meanwhile, Eurozone July industrial production was slightly softer than forecast at 0.3% M/M (vs 0.4% cons, an upwardly revised -0.6% prior).
• ECBspeak hasn’t been market moving. Maltese CB Governor Scicluna had a more hawkish tone than Kazaks earlier in the morning.

FOMC-dated OIS continues to price outside odds (~5%) of a 50bp cut at tomorrow’s decision.

• All but 2 analysts expect a 25bp cut, based on the 32 sell-side previews MNI saw.
• The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
• The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
• The caveat here is that Senate approval of Fed Governor Miran provides a notable wildcard when it comes to the SEP.
• Our full preview can be found here.
• Note that UBS have recommended going long SFRZ6 at an implied rate of 2.96% as their economists expect “the Fed to respond to an adverse demand shock in the labour market with a 20% probability of a 50bp rate cut”. They also suggest that “the drop in U.S. rates after a consensus U.S. CPI print suggests that market positioning leans the other way”.