NBP: Litwiniuk Suggests NBP Could Cut Rates By 75bp End-1H26

El Pais reports that the gov't has shelved the purchase of US-made F-35 Lightning II fighter jets for an indefinite period of time. The about-turn comes as a surprise, given that in 2024 the gov't allocated EUR10.471bln to increased defence spending. However, the gov'ts decision that 85% of these funds should be spent in the EU is seen to have nixed the prospect of the Lockheed Martin jets being purchased. 

• The decision could leave the Spanish Navy with no fighter aircraft from 2030, with its McDonnell Douglas AV8B Harrier II's set to be decommissioned by 2030 and the F-35B the only vertical takeoff jet capable of taking over.
• The Spanish Air and Space Force also risks being depleted. As El Pais notes, the Air Force "set its sights on the F-35 A version to replace the F-18, as a bridge until the European FCAS (Future Combat Air System) becomes a reality, a sixth-generation fighter that will not be operational until 2040 at best. "
• The minority left-wing gov't of PM Pedro Sanchez has come in for varying criticism from its NATO allies for its backtracking on the '3.5%+1.5% GDP' defence spending target. US President Donald Trump singled out Spain during the June NATO summit, saying, "They're the only ones who refuse to pay. We're going to make them pay double,".
• With Trump's focus on not only making NATO countries pay more for European defence, but also increasing purchases of US equipment, the shelving of the F-35 purchases could risk further deterioration in relations. 

The German curve has bear steeped ahead of this morning’s 15-year Bund auction, with Schatz yields little changed at 1.91% and 30-year yields up 3bps at 3.17%. The 5s30s curve has moved away from Thursday’s 86.8bp multi-week low, now back at 94bps. 

• Bund futures are biased lower, albeit on light volumes, but a bullish technical theme remains intact. Futures are currently -17 ticks at 130.18, still above the 50-day EMA.
• 10-year EGB spreads to Bunds are up to 0.5bps wider today. The 10-year BTP/OAT spread has taken another leg lower since the end of July, now just below 14bps for the tightest since 2007.
• This morning’s regional data has not been market moving. German factory orders were skewed lower by the volatile large-scale orders category (-1.0% M/M vs 1.1% cons, an upwardly revised -0.8% prior), while Italian industrial production was stronger-than-expected at 0.2% M/M (vs -0.2% cons, -0.8% prior). French private payrolls growth remains tepid, while Eurozone retail sales were in line at 0.3% M/M.