US 10YR FUTURE TECHS: (M5) Testing Support

This morning’s risk-off/tariff-driven rally in Bund futures extended a little before stalling, with European equity futures having fully recovered from session lows. Futures are -16 ticks at 132.24, up from a session low of 131.87. Initial resistance at 132.60 (Feb 21 high) remains untested for now.

• Short-end rates have rallied alongside core FI, prompting a light twist steepening of the German curve (Schatz yields 1.5bps lower today).
• German Q4 final GDP confirmed flash estimates at -0.2% Q/Q, but details of the reported noted inventories contributed 0.8pp (i.e. domestic demand remains very weak).
• The ECB’s indicator of negotiated wages eased to 4.12% Y/Y in Q4 (vs 5.43% prior, revised from 5.42% initial), but the data is unlikely to be a needle mover for the ECB. Policymakers are more focused on the signals from the bank’s forward-looking wage tracker.
• The 10-year OAT/Bund spread is 1.5bps tighter today at 73bps – we haven’t seen an obvious driver of the outperformance. Other EGB spreads are also biased tighter.
• Today’s conventional supply (BTP Short Term/BTPei and Green Bund) was digested smoothly, while the spread has been set for today’s 15-year Obli syndication.

• In the equity space, S&P E-Minis traded lower again, on Monday. The move down appears corrective, however, price has breached support at 6014.00, the Feb 10 low. This signals scope for a deeper retracement and has exposed a key support at 5935.50, the Feb 3 low. Moving average studies remain in a bull-mode condition that suggests the trend direction remains up. A resumption of gains would refocus attention on key resistance at 6178.75, the Dec 6 ‘24 high.
• The trend direction in the EUROSTOXX 50 futures contract remains up and last week’s climb to a new alltime high on the continuation contract, reinforces a bull theme. Note too that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 5574.57 next, a 2.382 projection of the Nov 21 - Dec 9 - 20 ‘24 price swing. Initial firm support to watch is 5387.59, the 20-day EMA. A pullback would be considered corrective.