US TSYS: Midday Update: Moderate Selling Post-Tsy Questionnaire Release

Gilts easily outperformed EGBs Wednesday following UK CPI data and ahead of the BoE decision announcement Thursday.

• Largely as-expected UK CPI data (vs consensus) spurred an early rally across the space that would eventually fade, with energy prices firming as markets remained focused on global supply risks.
• However, there was a late rally in global bonds starting about 1.5 hours before the European cash close as oil began pulling back.
• There was no apparent driver to the initial move though just before the close Bloomberg cited sources reporting that Saudi Arabia would look to resume half of the capacity of its east-west pipeline within days, bringing further relief on the supply front and sending oil sharply lower (Brent down over 3% on the day).
• In other data, the ECB's latest forward-looking wage tracker update sees negotiated wage growth excluding one-off payments drifting higher through H1 2027.
• On the day both the German and UK curves bull steepened, with Gilts outperforming Bunds. Periphery/semi-core EGB spreads tightened modestly.
• The Federal Reserve decision and communications will be the focus after the European cash close; the BoE takes centre stage Thursday - MNI's preview is here.
• While a BoE hold is expected (only about 3bp of hikes priced at this stage), MNI's outlook is very much on the fence between a 5-4 and 6-3 vote outturn (consensus is for the latter).

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 4bps at 3.217%, 5-Yr is down 3.7bps at 3.314%, 10-Yr is down 3.1bps at 3.507%, and 30-Yr is down 2bps at 3.872%.
• UK: The 2-Yr yield is down 13.2bps at 4.759%, 5-Yr is down 11.7bps at 4.847%, 10-Yr is down 9.2bps at 5.296%, and 30-Yr is down 6.6bps at 5.859%.
• Italian BTP spread down 2.3bps at 85.7bps / Greek down 2.3bps at 73.5bps

• Goldman Sachs: “Warsh could say in his press conference that before deciding on further steps, the FOMC will “carefully assess” incoming data or will want to see upcoming inflation reports (plural) or how the underlying inflation trend evolves, all of which would hint at waiting a bit longer to collect more information.”
• JPMorgan: “The first two post-meeting press conferences under Chair Warsh delivered little of substance; instead, there was talk of task forces, slogans about being “clear eyed,” and so forth. In his Jackson Hole speech, Warsh did talk for a little bit about economic numbers, so it’s possible we could see some modest moves towards a press conference that focuses more on the economy and less on mission statements.
• NatWest: “unlikely to produce too much new from Chair Warsh. Most of the themes Chair Powell recently discussed at the Jackson Hole conference are likely to be repeated. We expect the chair will emphasize that the Fed’s focus is primarily on inflation, so the takeaway will continue to lean hawkish.
• Nomura: “Warsh is unlikely to provide forward guidance on the next policy action at his press conference. We expect the reaction function will remain “data-point dependent,” with a high sensitivity to monthly inflation surprises.”
• Standard Chartered: "If the Fed hikes, our first press conference question would be “What is your best estimate of the contribution of tariffs to y/y PCE inflation? Why not wait until you know whether they are one-off or generating second-round effects, especially given the expected downward revision to PCE inflation from the benchmark GDP revisions?”. There are multiple Fed estimates around 0.7% y/y, but Warsh has been reluctant to attribute any inflation to tariffs. With tariff revenues peaking in Q4-2025 and the inflationary impact possibly lagging by a few months, we are just entering the period
  where the impact of tariffs should be waning."
• TD: “Against his better judgment, the Fed Chair will have to explain the Committee's decision to tighten or not tighten policy…Warsh will also need to walk a fine line in his remarks if he still aims to provide no forward guidance. If the Fed decides to tighten policy, he will certainly be asked about future rate hikes. It is fairly clear to us that more tightening would be in the pipeline if the Fed goes the hiking route in September. It will be interesting to see how the chairman goes through that balancing act.”
• UBS: “we do not expect Chairman Warsh to provide much future signal on the path of policy ahead, but if the FOMC actually raises rates that act alone should further empower his tough sounding hawkish rhetoric.”

• The tech-heavy Nasdaq index (+0.8%) outperformed mixed levels in S&P eminis (+.45%) and DJIA (+.05%) ahead midday Wednesday, markets unwinding a portion of embedded hawkish expectations ahead of the FOMC policy announcement at 1400ET.
• Risk sentiment also improved early Wednesday as crude prices scaled off recent highs, WTI still well above $100/bbl at $101.3/bbl (-4.0%/day), with the following headline weighing: "SAUDIS SEEK TO RESUME HALF OF KEY OIL PIPELINE WITHIN DAYS" Bbg.
• Not surprisingly, Energy sector shares underperformed - weighed by oil and gas stocks - the following -5.25-5.50%: APA Corp, EOG Resources Inc, Texas Pacific Land Corp and Occidental Petroleum Corp.
• On the positive side, IT sector shares led advances on continued AI-related demand, Lumentum Holdings Inc +8.08%, Coherent Corp +6.77%, Dell Technologies +5.84% and Intel Corp +5.21%.