SOFR: Mix Of Short Setting & Long Cover Seen In Futures On Wednesday

• In the equity space, the trend condition in S&P E-Minis is unchanged, it remains bullish and this week’s strong start reinforces current conditions. Short-term resistance and a bull trigger at 6128.75, the Jun 11 high, has been pierced. A clear break of this level would confirm a resumption of the uptrend that started Apr 7. This would open the 6200.00 handle, a Fibonacci projection. Key support remains at the 50-day EMA - at 5913.50. A clear break of it would signal a reversal.
• A short-term bear cycle in EUROSTOXX 50 futures remains intact, however, the recovery from Monday’s low appears to be a potential reversal. The contract has traded above the 20- and 50-day EMAs. A clear break of both averages would strengthen a reversal theme and signal scope for a stronger recovery. This would open 5486.00, the May 20 high and bull trigger. On the downside, a breach of yesterday’s 5194.00 low would reinstate a bearish theme.

A sizeable rebellion of backbench Labour MPs means that the gov't is set to be forced into changes to its planned benefits reform. One hundred and eight Labour backbenchers have signed up to a reasoned amendment from Treasury select committee chair Dame Meg Hillier (Lab Co-op, Hackney South and Shoreditch) that, if passed, would give MPs the majority to vote down the welfare reform bill in its entirety at the second reading on 1 July. 

• Steven Swinford at The Times sums up the situation for the gov't on X: "Rachel Reeves yesterday said explicitly that there will be ‘no u-turn’ on welfare reforms. Starmer has said similar over and over again. [...] But with 100+ Labour MPs now in open revolt, how sustainable is that? [...] As on winter fuel payments is something that Starmer and Reeves said was an absolute certainty going to have to be dropped? And if Starmer can’t get welfare reform over the line with a majority of 165, is any prime minister ever going to be able to curb Britain’s rising welfare bill? Worth also bearing in mind that we have a huge - and unfunded - pledge this morning to raise defence spending from 2.3% to 3.5% by 2035. Something will have to give. The Autumn budget is looking more difficult by the day. Tax rises look inevitable."
• Another forced U-turn would risk exposing major fractures in the Labour gov't, which, while holding a large majority, is proving an increasingly unwieldy alliance.

The German 10s30s extended earlier steepening after the German Finance Agency, DFA, noted that “internal conditions” had been created for a 50-year Bund in its Q3 issuance plan press conference. The curve is almost 4bps steeper at 48.5bps at typing with 2s10s also up almost 4bps to 70.5bps. Meanwhile, long end ASWs have come under fresh pressure.

• The Q3 issuance plan itself was in line with MNI’s expectations, with a E15bln increase in overall bond issuance, skewed towards the new 7-year maturity bucket.
• Meanwhile, the German 2025 budget and 2026-29 key figures appear in line with yesterday’s media reports. 2025 net borrowing is seen at E82bln, rising to E89bln in 2026 and E126bln by 2029.
• Bund futures are -64 ticks at 130.43, with initial support at 130.17 (Jun 16 low) and 130.07 (2.60% 10-year yield level).
• Early price action was dictated by developments in the Middle East, with oil and natural gas futures selling off sharply on reports of a ceasefire between Israel and Iran. Latest headline flow suggests this ceasefire may be fragile.
• Germany sold E4bln of the 1.7% Jun-27 Schatz today.
• 10-year EGB spreads to Bunds are biased tighter, led by BTPs (-5bps to 92bps). Although reports of the Iranian strike on Israel dented risk sentiment somewhat, European equities remain up 1.7% todays. Latest Bund underperformance has supported narrowing momentum.
• The German June IFO Business Climate and Expectations components were stronger-than-expected, while the Current Assessment was a touch weaker.
• Several ECB speakers (de Guindos, Kazimir, Lagarde and Lane) are scheduled to speak today.