EM ASIA CREDIT: MNI EM Credit Market Update - Asia

• RES 4: 132.42 2.000 proj of the May 14 - 20 - 22 price swing
• RES 3: 131.95 High Jun 13 and the bull trigger   
• RES 2: 130.76/131.33 High Jul 4 / High Jun 20
• RES 1: 130.51 50-day EMA
• PRICE: 129.77@ 08:11 BST Jul 8
• SUP 1: 129.77/73 Low Jul 3 and the bear trigger / Intraday low               
• SUP 2: 129.67 76.4% retracement of the May 14 - Jun 13 bull leg  
• SUP 3: 129.30 Low May 22   
• SUP 4: 128.97 Low May 14 and a reversal trigger  

Bund futures are trading lower today, extending Monday’s sell-off. Attention is on support at 129.77, the Jul 3 low. It has been pierced, a clear breach of this support would confirm a resumption of the recent bearish theme and open 129.30, the May 22 low. On the upside, resistance around the the 50-day EMA, at 130.51, has been pierced but for now, remains intact. A clear break of it would instead highlight a possible reversal.

• RES 4: 93.76 High Jul 1 and key resistance   
• RES 3: 93.41 High Jul 2      
• RES 2: 93.26 76.4% retracement of the Jul 1 -2 sell-off   
• RES 1: 92.79 High Jul 4
• PRICE: 92.15 @ Close Jul 7 
• SUP 1: 91.63 Low Jul 2  
• SUP 2: 91.50 61.8% retracement of the May 22 - Jul 1 bull leg 
• SUP 3: 91.16 Low Feb 2     
• SUP 4: 90.97 76.4% retracement of the May 22 - Jul 1 bull leg       

Gilt futures faced strong selling pressure on Jul 2. The move down has cancelled a recent bullish theme - price breached the 20-day EMA and traded through a key support at 92.23, the Jun 16 low. The break suggests potential for an extension towards 91.50 next, a Fibonacci retracement. Price action is volatile. Initial resistance to watch is 92.79, the Jul 4 high. A resumption of gains would open 93.26 next, 76.4% of the Jul 1 -2 sell-off.

After previously trying to push back on a 10% US blanket reciprocal tariff rate, EU officials now appear to have accepted that a better deal is unlikely. Following US President Trump’s initial “Tariff letters” to some trading partners yesterday, the risk to levies is skewed to the upside – Japan seeing its reciprocal tariff rate rise to 25% from 24% on April 2 is illustrative of this.

• The combination of EU tariff rates remaining unchanged (and consistent with the ECB’s baseline projections) and the reciprocal tariff negotiation deadline being extended to August 1 has pushed front-end EUR implied rates higher.
• Spillover from core EGBs amid heavy 5-year Bobl supply will also be factoring in.
• Euribor futures are -1.5 to -3.5 ticks through the blues. ERH6 is -2.0 at 98.225, with today’s session low of 98.215 not testing last week’s 98.210 low. The ERU5/U6 spread has pierced trendline support drawn from the March 6 high, currently 1.5 ticks steeper at -5.0 ticks.
• ECB-dated OIS price 27bps of easing through March 2026. The lack of tariff escalation (for now) has reduced the small implied probability of a terminal rate as low as 1.50%.
• The remainder of today’s regional calendar is light. German and French foreign trade data were released this morning. 

Figure 1: ER U5/U6 Spread