ECB VIEW: MS Shift Out Next Cut From Sep To Dec After PMIs

The Johnson Redbook Retail Sales Index continues to post solid gains, rising 5.1% Y/Y in the week ending Jul 19, fairly steady compared with 5.2% the prior week. The month-to-date rise is 5.2% Y/Y (albeit below retailers' targeted 5.7%).

• The report's anecdotal section notes upcoming sales tax holidays in various states, and mentions the impact of tariffs for the first time in several weeks: "As heat waves swept across the country, retailers reported brisk demand for their remaining inventories of hot-weather merchandise. With some school systems starting early, Back-to-School Tax-Free Holidays in many states are approaching quickly this year. Families are increasingly turning to discount stores for value-oriented back-to-school savings in light of rising costs and tariffs."
• Census Bureau retail sales rose 3.9% Y/Y in June, with Control Group sales up 4.0% - mirroring above-typical Redbook sales in their Y/Y peak in Feb-April but slowing slightly since then.
• The Redbook report (which captures 80% of Census Bureau retail sales) suggests fairly steady retail sales growth in the early part of Q3.

• Treasury futures have recovered from late overnight lows (initially following Bund rebound), making modest gains across the board at the moment: Sep'25 10Y +2.5 at 111-08.5, yield at 4.3599% (-.0178).
• No policy related comments from Chair Powell at regulatory conference (Fed in policy Blackout since last Friday); Philly Fed non-mfg activity much better than expected.
• Early week support has resulted in a break of the 20-day EMA, strengthening the recovery, and this has exposed resistance at 111-13+, the Jul 10 high. A clear break of this hurdle would highlight a stronger reversal.

Gilt futures have fully unwound early fiscal-data induced weakness, now +5 tick at 91.83. Gilts were already moving away from session lows by mid-morning, but a broader bid in Bunds and TY futures appears to have helped the move extend. Initial firm resistance remains the 20-day EMA at 91.97. Failure to push through this level would keep a bear cycle intact.

• Front-end Gilt yields are now lower on the session, with 2-year yields down 1.5bps at 3.85%.
• As expected, BOE Governor Bailey did not touch on monetary policy matters in today’s TSC hearing on the latest Financial Stability Report. However, he did note that “It would not be sensible” for the Government to overhaul the UK’s bank ring-fencing regime.
• SONIA futures are flat to +3.0 ticks through the blues, with the reds leading the rally. SONIAs now outperform Euribor counterparts intraday, with the SFI/ER H6 spread now down 1.5 ticks at 180.5.