ISRAEL: Netanyahu To Deliver Statement Shortly w/Ceasefire Holding

• Broad stability for risk sentiment despite the Poland/Russia developments has allowed the likes of AUD and NZD to outperform on Wednesday, consolidating their solid recoveries from last week’s lows. For AUDUSD in particular, spot is consolidating above the 0.66 handle, continuing to threaten a move above the cycle highs at 0.6625, and a key resistance for the pair.
• Softer-than-expected inflation data in the US could provide the next impetus for the next leg higher in AUDUSD, strengthening the underlying bullish trend. The next targets for the move would be 0.6688 (Nov 07 high) and 0.6700, the 76.4% retracement of the Oct-Apr selloff.
• In contrast, lingering French political risks and geopolitical developments have relatively weighed on the Euro, allowing EURAUD to extend lower this morning. Despite being a slow burner, EURAUD has respected a prior breach of trendline support (drawn from the year’s lows, potentially bolstering short-term bearish conditions.
• The cross is approaching the July 31 lows and bear trigger at 1.7674, of which a break would place spot at near 3-month lows. Targets on the downside would include 1.7462 (Jun 10 low) and 1.7248 (May 14 low). ECB presents the nearest event risk for the cross, while September consumer inflation expectation data is due in Australia on Thursday.

Source: Bloomberg Finance L.P. / MNI

Weak demand on German primary also filtering through to the 15-year segment here, with very poor demand metrics of 1.28x bid-to-cover / 0.77x bid-to-issue for the 4.75% Jul-40 Bund. That bid-to-issue was the lowest on a German auction since October 2022.

• The low price achieved at the auction (121.22) was also below the secondary market mid price seen right before the cutoff (121.264).
• The line is seeing some weakness, with its price dropping to 121.188 at time of writing - but remaining above the intraday lows of 121.116 seen shortly after the cash open. Bund futures see some marginal weakness, if any.
• The 2.60% May-41 Bund auction fared better, meanwhile, with a bid-to-cover of 2.25x and a bid-to-offer of 1.75x, and the auction low price above the secondary market mid price.

• Bund futures are +15 ticks at 129.18, trading more steadily after a spree of volatile price action around the European cash open. Headline flow has been dominated by reactions to Poland’s downing of Russian drones in its territory overnight. This may be driving some light haven flows into core EGBs.
• The Sep 8 high of 129.33 was pierced in Bunds this morning, exposing the Aug 5 high at 129.50 as the next resistance to watch.
• Note that European equities traded quite resiliently until about 0900BST, but Estoxx 50 futures have fully erased gains in the 90 minutes since.
• German yields are +0.5bps to -0.5bps across the curve, with the 10-year tenor outperforming. The initial downside target for 10-year yields will be the 2.60% handle, which was last tested in early August.
• 10-year EGB spreads to Bunds are biased up to 1.2bps wider, with OATs and GGBs underperforming. Markets are digesting President Macron's appointment of former defence minister Sebastien Lecornu to the PM post. Initial reactions from opposition parties suggest Lecornu will face many of the same challenges as his predecessors in passing a budget.
• In supply, Germany and Portugal have held conventional auctions while Luxembourg is launching a new 10-year LGB via syndication. The 4.75% Jul-40 Bund auction results were weak.
• Spanish industrial production data was a little weaker than expected (-0.5% M/M vs -0.2% cons, 1.0% prior) while Italy was stronger than forecast (0.4% M/M vs 0.1% cons, 0.2% prior).
• Global focus turns today’s US PPI report at 1330BST, before the ECB decision and US CPI cross tomorrow.