BONDS: Off Highs, Gilts Test Levels Of Interest
Jul-31 09:31
Bonds are off early London highs despite a pullback in European equities.
- Little reaction in EGBs to German state-level CPI, even given modest upside risks posed to the national reading. French & Italian HICP readings were also a touch firmer than expected but had little tangible market impact.
- The German curve has twist flattened, with yields 1.5bp higher to 3bp lower.
- Bund yields continue to struggle to break above 2.70% on a sustained basis despite several moves above month-to-date. Similar story seen in 30s and moves above 3.20%.
- German 2s10s is less than 1bp above its July base, while German 5s30s has registered the lowest level seen in July, trading more than 15bp off the ’25 top.
- EGB spreads to Bunds little changed to 1bp tighter.
- EUR short end shows 50/50 odds of a 25bp cut before year-end.
- Gilts rallied at the open, with some focus on the sizeable month-end index projections.
- Futures traded as high as 92.27, piercing the July 22 high (92.15). Our technical analyst flags a 50% retracement (92.42) as the next level of upside interest. Contract has faded back to 92.10.
- Yields flat to 3bp lower, curve flatter.
- 10-Year yields tested the 15 July low (4.558%). Extension through there would target the July 4 low (4.506%). Also note the round numbers (4.55% & 4.50%) have the potential to act as intermediate yield support/resistance in futures (those yield levels are equivalent to 92.31 & 92.75 in futures today).
- German national CPI data, as well as U.S. PCE and weekly jobless claims, provide the focus from here.
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BTP: Basis Trade
Jul-01 09:30
BTP Basis trade, suggest Cash seller:
- IKU5 ~1.67k at 121.51.
FOREX: USD Index Plumbs a New Low as Curve Conspires Against Dollars
Jul-01 09:27
- JPY is comfortably the strongest performer in G10 early Tuesday, with the USD Index extending recent losses to move to new cycle lows. The latest phase of USD sales coincides with an adjustment lower for the US curve, as US 10yr yields slipp to a 2-month low below 4.2% this morning.
- This leaves USD/JPY almost 3.5% off last week's highs, aided by a cleaner positioning profile following last Monday's spike to 148.03. The shooting star candle formation highlights a reversal of the recent recovery and today's weakness in particular has been exacerbated on a break of short-term trendline support, drawn from the May lows.
- For GBP, the latest press lower for the USD has prompted GBP/USD to show to a new cycle high at 1.37893 - this is now the best marked levels since October 2021 and extends the bull cycle in the pair. An uptick in futures volumes on the break to new highs clearly helping here, and shifts focus to 1.38 round number resistance and then the October 20th 2021 high beyond at 1.3835
- The difficulty of passage of today's welfare bill in the House of Commons may not be directly market relevant, but the scale of opposition will serve as a further reminder of the hurdles facing the PM's pro-growth agenda.
- Eurozone CPI estimate came in alongside expectations at 2.0% for June - confirming the ECB's views that inflation should continue to converge with target. ISM Manufacturing data is the scheduled data highlight Tuesday, with markets expecting only a modest improvement in activity for June. Central bank speak is headlined by the ongoing Sintra ECB policy forum, at which central bank heads Lagarde, Powell, Ueda, Bailey and Rhee are all set to make appearances.
EQUITIES: EU Bank outright Put seller
Jul-01 09:20
SX7E (19th Dec) 180p, sold at 5.8 in 4k.
