SPAIN AUCTION PREVIEW: On offer next week

• GBP1.25bln have been available.
• This leaves GBP47.199bln of the gilt in issue.

• Despite the less apparent correlation between the USD and risk this year, EUR/AUD remains a key proxy for appetite in 2025, and has maintained its strong negative correlation with US equities, and strong positive correlation with a global CDS basket.
• As such, the price's approach to key potential inflection points is worth monitoring - particularly as markets emerge from more muted Summer price action, and most sell-side analysts see a recovery in implied vol measures across both currencies and equities. This raises the focus on key macro events ahead, namely: today's NVIDIA earnings print, Sept 5th US NFP, Sept 11th US CPI - particularly as the next 'live' RBA rate decision isn't due until November.
• The EUR/AUD price at today's close could prove highly influential for the near-term trajectory of the cross. A close at current or higher levels would confirm the formation of the uptrendline drawn off the February low - today at 1.7891. Clearance below here could re-open 1.7694 as support.
• Fibonacci retracement levels spanning the post-COVID range of 1.4285 - 1.9802 have remained highly relevant touchpoints for short-term inflection and reversal points in the cross. This year alone, 1.6392 (Feb'25), 1.7043 (Mar'25), 1.8500 (Apr'25) and 1.7694 (Jul'25) have come into play as key pivot points, marking the 38.2%, 50.0%, 76.4% and 61.8% retracements respectively. 

Figure 1: Fibonacci retracements have proved to be key inflection points in EUR/AUD this year

Source: MNI / Bloomberg Finance L.P.

There has been little in the way of reaction in DSLs after Stephan van Baarle, leader of the ethnic minority interest Denk party, submitted a motion of no confidence in the demissionary cabinet of PM Schoof.

• Our political risk team noted that the prospect of the no confidence motion passing is nil, as the leaders of the far-right Party for Freedom (PVV) and centre-left/environmentalist GreenLeft-Labour Party have both said they will not back Schoof's ouster, and combined with the members of the two remaining parties of gov't, this secures a majority for keeping Schoof in office.
• This explains the lack of reaction in DSLs. 10s are ~0.5bp wider on the day, with Bunds outperforming all major EGB peers.