FRANCE: POLAND-Leaders To Sign Treaty; Could Bring Poland Under Nuclear Umbrella
May-09 09:21
French President Emmanuel Macron will host Polish PM Donald Tusk in the eastern city of Nancy to sign the Franco-Polish Friendship Treaty, which intends to set the countries on the path towards security cooperation that could see Poland coming under France's 'nuclear umbrella'. As Bloomberg reports, the treaty "will include a pledge of mutual military assistance in an event of an armed conflict and defense industry cooperation,"
- Tusk: “The treaty of course opens up the possibility [of using France's nuclear weapons] which we will describe later in technical and financial details”.
- The two leaders will hold a joint press conference at 1605CET (1005ET, 1505BST), shortly after the signing of the treaty.
- The deal would be notable as, at present, the US is the only NATO country providing a 'nuclear umbrella' to European NATO states via its forward placement of missiles in locations across the continent. The only other NATO nuclear powers, France and the United Kingdom, have much smaller nuclear arsenals, which are intended solely for national defence (even if the nuclear deterrent is located on submarines whose location is a closely-guarded secret).
- The timing of the signing of the treaty is notable. Russian President Vladimir Putin is hosting world leaders, including Chinese President Xi Jinping, in Moscow for a mass military parade to celebrate Victory Day in the Great Patriotic War (WWII). Given Poland's warnings about the prospect of an attack on Europe from Russia's Kaliningrad exclave, the prospect of coming under France's nuclear umbrella will be taken seriously in the Kremlin.
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FOREX: Broad Dollar Weakness Pervades, USDCHF Prints Below 0.8400
Apr-09 09:16
- Although off its worst levels, the session has been characterised by a resumption of US dollar weakness, which sees the ICE dollar index down 0.5% ahead of the NY open. USD outflows have combined with a further souring of risk sentiment, as market participants continue to gauge the impact of such restrictive US trade policy.
- This dynamic briefly saw the DXY back below 102.00 and contributed to EURUSD reaching as high as 1.1089. With volatility remaining extremely high, and markets continuing to ponder the best expression for the rapid swings in risk sentiment, EURUSD did move aggressively back to 1.1000, before stabilising somewhat. Additionally, ECB rate cut pricing has picked up, providing an additional Euro headwind to contend with.
- Safe havens remain the key beneficiaries, with both JPY and CHF rising around 0.6% on the session. USDJPY fell to within two pips of the most recent cycle lows at 144.56, keeping bearish momentum firmly in place. A break of this level would signal scope for an extension towards 144.13, a Fibonacci retracement point, and 143.43, the Oct 2 ’24 low.
- For USDCHF, the pair briefly broke below 0.8400 for the first time since September. Trend indicators continue to point south, and the market’s focus will be on 0.8333, of which a break would place USDCHF at its lowest level since the removal of the peg in 2015.
- AUDUSD screens as the best performing major pair, rising 0.85%. It is important to put this into context, given the aggressive move down to 0.5915 in early APAC trade. Spot remains ~1.25% off the Tuesday highs.
- Earlier today, all eyes were on USDCNH as it broke above 7.40, reaching as high as 7.4273 before gravitating back to 7.3820 at typing . The moves come as USD/CNY saw the highest fix since 2023 this week. Chinese Premier Li Qiang said his country has ample policy tools to “fully offset” any negative external shocks.
GILT AUCTION RESULTS: Disappointing auction but little follow through
Apr-09 09:10
- Disappointing 5-year gilt auction with the lowest accepted price coming in below the pre-auction mid-price (and indeed coming in at the lowest level since the first 15 minutes of gilt trading today).
- The tail of 1.0bp was wide but the bid-to-cover of 2.95x was still respectable.
- Despite the disappointing result overall, the 4.375% Mar-30 gilt price has still moved higher, and currently exceeds the average auction price. Gilt futures also moved higher, following other core bonds, with gilt futures hitting their intraday high (outside of the opening minute of trading today). This suggests there has been little follow through from the auction.
ECB: Rehn Offers More Explicit Support For April Cut
Apr-09 09:05
More explicit signalling from Rehn than in previous comments that he will support an April cut here (via RTRS):
- "ECB'S REHN: DOWNSIDE RISKS HAVE MATERIALISED SINCE MARCH RATE MEETING"
- "ECB'S REHN: CASE FOR CONTINUING RATE CUTS AT APRIL MEETING IS SUPPORTED BY DOWNSIDE RISKS MATERIALISING"
It's not all that surprising though. Following Rehn's appearance at an MNI Connect event on March 18, our sense was that the bar to him not voting for a cut in April was quite high, with growth concerns emanating from US tariff uncertainty featuring more prominently than possible inflationary impacts.
