EM CEEMEA CREDIT: POLAND: President Nawrocki Begins Work

After previously trying to push back on a 10% US blanket reciprocal tariff rate, EU officials now appear to have accepted that a better deal is unlikely. Following US President Trump’s initial “Tariff letters” to some trading partners yesterday, the risk to levies is skewed to the upside – Japan seeing its reciprocal tariff rate rise to 25% from 24% on April 2 is illustrative of this.

• The combination of EU tariff rates remaining unchanged (and consistent with the ECB’s baseline projections) and the reciprocal tariff negotiation deadline being extended to August 1 has pushed front-end EUR implied rates higher.
• Spillover from core EGBs amid heavy 5-year Bobl supply will also be factoring in.
• Euribor futures are -1.5 to -3.5 ticks through the blues. ERH6 is -2.0 at 98.225, with today’s session low of 98.215 not testing last week’s 98.210 low. The ERU5/U6 spread has pierced trendline support drawn from the March 6 high, currently 1.5 ticks steeper at -5.0 ticks.
• ECB-dated OIS price 27bps of easing through March 2026. The lack of tariff escalation (for now) has reduced the small implied probability of a terminal rate as low as 1.50%.
• The remainder of today’s regional calendar is light. German and French foreign trade data were released this morning. 

Figure 1: ER U5/U6 Spread

Gilts sell off on global cues at the open, after Europe avoided deeper U.S. tariffs (at least at this stage) and with the RBA providing a surprise on hold decision overnight (expectations were for a cut).

• Futures trade as low as 91.7.
• Initial support at the July 3 low (92.12) is broken, exposing the July 2 low (91.63).
• There were some notable blocks declared after hours on Monday, with 15,852 lots registered across 4 blocks between 92.42-53 (DV01 ~£1.42mln), these were conducted well above late London levels.
• Yields 2.5-3.5bp higher across the curve.
• 2s10s test month-to-date closing high, last 72.7bp, still ~12bp off April’s intraday year-to-date high.
• 5s30s probing year-to-date closing high, last 138.5bp. a break would expose the April intraday high at 147.2bp.
• Domestic focus remains on the fragile fiscal situation with last week’s events underscoring the difficulty of enacting meaningful public spending cuts and increasing the odds of tax hikes in the Autumn (a negative for GDP growth).
• In the immediate term, it is a relatively heavy day for global sovereign supply. Within that, the DMO will come to market with GBP900mln of the 1.875% Sep-49 I/L line.

• RES 4: $39.026 - 1.382 proj of the Apr 7 - 25 - May 15 swing
• RES 3: $38.246 - 1.236 proj of the Apr 7 - 25 - May 15 swing
• RES 2: $38.000 - Round number resistance 
• RES 1: $37.317 - High Jun 18 and the bull trigger   
• PRICE: $36.854 @ 08:11 BST Jul 8  
• SUP 1: $36.138 - 20-day EMA
• SUP 2: $35.016/31.651 - 50-day EMA / Low May 15
• SUP 3: $30.915/28.351 - Low Apr 11 / 7 and the bear trigger  
• SUP 4: $27.686 - Low Sep 6 ‘24  

A bull cycle in Silver remains intact. The metal has recently traded through resistance at $34.903, the Oct 23 ‘24 high and a key bull trigger. The break of it marks an important medium-term bullish development. Sights are on the $38.00 handle next. On the downside, initial support to watch lies at $36.138, the 20-day EMA. It has been pierced, a clear break of it would open $35.016, the 50-day EMA.