OUTLOOK: Price Signal Summary - Bear Cycle Extension In Gilts

Reuters reports comments from Chancellor Friedrich Merz, claiming that he "will not form a minority gov't", and that he is "not looking for another majority" in the Bundestag. The comments come after Merz and Labour Minister Bärbel Bas both backed the full and swift implementation of all 33 recommendations from a commission set up to address reforms to Germany's pension system (see GERMANY: Commission Proposes Coupling Pension Age To Life Expectancy - Reports). The pension reforms have faced opposition from within Merz's centre-right Christian Democratic Union/Christian Social Union (CDU/CSU) group and the centre-left Social Democrats (SPD), of which Bas is a co-leader. Indeed, opposition from the CDU/CSU heralded the creation of the pension commission in 2025. 

• The federal 'grand coalition' (GroKo) between the CDU/CSU and SPD has endured a number of spats over reforms to pensions, healthcare, taxation and foreign policy. This has led to frequent speculation that one or both could pull the plug on the agreement. To date, Merz has denied any such possibility. In May, he said, on speculation of a new gov't or snap elections, "What on earth would come of that? No, we want to, and we must succeed ​with this coalition we now have,"
• Political prediction markets assign a low likelihood of the coalition breaking in 2026. Data from Polymarket shows a 16% implied probability the GroKo collapses before the end of the year (albeit in a low liquidity market).
• Federal opinion polling continues to show the far-right Alternative for Germany (AfD) leading wth support just shy of 30%, while the Union parties trend downwards to their lowest support since the end of 2021 at around 20%. September elections in the eastern states of Mecklenburg-Western Pomerania, Saxony-Anhalt and the capital, Berlin, could put more pressure on the federal coalition if the AfD and far-left Die Linke make gains at their expense. 

Chart 1. Federal Election Opinion Polling, % and 6-Poll Moving Average

• Bullish momentum is perissting for USDCAD as the general dollar strength on Tuesday assists the pair back towards the 1.42 handle. Technical studies continue to signal scope for a move towards the 61.8% retracement of the Feb’25 - Jan’26 downleg, at 1.4292.
• The endurance of the USDCAD rally comes despite Canada's inflation rising above expectations in May to the fastest since December 2023 at 3.2%. Importantly, core measures were unchanged around 2%, and overall, there wasn't much to suggest a notable broadening out of price pressures, which has been the central bank’s main concern of late.
• The BoC continuing to sit at the dovish end of the CB spectrum and uncertainty surrounding the upcoming USMCA review continue to be key drivers of the underlying CAD pessimism. It is worth noting that the current USDCAD trend is in overbought territory and a pullback would allow this condition to unwind. The first important support to watch lies at 1.3973, the 20-day EMA.
• Note that while BOC’s Macklem is speaking today, it is unlikely to be policy relevant given the description of his speech. He is however due to hold a press conference 85 minutes after the listed speaking time of 1425 BST. Focus on the data calendar turns to April GDP data, scheduled on Tuesday next week.

“IRAN'S TOP NEGOTIATOR QALIBAF SAYS TEHRAN AND MUSCAT ESTABLISHED A JOINT COMMITTEE TO DISCUSS THE STRAIT OF HORMUZ, SAYS DETAIL PENDING - TELEGRAM ACCOUNT” RTRS