OUTLOOK: Price Signal Summary - Monitoring Support In Bunds
- In the FI space, Bund futures continue to trade below the Jun 13 high. For now, the recent move down appears corrective. Key short-term support to watch lies at 130.12, the Jun 5 low. A break of this level would highlight a stronger reversal and undermine the bullish theme. This would open 129.30, the May 22 low. Key short-term resistance and the bull trigger, has been defined at 131.95, the Jun 13 high.
- A bullish condition in Gilt futures remains intact and recent weakness appears to have been a correction. This week’s gains reinforce the current bullish theme. Key short-term support has been defined 92.23, the Jun 16 low. A break of this level is required to undermine a bull theme and signal scope for a deeper retracement. On the upside, sights are on 93.68, the Jun 13 high and bull trigger.
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EQUITIES: EU Bank Risk Reversal
SX7E (19th Sep) 150/235RR, bought the Call for 0.20 in 6k vs ~1k at 203.00.
NZD: HSBC See Rate Differentials Turning More Supportive for NZD
Following today's RBNZ rate cut, HSBC write that rate differentials are now turning more supportive, and see today’s decision as best played via AUD-NZD downside, as divergence in policy expectations is favouring the NZD.
- Their AUD/NZD model paths have now turned aggressively lower since the May RBA meeting and they see today’s decision as further strengthening this trajectory.
- For NZD/USD the rate differential is turning more supportive. De-escalation in trade tensions should alleviate the pressure on the regional growth outlook and improve overall risk sentiment.
- As such, NZD/USD should benefit over time, given New Zealand’s deep export dependence on APAC peers and its current account deficit funding needs. NZD/USD still screens undervalued versus these key drivers as a result.
NATO: BBG-Alliance Proposes 3.5%-1.5% Of GDP Split On Defence Spending
Bloomberg News reports that NATO has proposed including spending on cybersecurity in its calculations of the percentage of GDP that its members spend on defence and security. There has long been speculation that at the upcoming NATO summit in the Netherlands in late June, the alliance's leadership will propose an overall 5% of GDP target for defence spending, with a sum of at least 3.5% of GDP going on front-line military equipment and personnel, with an additional 1.5% of GDP going on defence related expenditure. This could include cybersecurity, border protection, coastal defences, critical infrastructure, non-defence-related intelligence, or space-related activities.
- US President Donald Trump has pressured other NATO states to significantly increase their level of defence spending in order to pay their own way and reduce the burden on the US of providing European defence, or risk an American drawback from the continent.
- The 3.5%-1.5% split has been welcomed by a number of NATO member state gov'ts. Earlier in May, German Chancellor Friedrich Merz voiced his backing for such a proposal.
- BBG: "Talks are expected to continue in NATO’s policy and planning committee Wednesday, according to the document. The proposal is subject to change and will form the basis for discussion among alliance members,"
- There remain questions over Trump's possible no-show at the NATO Summit. The 2024 NATO annual report, published in Apri,l showed nine of 32 members falling short of the current 2% of GDP spending floor, although all are expected to reach this figure by the summer.
