OUTLOOK: Price Signal Summary - Resistance In Bunds Remains Exposed
May-07 11:28
- In the FI space, Bund futures remain below their most recent highs. Despite the latest move down, a bull cycle is intact and the sell-off between Apr 7 - 9 is considered corrective. Sights are on resistance at 132.03, the Apr 7 high and a bull trigger. A clear break of this level would confirm a resumption of the uptrend and open 132.56, the Feb 28 high. Firm support lies at 128.60, Apr 9 low. A breach of it would alter the picture. First support is 130.54, the 50-day EMA.
- A bull cycle in Gilt futures remains intact and short-term weakness is - for now - considered corrective. Tuesday’s low print resulted in a test of support at the 50-day EMA, at 92.47. A clear break of this average would signal scope for a deeper retracement and expose 91.73, the Apr 17 low. On the upside, a resumption of gains would open 94.50, the Apr 7 high and a key resistance. Initial firm resistance to monitor is 93.93, the May 2 high.
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GBP: Starmer Actions Add to Case For GBP Underperformance Through Tariffs
Apr-07 11:18
As markets consider the EU's retaliatory steps against the US, news this morning affirms that the UK are unlikely to meaningfully push back against US measures - an outcome that adds to the case for GBP underperformance through tariff uncertainty.
- UK PM Starmer announced that the "world has fundamentally changed" and has formally diluted electric vehicle targets for UK car production as well as potentially suggesting fiscal rules could be tweaked to combat an expected lower rate of growth. These policy actions stop well short of the Canadian, Chinese or likely EU response of counter-tariffs and restrictions - all of which carry an inflationary impulse.
- The contrasting official responses expose GBP here, suggesting inflationary pressure from UK countermeasures is low relative to the EU, and the argument for greater government support for businesses is more contained - leaving BoE pricing more subject to easing relative to the ECB.
- We noted above that EURGBP has cleared resistance to open 0.8645 and 0.8768 - meanwhile GBP/USD is meeting the 200-dma at typing (1.2813), to target 1.2784 and 1.2654, the 50% retracement for the YTD rally.
US TSY FUTURES: BLOCK: Jun'25 5Y Buy
Apr-07 11:14
- +5,340 FVM5 109-20, post time offer at 0659:42ET, DV01 $220,000. The 5Y contract trades 109-18 last (+7.25).
FRANCE: RN Contemplating Censure Against Bayrou Govt, Marginal Widening In OATs
Apr-07 11:14
Latest from Politico following last week's court judgement against RN Leader Le Pen:
- "Two high-ranking officials from France’s biggest far-right party publicly opened the door on Monday to bringing down the government a week after Marine Le Pen was convicted of embezzlement and subsequently barred from running for president".
- "National Rally President Jordan Bardella and party Vice President Sébastien Chenu revealed in separate interviews that the party is contemplating ousting Prime Minister François Bayrou, just four months after backing the French left’s effort to take down his predecessor, Michel Barnier."
The 10-year OAT/Bund spread has seen marginal widening to ~79bps since the report's release at 1150BST/1250CET, now approaching 4bps wider on the session.
- French Political risks have taken somewhat of a backseat in recent months (superseded by German fiscal developments and US tariff concerns), following the successful passing of the 2025 budget. However, PM Bayrou's Government relies on RN support in the National Assembly.
- A successful censure motion, would re-introduce political risks into the outlook, with Politico noting that "A government collapse would increase pressure on President Emmanuel Macron to call new elections this summer, as France’s majority-less, fragmented legislature continues to struggle with instability and deadlock".
