STIR: Repo Reference Rates

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EXECUTIVE SUMMARY: 

• The Riksbank is expected to hold rates at 2.00% on Wednesday, in an interim decision that includes a concise Monetary Policy Update instead of a new MPR or rate path projection. That will leave focus on the policy statement guidance.
• Heading into the August decision, the Board will need to weigh higher-than-expected spot inflation pressures against continued softness in labour market and activity data, alongside a higher-than-expected EU-US tariff outcome. The large upward inflation surprise in June, which was mostly consolidated in July, should guard against a surprise rate move.
• However, the Riksbank is sensitive to economic activity and has demonstrated a willingness to lend support with monetary easing already this year. This dovish bias will likely be reaffirmed if the Board views the summer inflation uptick as temporary (in a similar fashion to Q1).
• Analysts are unanimous in expecting rates to remain on hold at 2.00% in August, but there is more of a divide for the September decision. Of the 13 previews we have seen, eight expect a final 25bp cut to 1.75% in September, while five expect no further cuts. 

• In the FI space, Bund futures traded sharply lower Friday resulting in a breach of support at 128.84, the Jul 25 low and bear trigger. Note that the 129.00 handle marks the base of a broad range and a clear range breakout would strengthen a bearish threat. This would open 128.40 initially, the Apr 9 low. Strength above the 50-day EMA of 129.97, is required to signal a reversal. Resistance at the 20-day EMA is at 129.72.
• Gilt futures traded sharply lower Friday, alongside global bonds. The move down resulted in a print below key short-term support and a bear trigger at 91.08, the Jul 18 low. This once again highlights a bearish threat and signals scope for an extension towards 90.59, the May 29 low. On the upside, resistance to watch is seen at 92.05, the 50-day EMA. Clearance of this average is required to highlight a potential reversal.

The trend in Eurozone wage growth remains to the downside, according to Indeed job posting data for July (released on Friday). The 3mma of Y/Y Eurozone wage growth eased to 2.53% Y/Y, down from 2.64% in June for the lowest since late 2021. While a useful monthly series to track, it’s worth noting that the Indeed wage tracker’s importance to markets has declined since the ECB started publishing its own forward-looking negotiated wages tracker. Overall, the signals from Indeed are broadly consistent with the ECB tracker excluding one-off payments.

• A reminder that French job postings make up the bulk of the observations for the Eurozone-wide index (see chart), followed by Germany. Spanish and Italian samples are much smaller, and the Italian data often (questionably) reports wage growth of 0.00% Y/Y.
• With these caveats in mind, July 3mma Y/Y Indeed tracker wage growth eased to 3.35% in Germany (vs 3.49% prior) and 1.84% in France (vs 1.87% prior).
• The ECB’s Q2 negotiated wages series is released on Friday. It is expected to rebound from the soft 2.45% Y/Y seen in Q1. The ECB’s wage tracker with unsmoothed one-off payments (which best tracks the actual negotiated wages series) points to a rebound of ~4.0% Y/Y.