EM CEEMEA CREDIT: Romania: tap of ROMANI € 6.75 Jul39

• The USD Index is off the Friday highs, keeping the price within range of the early June pullback low at 98.351 - a key level of support before the YTD low of 97.921 comes into play. US and Chinese trade teams are set to meet again in London today, which will be of ample market focus given the recent call between Presidents Xi and Trump, at which the US President reportedly believed could unlock the deadlock in negotiations and ease the passage toward a new deal.
• Alongside the dollar slippage today, buoyant equity benchmarks are prompting AUD and NZD to outperform as cautious optimism surrounding the US/China talks provide tailwinds to the higher beta currencies. NZDUSD has broken back above an important
  zone of resistance between 0.6025/40. Spot continues to threaten a daily close above the US election related highs, signalling scope for a more protracted recovery towards 0.6168, the 76.4% retracement of the Sep '24 - Apr '25 selloff. Initial resistance is seen at 0.6080, last week's high print.
• JPY is firmer against most others, shrugging off reports that the Japanese finance ministry are considering looking into buying back super-long JGBs that had been issued in the past - a seemingly direct response to the particular weakness in the long-end of global yield curves in recent weeks. The US are to sell 30-year bonds on Thursday, which should provide a key litmus test for investor demand, and could have strong implications for dollar demand.
• Focus across the week rests on the US CPI print for May due Wednesday, at which markets expect inflation to accelerate very slightly from the April print, justifying no move lower in interest rates until October. The UK spending review out on Wednesday could also prove key and while it will not contain fresh OBR forecasts or go into detail on tax & spend plans, Reeves will set out day-to-day departmental spending for the next three years and investment expenditure for the next four years. 

Goldman Sachs forecast a notable boost to European economic growth from the incoming fiscal expansion.

• However, they note “that growth pickup should also limit the degree of decline in inflation - so while we agree that near-term risks from trade and energy prices justify sub-2% pricing of inflation over 2026, we think the risk reward in 2- or 5-Year HICP longs is attractive”.
• They caution that “near-term risks to that view centre around a further drop in commodity prices and a larger downward impulse from tariffs and trade uncertainty”.

Japanese investors sold JPY1.48trln (~around E9bln) of German bonds in April, according to balance of payments data released overnight. Net sales were the most since March 2014 (JPY1.79trln), and came despite 10-year yields falling almost 30bps as a result of the US Liberation Day fallout. Some have touted the delayed impact of the early March fiscal/defence spending induced spike in yields as a contributing factor to the negative flows.  

• Despite the volatility in UST yields following Liberation Day (including the subsequent 90-day tariff rollback and the start of “Big Beautiful Bill” discussions), net sales of USTs were just JPY1.07trln - i.e. fewer net sales than Bunds.
• Across the other major economies tracked in the BOP data, Japanese investors made:
  • JPY356bln of net OAT purchases (vs net sales of JPY378bln in March). Worth noting that the broader trend of Japanese investors shunning OATs following the political/fiscal turmoil in May/June 2024 is still clearly intact.
  • JPY201bln of net BTP sales (vs net purchases of JPY109bln in March).
  • JPY180bln of net Gilt purchases (vs net purchases of JPY78bln in March).