TURKEY: Security Concerns Abate As PKK Disarms, But CHP Crackdown Risks Backlash

See here for a comprehensive summary of ECB speak since the June decision: 250609 - Weekly ECB Speak Wrap.pdf

There has been a familiar wave of ECB Governing Council speakers and source reports since last Thursday’s decision. While rates were cut by 25bps as expected, the tone of President Lagarde’s press conference was more hawkish than expected. Lagarde noted policy is well positioned and that “we are getting to the end of a monetary policy cycle that was responding to compounded shocks.” . Speakers since Thursday have largely echoed this stance, albeit with some nuances of opinion with respect to future cuts.

The MNI Policy Team’s latest sources piece wrote that the ECB is likely to pause its easing cycle in July, with policymakers pointing to the expiration of the reprieve on U.S. tariffs on July 9 as pivotal for determining their next moves in 2025. However, one more 25-basis-point cut in either September or December is the base-case scenario, Eurosystem sources told MNI. This is largely consistent with market pricing, with ECB-dated OIS pricing 3bps of easing through July and 26bps through year-end.

The pullback in major EGB futures has gathered pace over the last ~30 minutes, with NY desks potentially opting to fade this morning’s rally. Bund futures are +9 ticks at 130.46, with early BTP outperformance also fading (+9 ticks at 120.72).

• Both Bund and BTP futures pierced initial resistance levels this morning, but were unable to meaningfully extend to the topside.
• Meanwhile, the 2021 low (~90.4bps) contained downside in the 10-year BTP/Bund spread.
• These technical rejections alongside an intraday move higher for oil prices have likely contributed to the retracement in futures.
• Market moving regional headline flow has been fairly limited through the European session so far. A reminder that the Whit Monday holiday may be limiting broader activity.
• A Reuters source report noting the Japanese government is considering buybacks of some super-long JGBs lent light support to JGB futures earlier, but that move has also faded. 

• In the FI space, the latest pullback in Bund futures appears corrective - for now - and the trend condition remains bullish. The recovery that started May 14 suggests the move down between Apr 22 - May 14, has been a correction. A resumption of gains would signal scope for a climb towards 131.85, the Apr 22 high. Key short-term support to watch is 128.97, the May 14 low. First support lies at 130.12, the Jun 5 low.
• The latest rally in Gilt futures undermines the recent bearish theme - a key short-term resistance at 91.87, the May 20 high, has been cleared signalling scope for an extension higher and sights are on 92.79, the 1.236 projection of the May 22 - 27 - 29 price swing. Initial firm support has been defined at 91.44, the Jun 4 low. A break of this support is required to signal a possible reversal.