EURGBP TECHS: Trading Above Support

European yields reversed some of Tuesday's sell-off in a bull flattening move Wednesday.

• In addition to fading the prior session's somewhat unusual sell-off that didn't seem driven by headline/macro developments, Wednesday saw yields pull back in tandem with a retreat in oil prices in anticipation of peace developments on the Russia-Ukraine front.
• Also helping buoy global instruments was US Treasury Secretary Bessent opining that the Federal Reserve should consider cutting rates by 50 basis points in September, and 150-175 overall.
• Data was limited in impact, with German and Spanish final July HICP confirming flash estimates.
• Gilts lagged the Bund rally, with the UK Guardian reporting on potential inheritance tax adjustments in the Autumn Budget.
• Periphery/semi-core EGBs had a constructive session led by BTPs, in a broader risk-on move (10Y BTP/Bund approaches the 2010 low of 75.4bp).
• Thursday's agenda includes UK monthly economic activity / Q2 GDP data, with Eurozone industrial production, GDP, and Employment data also featuring.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.3bps at 1.934%, 5-Yr is down 6.1bps at 2.257%, 10-Yr is down 6.4bps at 2.68%, and 30-Yr is down 7.1bps at 3.228%.
• UK: The 2-Yr yield is down 2.2bps at 3.863%, 5-Yr is down 3.1bps at 4.009%, 10-Yr is down 3.7bps at 4.589%, and 30-Yr is down 3.9bps at 5.428%.
• Italian BTP spread down 1.7bps at 77.1bps / French OAT down 1.2bps at 65.6bps  

Overnight Reverse Repo facility takeup at the New York Fed was basically unchanged Wednesday vs the prior session, at $57.2B (vs $57.5B).

• This marked a fresh 4-month low (Apr 16's tax date saw $54.8B takeup) but it's now the 8th session in the past 9 below $100B, for the first time since February.

The NFIB Small Business Optimism Index, “rose 1.7 points in July to 100.3, slightly above the 52-year average of 98. Contributing most to the rise in the Optimism Index were respondents reporting better business conditions and reporting that it is a good time to expand.”

• The report notes: “In contrast to the Optimism Index, the Uncertainty Index increased by eight points from June to 97. Twenty-one percent of small business owners reported labor quality as their single most important problem, up five points from June and ranking as the top problem.”
• NFIB Chief Economist Bill Dunkelberg said: “Optimism rose slightly in July with owners reporting more positive expectations on business conditions and expansion opportunities. While uncertainty is still high, the next six months will hopefully offer business owners more clarity, especially as owners see the results of Congress making the 20% Small Business Deduction permanent and the final shape of trade policy. Meanwhile, labor quality has become the top issue on Main Street again.”

Figure 1: Small Business Optimism Index 

Source: NFIB