EU-UK: VdL & Starmer To Talk Defence Pact & Fish Ahead Of 19 May EU-UK Summit
European Commission President Ursula von der Leyen visits London today for the 'Future of Energy Security' summit, but the main focus of the day will be her meeting with UK PM Sir Keir Starmer at around 1600BST (1100ET, 1700CET). The two will hold talks for around an hour. These are seen as a precursor to the more substantive EU-UK Summit talks scheduled for 19 May. A nascent defence pact and the thorny issue of fisheries are top of the agenda.
- FT reports, according to multiple officials, "the defence deal would build trust and open the door for sensitive talks on issues including a new youth mobility scheme, energy co-operation and a removal of barriers to trade in food and agricultural products."
- As has been the case since Brexit negotiations first got underway following the 2016 referendum, the issue of fisheries has threatened to overshadow more economically or geopolitically substantial areas. As part of the potential agreement, the UK would agree to rollover the current arrangements (as demanded by France, Spain and others).
- In exchange, according to the FT, the UK may then "qualify for access to a possible €150bn in EU-backed loans to fund weapons purchases under the bloc’s Security Action For Europe (SAFE) project."
- Despite the clear efforts from EU and UK leaders to portray a more positive relationship since Starmer came to office, the issue of dispute resolution (i.e. ECJ primacy over UK courts) remains unresolved and a potential pitfall.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
BUNDS: Some momentum selling is going through
- Some momentum selling in Bund as it breaks through the figure, sold in 7k, likely some short term long bailing out.
- The contract has been selling off since the Cash Open, initially led by the US Treasuries, but the German supply (Bobl), EU Issuance as well as the German IFO beat have also weighted on the on the contract.
- Supports are unchanged, at 127.88, followed by 127.45, so far printed a 127.89 low.
GERMAN AUCTION PREVIEW: 2.40% Apr-30 Bobl
This morning, Germany will hold its fourth regular (non-green) Bobl auction of the year. On offer will be E4.5bln of the 2.40% Apr-30 Bobl.
- The size is in line with the E4.5bln seen at the last re-open of that Bobl on March 4.
- That last re-open was a rather weak auction, with the lowest bid-to-cover since June 2023 (1.69x) and the lowest bid-to-offer (1.32x) since April 2023 in the Bobl segment. At least the low price came in above the secondary markets mid-price at that auction. Note that March 4 was the day that later saw the major German fiscal announcement.
- Earlier auctions in the German Bobl segment have passed smoothly, with solid bid-to-covers (in a 1.73x to 2.75x range since January 2024), bid-to-offers (1.45x to 2.29x range since then) and the low prices above the secondary market mid-prices throughout 2024.
- Supply is in focus generally this morning, with a syndication from France and auctions from the Netherlands and the UK.
- Bobl positioning currently appears short - see our latest Europe Pi positioning indicator (published yesterday) here.
- The next German auction will be next tomorrow's E1.5bln of the 2.60% May-41 Bund (ISIN: DE000BU2F009) and E500mln of the 2.50% Aug-46 Bund (ISIN: DE0001102341), while the 2.40% Apr-30 Bobl will be reopened next on April 15.
- Timing: Results will be available shortly after the bidding window closes at 10:30GMT / 11:30CET.
GERMAN DATA: Broad-Based IFO March Uptick
Germany's IFO Business Climate Index rose in March for the 3rd consecutive month, to 86.7 (85.3 prior, revised from 85.2) for oming in exactly in line with expectations. The print suggests a more broad-based increase in sentiment than yesterday's PMI release, which saw manufacturing rebounding but services screening dovish. IFO concludes that "the German economy is hoping for improvement" - nevertheless, the overall print remains in contractionary territory.
- Expectations were the upside driver vs February, at 87.7 (vs 87.3 cons; 85.6 prior, revised from 85.4) - some uptick was expected amid expectations for higher fiscal spending following the related announcement by the likely incoming CDU/CSU/SPD coalition. The current assessment reading meanwhile saw a more modest improvement, to 85.7 (vs 85.5 cons; 85.0 prior).
- Across sectors, manufacturing saw a material uptick in expectations albeit from very low levels. New orders were slightly lower than before but the current assessment in manufacturing increased slightly overall. In services, "there was renewed hope, particularly among architecture and engineering firms", with a notably stronger expectations print in the sector. Trade also saw some uptick in both expectations and the current assessment. Lack of orders remains the biggest challenge for the construction sector.
