EU CREDIT SUPPLY: Volkswagen: Final Terms        

The leadership of the SPD parliamentary group in the Bundestag has responded positively to the proposal by a CDU budget policy spokesman to raise the so-called "rich tax" in return for social reforms according to newspaper Bild.

• The "rich tax" is the top income tax bracket in Germany, starting at E278k annual income for singles for a marginal rate of 45%.
• Left-leaning SPD representatives have previously suggested tax increases for higher income brackets, so their approval of similar proposals from CDU does not come as a surprise.
• The tax increase proposal comes amid a E172bln 2027-29 federal funding gap.
• Commentary from key party / government leadership (Merz, Klingbeil) would be to watch from here when looking for further intel if these proposals could take shape. CDU leadership appeared dismissive of income tax increases until now.
• Finance minister Klingbeil has previously mentioned that a set of commissions are holding ongoing tasks on the "structural reforms" planned by the government, with results to filter through in autumn.

• -10,000 FFX5 96.005 (+0.00), post time bid at 0755:10ET.

• GBP is modestly outperforming Tuesday, helping GBP/USD recover a small part of the Monday losses, after the USD rally through the UK Bank Holiday resulted in the 100-dma of 1.3431 coming under pressure. Domestic newsflow in the UK remains highly critical of the government, however the consequences for government remain minimal: Polymarket ascribes only a 9% chance of UK PM Keir Starmer leaving office this year - close to a contract low - however political fragility will likely persist across the publication of the Autumn Budget, ahead of which the UK Treasury are said to be exploring several further revenue raising measures, including property tax reform and a potential wealth tax.
• Ahead of the Budget (likely late October/early November), vols are recovering off seasonal lows: EUR/GBP 3m implied vols have recovered the entirety of the early August dip - with EUR, USD vols also improving.
• The 30-min candle chart shows EUR/GBP testing the nascent uptrend drawn off the late May lows of 0.8356. The level, today at 0.8624-0.8627, has been tested, and a break below could mark a resumption of the fade off 0.8769, opening 0.8508 in the short-term.
• Options interest later this week is clustered around month-end, with E1.3bln rolling off at 0.8575 and E2.2bln at 0.8700-50 - strikes which could contain the range in the cross over the coming week, suppressing vol.