ECB: Well Advised To Remain Cautious - Nagel
- Bundebank President Nagel says in a speech that the ECB is well advised to remain cautious.
- “I consider the decision of the ECB Council 's decision last Thursday to keep key interest rates constant was the right one. We are well advised to remain cautious given the uncertainties. Our approach of making decisions based on data and on a meeting-by-meeting basis has proven successful. With the current monetary policy stance, we are well positioned to respond to unexpected changes.”
- His speech also looks at some structural reasons behind weak German exports amidst a deterioration in competitiveness, including high energy prices, a shortage of skilled workers and supply chain disruptions.
- More broadly on the EU, he adds: "The former ECB- President Mario Draghi has put forward numerous proposals for how Europe can become more competitive. Now it's time to implement these proposals. So far, only a fraction of them have been realized." That broadly echoes Lagarde's growing calls for reform.
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US: FED Reverse Repo Operation
RRP usage inches up to $38.240B this afternoon from $33.757B Friday, total number of counterparties at 19. Compares to last Thursday's lowest usage of the year at $28.818B on Wednesday, April 16 -- in turn the lowest level since April 2021.
BONDS: EGBs-GILTS CASH CLOSE: Bunds Regain Ground But Gilt Sell-Off Continues
Gilts underperformed global peers to start the week.
- After strengthening in preliminary trade, in a partial reversal of Friday's sell-off, EGB and Gilt yields bottomed around 9am London time and moved steadily higher for most of the rest of the session.
- The Gilt sell-off in late afternoon stood out. While there was no particular identifiable trigger, a Guardian report that the government was considering adjustments to property taxes served as a reminder of UK fiscal woes which will be increasingly focused upon ahead of the Autumn budget.
- Additionally, anticipation of Wednesday's UK CPI report may have dampened sentiment.
- 10Y Gilt yields hit the highest levels since May, with futures piercing support at Friday's lows.
- The UK curve bear steepened, in contrast to the rally across the German curve. Periphery / semi-core EGB spreads closed little changed.
- Tuesday's fairly thin schedule includes Eurozone current account data. There will also be attention paid to a video conference of EU member state leaders (1300CET) to discuss the US-Ukraine situation.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.4bps at 1.959%, 5-Yr is down 2.1bps at 2.319%, 10-Yr is down 2.5bps at 2.763%, and 30-Yr is down 1.2bps at 3.338%.
- UK: The 2-Yr yield is up 3.2bps at 3.965%, 5-Yr is up 3.3bps at 4.123%, 10-Yr is up 4.2bps at 4.738%, and 30-Yr is up 4.7bps at 5.611%.
- Italian BTP spread down 0.8bps at 79.3bps / French OAT up 0.3bps at 68.4bps
GBPUSD TECHS: Bull Cycle Remains In Play
- RES 4: 1.3753 High High Jul 2
- RES 3: 1.3681 High Jul 4
- RES 2: 1.3636 76.4% retracement of the Jul 1 - Aug1 downleg
- RES 1: 1.3595 High Aug 14
- PRICE: 1.3519 @ 16:33 BST Aug 18
- SUP 1: 1.3493 Low Aug 13
- SUP 2: 1.3445 50-day EMA
- SUP 3: 1.3400 Low Aug 11
- SUP 4: 1.3346 Low Aug 7
GBPUSD traded higher last week and the pair is holding on to its latest gains. The move higher resulted in a breach of resistance at 1.3589, the Jul 24 high. Sights are on 1.3636, the 76.4% retracement of the bear leg between Jul 1 and Aug 1. A break of this retracement would strengthen the short-term bull theme. Initial firm support to watch lies at 1.3445, the 50-day EMA. A clear break would signal a possible reversal.
