EUROPEAN FIXED INCOME: Benchmarks dip amid a limited docket after a holiday-impaired start; US PPI & Fed’s Daly due

Analysis details (10:45)

Core benchmarks are under modest pressure but remain above the post CPI trough of in Bunds, 156.04 vs the current 156.25 low. While price action in the complex is visually pronounced, the initial move to a 156.81 peak occurred without driver or catalyst and was retraced relatively quickly with a narrow sub-60 tick range. Such action isn’t surprising given the schedule for the remainder of the week, particularly for Europe, is very light with no notable supply due for the continent (US 30yr later) and as the initial APAC handover saw very limited volumes on account of a Japanese holiday. Technically, Bunds are surrounded by resistance/support at 156.86-89 and 155.88 respectively. For reference, the UK docket is empty today and Gilts are tracking other core counterpart within similarly narrow sub-50 tick parameters. Crossing to the US, Treasuries are essentially unchanged with an initial incremental upward bias dissipating amid similar directional EGB moves with the complex also affected by thin overnight volumes/action and with the schedule ahead comparatively thin. However, we do have US PPI on the docket which is similarly to CPI expected to cool, albeit ING does not expect similarly momentous price action on today’s print. Currently, US 2s10s is still inverted by circa. 40bp, but resides at the towards the top-end of yesterday’s almost 20bp range for the curve spread amid pronounced post-CPI re-steepening. For the session ahead, aside from PPI, we look to commentary from Fed’s Daly (2024 Voter) for any fresh insight, though she spoke with the FT overnight and outlined that there is still much work to be done on the inflation front – a similar stance taken by Kashkari following the release. Leaving the core, periphery action is very contained at present though ranges are somewhat more pronounced than Bunds/USTs despite fresh newsflow being similarly limited. The BTP-Bund yield spread remains just shy of the 210bp mark and was relatively unfased by an announcement that Forza’s Berlusconi intends to run for a Senate seat given, as previously stated, the former-PM expects the Centre-right coalition to appoint the leader of the most popular party as PM. A role that, based on current polling, will likely be given to Brothers’ Meloni.

11 Aug 2022 - 10:45- Research Sheet- Source: Newsquawk