EUROPEAN FIXED INCOME UPDATE: Rangebound trade as participants await further tariff updates

USTs: -0.5 ticks; 111.06+

• Choppy and holding on to most of the prior day's gains after prices were supported by dovish comments including from Fed's Waller who continued to suggest he is willing to look through price increases, and warned that data focus brings a risk of being late on policy action, while Fed's Hammack said it is too early to consider a move at the May FOMC but opened the door to a cut in June. T-Notes saw little reaction to the weak 7-year note auction yesterday.


• Price action this morning has been relatively quiet thus far with the complex continuing to be buoyed by trade and tariff uncertainty after Bloomberg sources reported that China is said to consider exempting some US goods from tariffs as costs increase, although China's Foreign Ministry said it is not having any consultations or negotiations with the US on tariffs; and on tariff exemptions, said they are not familiar with specifics.


• Ahead, there is little in terms of notable scheduled events stateside, with the trade narrative likely to be the driving force ahead of a weekend of potential risk.


• UST futures rate in a narrow 111.02+ to 111.09 range at the time of writing.

Bunds: -14 ticks; 131.74

• German debt is taking a breather after steadily climbing to just shy of the 132.00 level, whilst a slew of ECB commentary failed to trigger much price action.


• In terms of a recent ECB commentary on tariffs, ECB rhetoric leans towards an initial disinflationary narrative around tariffs, with Lagarde calling them a negative demand shock and noting the net inflation impact remains unclear. Knot flagged that a 25% US tariff could shave 0.3ppts off EZ growth, with further downside risk if retaliation follows, while also warning of near-term downside risks to inflation and potential medium-term supply chain pressures. Rehn echoed the inflation-dampening view and didn’t rule out larger cuts if risks materialise, and Nagel noted the inflation impact is likely to be more acute in the US, while the Eurozone—particularly Germany—faces a more significant growth drag. Overall, commentary supports a cautious but flexible stance, with a clear bias toward viewing tariffs as a growth-negative, disinflationary shock.


• The schedule today from an EZ perspective is also quiet, with trade likely to drive price action ahead of a weekend of risk.

Gilts: -4 ticks; 93.05

• Conforming to price action across peers despite little notable move seen from the above-forecast UK retail sales metrics.


• UK Retail Sales MM (Mar) 0.4% vs. Exp. -0.4% (Prev. 1.0%, Rev. 0.7%); ONS said Retail Sales would contribute 0.08ppts to GDP in Q1 2025 - ONS added that clothing and outdoor retailers reported good weather boosted sales; supermarkets reported a fall.


• On the trade front, UK Chancellor Reeves said she understands US concerns on trade imbalances, especially in China and they don't always agree with the US on policy prescriptions but is confident a trade deal can be done.


• Gilt Jun'24 futures currently reside around the middle of a 92.90-93.14 range.

25 Apr 2025 - 09:45- ForexData- Source: Newsquawk