EUROPEAN FIXED INCOME UPDATE: US and German paper diverges on account of trade updates and Trump comments on Powell

USTs: +4.5 ticks; 110.30

• USTs bid with markets encouraged by two primary inputs. 1) optimism around the trade war following more upbeat comments from US President Trump overnight, reporting yesterday suggesting that Treasury Secretary Bessent sees the current levels of tariffs on China as unsustainable and comms from the White House that it is nearing deals with China and India. 2) Comments by US President Trump overnight that whilst He wishes for the Fed to lower rates, he is not looking to fire Powell.


• For today's docket, focus will be on US PMI data and Fed speak from Goolsbee, Musalem, Waller, Hammack. On the former, whilst the data series is seen as second tier compared to ISM metrics, the release will be parsed for details over how the Trump trade war is impacting corporate America.


• On the supply front, a 2yr FRN is due at 16:30BST followed by a 5yr auction at 18:00BST and comes hot on the heels of yesterday's soft 2yr offering.


• Jun'25 contract has ventured as high as 111.00+ with the next resistance point coming from the 21st April peak @ 111.09. From a yield perspective, the US curve is bear-flattening (vs. the steepening seen during Monday's tumultuous session) with the US 10yr yield as low as 4.334% (vs. yesterday's 4.438% peak).

Bunds: -42 ticks; 131.53

• Bunds diverging from their US peers on account of the more encouraging risk tone and increased positivity on the trade front.


• From a data perspective, PMI metrics this morning from France, Germany and the Eurozone have all conformed to the same picture of beats on manufacturing, services and composite missed. The accompanying report noted "the Eurozone private sector saw output remain broadly stable in April". Note, there will be another round of data before the ECB's June policy announcement which is currently priced at 69% for a 25bps rate cut.


• ING notes that "the rates impact from data surprises can be quite asymmetrical, in the sense that downside surprises could trigger larger swings than vice versa".


• Looking ahead, 2035 Bund supply is due @ 10:30BST.


• Jun'25 Bunds briefly slipped below yesterday's low @ 131.46 before stabilising above the 131.50 mark. From a yield perspective, the 10yr has ventured as high as 2.847% but failed to launch a test of 2.5%.

Gilts: +25 ticks; 92.69

• Gilts diverging from European peers following the latest update from the DMO which saw it cut GBP 10.4bln from its planned sales of long-dated Gilts and increase sales of short Gilts by GBP 5.6bln.


• Upside was briefly extended following a soft outturn for UK PMI metrics which saw the services print unexpectedly slip into contractionary territory, dragging the composite reading with it. The accompanying report noted "“April’s fall in output was the largest recorded for nearly two and a half years, consistent with GDP declining at a quarterly rate of 0.3%, reflecting falling activity and demand across both manufacturing and services". Markets continue to fully price a BoE rate cut in May.


• Elsewhere, the latest public sector borrowing data saw the Treasury overshoot borrowing expectations by the market for a fourth month in a row, highlighting the fragile position of the nation's finances.


• Elsewhere, on the trade front, reports state that the US is preparing negotiating terms for UK trade talks and will aim for the UK to reduce its automotive tariff from 10% to 2.5%, while the US will also push the UK to relax rules on agricultural imports from the US.


• Jun'25 Gilts have been as high as 92.85 with little in the way of resistance until 93.00. From a yield perspective, the 10yr has bottomed out at 4.515%, failing to test 4.5% to the downside.

23 Apr 2025 - 10:00- ForexData- Source: Newsquawk