EUROPEAN FIXED UPDATE: Benchmarks softer with PMIs influencing but participants await the US’ return and more ECB speak

Analysis details (10:40)

• Core benchmarks are under modest pressure with action occurring around the EZ/regional and UK PMIs but for the most part this has been shortlived as we await the return of US players from the long-weekend.


• Bunds are softer to the tune of 15 ticks and reside towards the mid-point of 131.61-131.98 boundaries. A high which printed in proximity to the morning’s Spanish Services PMI which unexpectedly fell into contractionary territory and adds to the blocs growth concerns with the PMI indicative of a -0.1% Q3 GDP growth figure for Spain; a potential contraction which may serve to negatively-bias the Bank of Spain’s recently announced 2.3% growth view for the year as a whole. At the other end of the spectrum, the current Bund low printed in the early European morning but has since been re-tested following the EZ-wide final PMIs which were subject to modest negative revisions. Which, more pertinently, featured concerning inflation commentary for the ECB. Additionally, the latest ECB Consumer Inflation survey saw an uptick to the three-year ahead view though the 12-month outlook remained at 3.4%. From a technical perspective, if the broad fixed pressure continues and Bunds make new lows support is seen around the August 23rd low at 131.20 before the figure itself.


• Elsewhere, EGBs were attentive but largely unreactive to a lengthy speech from Chief Economist Lane, recorded just after the August Flash HICP release. Within this, and on inflation, Lane says he would “underline the fact that there has been some easing in goods inflation and services inflation, which is a welcome development.” Additionally, highlighting the fact that there was “some easing” in services inflation even given the strong tourism demand in some nations helped to limit the narrative that the figure would remain strong throughout the summer. In terms of the upcoming forecasts, Lane noted that it would be a “mistake to extrapolate the high inflation we’ve seen into a longer-term projection”.


• For the session ahead, we are attentive to ECB’s Schnabel and de Guindos. From Schnabel, we look for any further clarity around her particularly balanced remarks last week whereby she left the doors open to both further tightening and a skip in relation to upcoming meetings. de Guindos spoke extensively at the end of August, following the flash inflation print, whereby he said the December decision was still up for debated and placed emphasis on data between then and the 14th of September gathering. On the inflation data, he remarked that it was similar to July’s and the ECB needs to keep working to get it back to the 2% target.


• Leaving the EZ, price action for Gilts has been slightly more contained today given action was more pronounced on Monday as participants began to look ahead to upcoming data points and numerous speakers. Nonetheless, upward revisions to the Final August PMIs sparked some modest pressure and sent Gilts back towards the already in place 94.18 trough. The releases accompanying commentary was also hawkish on pricing, with S&P noting the data is indicative of “another round of historically strong cost inflation across the service sector” driven by wage, fuel and energy upside.


• Finally, USTs are broadly in-fitting with their EGB peers with the US benchmark softer ahead of the return of US players from a three-day Labor Day weekend. For the session ahead, the docket is similarly headlined by Final PMIs. Currently, US yields are firmer across the curve with action slightly more pronounced at the long-end and the curve incrementally bear-steepening as a result.

05 Sep 2023 - 10:40- Fixed IncomeData- Source: Newswires