EUROPEAN FIXED UPDATE: Core consolidation after recent rampant upward move, knife-edge BoE looms

Analysis details (10:55)

EGBs are essentially unchanged on the session, a current price point that does not reflect the relatively wide 100 tick range of 156.66-157.54 in Bund Sep’22, for instance; but, a price that is reflective of the limited European newsflow. The initial move higher was fleeting in nature and quickly fizzled out when it encountered touted short-term resistance at 157.52-57 while the foray lower was more robust and took the German benchmark below yesterday’s close of 156.96 but still someway from that session’s 156.29 trough. For reference, the associated 10yr yield is also well within recent parameters with the domestic curve exhibiting a modest flattening bias at present. The European morning’s action comes in the context of broader fixed upside seen in yesterday’s session, but upside that proved somewhat fleeting as Fed officials continue to err on the “hawkish” side with reference to 2023 cuts; Kashkari (2023 voter), explicitly, said he was “not sure what markets are looking at” on this point. Returning to current action the UK benchmarks is in-fitting with EGB peers but pivots a narrower circa. 60 tick range ahead of the BoE and the resolution to the 25/50bp debate among desks going into the gathering, newsquawk preview available. As it stands, market pricing via Reuters for 50bp is comfortably over 90% with both this and the Sonia strip showing ~80bp in total by September and circa. 150bp by end-2022. Stateside, Fed speak is likely to once again dominate the US-specific schedule and afternoon price action with Mester (2022 voter) on the docket, who typically takes a hawkish stance and as such is likely to provide a similar narrative to her remarks on Tuesday that, for instance, “she hasn’t anything that suggests inflation is even levelling off yet”. Finally, the periphery has been a touch more active as BTPs extend by over 70ticks despite a lack of developments on the domestic political front with the BTP-Bund spread at a relatively narrow ~210bps. Elsewhere, French and Spanish supply was well received though France more convincingly with OATs outperforming their Spanish peer as such.

04 Aug 2022 - 10:55- Research Sheet- Source: Newsquawk