EUROPEAN FIXED UPDATE: Core consolidation stalled post-BoE with all eyes on NFP

Analysis details (10:55)

As it stands, core EGBs & USTs are essentially unchanged on the session and remain within yesterday’s parameters as the broader fixed consolidation that was emerging prior to the BoE dissipated and has given way to a flattening resumption. Albeit, the US yield curve is only incrementally flatter at present as participants await the sessions NFP report (newsquawk preview available) before US CPI next Wednesday for an additional gauge into the pushback we have seen from some Fed officials on inflation pressures easing before Jackson Hole and, more pertinently, the September Fed. Thus far, Bunds are circa. 20 ticks below opening levels and towards the mid-point of a 60 tick range that is encapsulated by the 50% fib of this week’s move at 158.40 to the upside and a 157.47-52 support band to the downside with Thursday’s 156.66 trough a full point below today’s worst. On the UK front, Gilts are sub-118.00 despite a fleeting foray higher as initial leads around the Liffe open were incrementally positive; however, this upside was short-lived and the benchmark has dipped lower in-line with peers and was unreactive to commentary from Chief Economist Pill. For reference, market pricing via Reuters continues to look for 100bp of upside by end-2022 with three scheduled meetings remaining; on pricing, it is worth noting that Pill said we should not assume September will be 50bp. Switching to France, SocGen continues to recommend underweighting OAT vs their Belgium and Dutch counterparts in the 7-10yr area; a call that is maintained going into today's sovereign debt rating of France by Fitch. On this, SocGen ascribes around a 30% chance of a downgrade from the current AA Negative classification - any downgrade would put France's rating at a historical trough. Currently, OATs are in-fitting with Bunds and post losses of circa. 20 ticks on the session but differ in residing at the day’s low of 146.41.

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