EUROPEAN FIXED UPDATE: EGBs hit by trade updates, Gilts off lows post-PMIs, USTs await data

Bunds: -64 ticks, 129.94

• Under pressure into the ECB. Weighed on by the constructive updates on the EU-US trade front. As reports noted that the US and the EU were closing in on a trade deal with a 15% tariff rate, albeit this is yet to be officially confirmed, and White House Trade Adviser Navarro said to take it with a pinch of salt.


• Despite the caveat from Navarro and EU members voting to support potential counter tariffs on US goods if required, Bunds find themselves lower by 87 ticks at most to a 129.71 base, notching a marginal new WTD trough. If the move continues, there is a bit of a gap before support via recent lows at 129.12 and 129.08.


• Given the above, we are keenly awaiting any fresh update to the state of trade talks; note, US President Trump is signing executive orders this evening.


• Aside from the above, newsflow this morning has been dominated by earnings (see Equities) and Flash PMIs. On the latter, the French and German figures were mixed vs consensus while the EZ figure beat and came in above the prior for all metrics. Internal commentary highlighted a gradual return to growth momentum, though HCOB caveats that this assessment shouldn’t be given too much weight as we await more data.


• On inflation, the series notes the services sector continues to experience disinflation and while goods prices did not moderate in July, HCOB believes the stronger EUR and US tariffs are likely to exert downward pressure in the months ahead.


• Sticking with the ECB, today’s decision itself is a non-event with less than 2bps of easing implied. Furthermore, while guidance will be keenly sought and commentary heavily scrutinised, the ECB is unlikely to provide anything specific at this stage; particularly given the very fluid tariff situation, evidenced above.


• However, given the continued EUR strength the ECB may provide some commentary on this, which would likely be to stem much more EUR strength (recall recent remarks from de Guindos around 1.20), and as such could be taken in a dovish fashion by the bond market.

USTs: -2 ticks, 110-30

• Also in the red, but to a much lesser extent. Directionally in-fitting with EGBs but holding around the 111-00 mark after a brief blip to a 110-28+ low in the European morning. In contrast to Bunds, the current low is clear of Monday’s 110-24 WTD base.


• Alongside the above EU updates, and some comments on the US’ progress with nations such as Indonesia and Malaysia, we are awaiting the announcement of any further letters and/or deals after Trump said they will have straight, simple tariffs of between 15% and 50% on countries.


• Trade aside, the Fed remains in focus as Trump himself will be visiting the Fed this evening. Currently, it is unclear if he will be meeting with Chair Powell or not during this visit.


• Overall, USTs have a modest bearish bias given the latest trade updates. However, action is limited thus far as we await further details on trade, the Trump-Fed visit and then the region's own Flash PMI data later in the session.

Gilts: -17 ticks, 91.53

• Opened lower by 26 ticks given the risk tone and pressure in Bunds at the time. Thereafter, it extended to a 91.29 trough ahead of its own PMI data.


• Metrics which were mixed vs expectations but featured a sizeable miss in Services at 51.2 (exp. 53, prev. 52.8) coming in outside of the forecast range. Internal commentary was also downbeat, S&P calculating output growth is indicative of just 0.1% quarterly growth and risks are tilted to the downside in the coming months.


• “Sluggish output” that S&P says is linked to the “ongoing impact of the policy changes announced in last autumn's Budget” alongside broader geopolitical uncertainty. In particular, highlighting the impact of fiscal measures on employment and another month of sharply reduced headcounts in July.


• On this, recall the remark made by Governor Bailey before May’s labour series to The Times that the MPC is prepared to make larger rate reductions if the jobs market shows signs of a pronounced slowdown. The recent ONS series showed a continued weakening of the labour market; though, there were some caveats to it. Today’s PMI data potentially moves the needle of the BoE’s assessment of the jobs market to the dovish side.


• In reaction to the series, a move higher from 91.43 to a 91.57 peak occurred just after the series, given the mixed/weak headlines. While this then briefly pared, Gilts have returned back to and are holding at session highs (though still comfortably in the red) as the dovish implications of the series contest with the broader bearish bias as discussed in Bunds.

24 Jul 2025 - 10:05- ForexEU Research- Source: Newsquawk