EUROPEAN FIXED UPDATE: Relative respite after hawkish re-pricing, S&P/Fitch in focus

Analysis details (10:40)

Core debt modestly firmer, experiencing some respite from Friday's post-NFP pressure amid pronounced Fed repricing and yield upside. However, in the context of recent session todays circa. 70 tick upside is limited, with Bunds over a full point from Friday's 158.21 best which is 150 ticks from last week's 159.70 peak. Technically, Bunds incrementally surpassed the 157.00 handle and as such resistance at 156.95, which marked the 50% fib of Friday’s move, 157.26 is the next near term resistance mark. Price action this morning has been a steady upward grind irrespective of the firming in equity performance seen after the cash open and despite a lack of fresh catalysts. USTs are in-fitting with this, with no Tier one events from a US perspective though of course, we are cognizant of any fresh Fed speak after post-NFP Fed’s Bowman (Voter) remarked that more 75bp hikes should be under consideration to bring inflation down while Daly (2024 Voter) said a 50bp move is not the only option. Currently, market pricing via Reuters implies around 67bp of upside for September, with 50bp fully priced and just shy of a 70% chance of 75bp. Amidst this, the yield curve is bull-steepening with the majority of the action occurring at the short-end of the curve, as pricing pares incrementally from post-NFP levels, a dynamic that is also evident within Bund yields. For reference, Gilts are in-fitting with EGB/UST peers with very little to add on this front aside from the ongoing domestic political back-and-forth, with just shy of one-month until a new PM is announced/appointed. Finally, Italy was subject to another outlook downgrade over the weekend, with Moody’s cutting its view to Negative in a similar fashion to S&P last month; however, despite pressure in BTPs which are lower by over 40ticks, the BTP-Bund spread remains in relative proximity to 200bp. Note, BTPs are also cognizant of political action as Azione withdrew from the centre-left alliance, which was being billed as an alliance to prevent a landslide election from the centre-right parties. Elsewhere, but sticking with sovereign ratings, France was maintained with AA outlook Negative on Friday at Fitch and subsequently OATs are in fitting with broader performance, not eliciting any 'relief' at avoiding a downgrade that SocGen, for instance, ascribed a 30% chance to.

08 Aug 2022 - 10:40- Research Sheet- Source: Newsquawk