EUROPEAN FIXED UPDATE: Relatively contained trade despite EU-US trade updates and continued UK fiscal focus

USTs: +2 ticks, 110-25

• A contained start to the week. The bias from JGBs was a softer one after better-than-expected Machinery Orders data. USTs themselves in a thin 110-23+ to 110-28 band, entirely within but towards the trough of Friday's 110-22+ to 111-08 range.


• Newsflow has been focussed almost entirely on trade, after Trump delivered his EU letter (seen Bunds for more), with European officials since indicating a desire to work towards a better outcome but outlining that countermeasures are being prepared.


• The relatively muted nature of moves thus far indicates that markets do not see the 30% tariff level as the likely end point and instead is a negotiating tactic. However, the pressure seen within equities in both Europe and the US suggests the tariffs are not being entirely discounted


• We are also attentive to how the US responds to reports that the EU is planning to "step up engagement" with other nations impacted by US President Trump's tariffs, according to Bloomberg sources; Canada and Japan touted in this report. We are yet to hear from a US official on this, but it will be interesting to see if they view such collaboration as a challenge to the US, which in turn could spark fresh/increased US measures.


• Elsewhere, newsflow around Chair Powell continues as White House Economic Advisor Hassett said the Fed has “a lot to answer for” on renovation costs at their HQ, adding in his ABC appearance that any decision by Trump to fire Powell would be dependent on answers fiscal official Vought receives from the Fed/Powell on the renovations.


• Ahead, the docket is very light. Aside from tariff updates, we are awaiting an announcement from President Trump on Ukraine-Russia, in the context of reports that Trump is set to announce an “aggressive” weapons plan, including offensive weapons, to arm Ukraine, via Axios.

Bunds: +10 ticks, 129.26

• Opened higher by just under 10 ticks at 129.26 before meandering in a thin range and extending to a 129.41 peak at 07:00BST, no specific newsflow at the time and the move seemingly a function of the usual early-morning increase in activity.


• The jump of around 20 ticks over three minutes has since pared entirely with Bunds now back to Friday’s 129.17 close and essentially flat in a 129.11 to 129.41 band.


• As above, newsflow is almost entirely focussed on trade. Trump announced a 30% level on the EU in his letter, but made clear that they are talking to the EU. Since, European officials have emphasised that they want a negotiated settlement but are prepared to act with countermeasures if needed. On that, the EU’s already agreed-upon countermeasures from the first weeks of Trump’s tariffs policy have been extended to match Trump’s August 1st deadline.


• Despite the modest move higher at the open and extension thereafter, action has been relatively muted so far as we wait for more insight into how EU-US talks are going and whether a deal by August 1st is achievable and just how much better it is than the 30% baseline alternative. No officials are scheduled to speak today, though there is a meeting of European trade ministers this afternoon, around which we may get some insight.


• Elsewhere, the docket features EU 2028, 2034 and 2054 supply. As is usually the case, the auctions should pass without incident; though, anticipation of the outing may be a factor behind the return to lows/Friday’s close that occurred as the morning progressed.

Gilts: +8 ticks, 91.77

• Opened a touch higher and then extended to a 91.85 peak, posting gains of around 15 ticks at best. Since, in-fitting with EGBs, the benchmark has pared from that high and is now essentially unchanged on the session in a 91.56-85 band.


• A low that is two ticks below Friday’s base and brings 91.53 and 91.42 from last Wednesday and Tuesday respectively into play.


• As has been the case recently, the UK is someone protected from direct trade updates owing to its deal with the US. However, newsflow is just as pronounced as the fiscal situation dominates domestically.


• Chancellor Reeves is expected to speak at around 11:00BST as part of a “Better Futures Fund” for youth services, during the Q&A she will undoubtedly be asked questions about the recent U-turns, general state of public finances, soft GDP reports and fresh speculation of wealth taxes. Furthermore, this morning’s appearance by Treasury Chief Secretary Jones has been interpreted by some as a nod towards possible income tax threshold freezes.


• The scrutiny for Reeves this week does not end there as she will be delivering a Mansion House speech on Tuesday, within this, she is expected to declare that the government has control of the economy and will not allow borrowing to become out of control, according to the FT.


• Reeves will be joined by BoE’s Bailey, who in an interview with The Times said the MPC is prepared to make larger rate reductions if the jobs market shows signs of a pronounced slowdown. A comment that comes ahead of Thursday’s jobs data; into which, Pantheon surmising the REC survey wrote “headlines on permanent placement growth are dire and, if replicated in the official labour market data published later this week, would drive the more dovish members of the MPC to vote for a 50bp rate cut next month”.

14 Jul 2025 - 10:00- ForexGeopolitical- Source: Newsquawk