EUROPEAN FIXED UPDATE: USTs/Bunds rangebound into US CPI, whilst Gilts lag after jobs data

USTs: -2.5 ticks, 111-26

• USTs trade with a very mild negative bias, ultimately trading just under the unchanged mark as traders position themselves ahead of today’s US CPI. Price action today has been incredibly boring – rangebound in a tight 111-23 to 111-27+ range. The low for today has breached the trough from Monday (111-24+); there is now a bit of clear air to the next downside level for the USTs at 110-23+, which marks the trough on Aug 1, 2025 (Trump’s tariff deadline). From a yield perspective, very marginal bear flattening is seen today.


• Delving into the day’s key risk event, all focus on the US inflation data. US July CPI is expected to rise by 0.2% M/M at the headline level (prev. +0.3%), with the annual rate seen rising to 2.8% Y/Y from 2.7%. The core rate of inflation is expected to rise by 0.3% M/M (prev. +0.2%), with the annual rate of core inflation expected to rise to 3.0% Y/Y from 2.9%. Wells Fargo says that the data will bring further signs of higher tariffs pushing up prices. ING opines that if inflation prints in line with expectations, then it should be “tame” enough for some to argue that tariffs have yet to hit.


• Another key data point is July’s Fiscal Budget (USD), expected to show a deficit of 215bln from the prior surplus of 27bln. A deep deficit will increase fears for those not convinced by the current trade policy, given that revenue garnered by tariffs was intended to somewhat offset government spending.


• Elsewhere, Bloomberg reported that Fed Governor Bowman, Fed Vice Chair Jefferson, and Dallas Fed President Logan are reportedly under consideration for Fed Chair; the White House is on track for a Fed Chair announcement this fall. These names join a growing shortlist, which already includes former St Louis Fed President Bullard, former George W. Bush Adviser Marc Sumerlin, Fed Governor Waller, NEC Director Hassett and ex-member Warsh. On the trade front, US President Trump signed an Executive Order that will extend the tariff suspension on China for another 90 days (as expected). Commentary from the POTUS has been fairly constructive, with regards to China; he said that they've been dealing nicely and that he has a very good relationship with Chinese President Xi.

Bunds: -8 ticks, 129.54

• Bunds trade with a slight negative bias, but ultimately in rangebound ahead of US CPI. Currently trading in a 129.49-70 range, with the trough for the day around about 8 ticks below the low from Monday.


• As was the case in the prior session, the docket from an EZ perspective has been exceptionally thin and is unlikely to pick up throughout the week. There was German ZEW data earlier, which showed a dip in sentiment in August, likely with participants disappointed by the EU-US trade deal. More focus on US-data developments (CPI/Retail Sales) and geopolitics. On the latter, it has been confirmed that Ukrainian President Zelensky will join European leaders and the POTUS on Wednesday afternoon. The Ukrainian President has said he will “not give up land” and has urged European leaders to push back on any US plans to do so. Into the Friday meeting between Trump and Russian President Putin, it is still not confirmed whether Zelensky will be in attendance. Nonetheless, Trump said the upcoming meeting with Putin is a feel-out meeting, and he is going to tell Putin to end the war.


• Most recently, Zelensky posted on X that "Russia is not preparing to end the war... they are making movements that indicate preparations for new offensive operations".

Gilts: -35 ticks, 91.91

• Gilts are underperforming today and lower by around 35 ticks, to trade towards the bottom end of a 91.86 to 92.12 range. This comes after the region’s job report, which overall highlighted a cooling labour market but nothing quite alarming enough for the BoE to accelerate the cutting cycle - as such, the report has been considered as more conducive to the Bank's "gradual" monpol approach.


• In more detail, the unemployment rate remained at 4.7% (as expected), HMRC Payrolls Change fell just 8k whilst the prior month’s figure was revised higher – overall suggestive of a recovery in hiring. Moreover, the Employment Change metric printed above the most optimistic of analyst expectations.


• Gilt auction passed without issue, garnering a fairly strong b/c; not entirely surprising given the short-dated maturity of the auction.

12 Aug 2025 - 10:20- ForexData- Source: Newsquawk