EUROPEAN FIXED UPDATE: USTs near enough flat into NFP, Bunds softer but unreactive to HICP, Gilts heavy

USTs: -3 ticks, 110-30

• A slightly softer start to the final day of a very busy week. For today, the highlights are July’s NFP report, ISM Manufacturing and expected explanations of dissent from Fed’s Bowman and Waller.


• Thus far, USTs have been holding around the low end of a 110-28+ to 111-00+ band. As it stands, and despite the extensive amount of newsflow, USTs are set to end the week near-enough unchanged in 110-24 to 111-14+ WTD confines. The bearish bias this morning appears to be tariff-induced (i.e. higher inflation, firmer yields); though, the short-end of the curve remains near-enough unchanged given the last two day’s hawkish Powell-driven move, and before NFP and remarks from the dovish dissenters.


• For NFP, the headline is seen at 110k (prev. 147k), Unemployment Rate at 4.2% (prev. 4.1%); post-Fed, Chair Powell said the unemployment rate is the figure to watch. Adding that most Fed officials believe that the labour market is at or near maximum employment, but downside risks remain; however, he did appear more focused on the inflation side of the mandate.


• Into the series, markets currently imply around 11bps of easing in September with a cut not seen until December (-33bps). As a reminder, President Trump said he is under the impression the Fed will cut in September

Bunds: -29 ticks, 129.41

• In the red, to a slightly larger degree than USTs but faring better than Gilts (see below). Pressure this morning is likely a function of the latest tariff measures from Trump, measures which have seen tariff increases for several key economies and as such biased yields across the curve with a clear steepening bias in the early morning; though, this does come after a period of flattening for the curve.


• No significant reaction to any of the morning’s PMI data. The reads from Spain and Italy came in above consensus while the final figures from France and Germany were revised down modestly. Altogether, left the EZ figure unchanged at 49.8. On the series, HCOB wrote that the sector is regaining momentum and is being led by the smaller nations.


• The day’s main EZ event was July’s Flash HICP, printed hotter than expected for the three main Y/Y metrics with all measures remaining at the prior rate. An outturn that was not entirely unexpected given the hawkish skew of national data thus far. Note, the Services Y/Y figure moderated from the prior.


• Overall, the data spurred no significant reaction but confirms that markets were seemingly correct to remove all but any chance of a September cut, with a c. 5% chance implied (roughly in-line with pre-release levels).


• Bunds enter the US morning in the red but around 30 ticks off lows in 129.21-54 confines.

Gilts: -51 ticks, 129.41

• Again, no fixed income pertinent newsflow specifically for the UK. Pressure is likely a function of the global inflation implications of the latest tariff measures, as discussed.


• Currently, Gilts are lagging peers. However, this seems to be more a function of the bouts of relative outperformance seen over the last few days rather than a UK specific. Currently, at a 91.49 low and, despite the extensive 91.16-92.28 WTD range, set to end the week with near enough unchanged.


• The day’s Final Manufacturing PMI saw a modest revision lower but spurred no move. Internal commentary highlighted some cautiousness into the Autumn Budget and reiterated that for the UK the labour market remains the main point of concern.


• Next week, the UK highlight will be the BoE. Markets currently price in around an 80% chance of a 25bps cut. However, given some of the recent data outurns, the decision could be subject to a three way vote split with some voting for 50bps and some for unchanged; overall though, a 25bps cut is the base case.

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