Debt Ceiling Hope, Hawkish Fedspeak & Italian Sovereign Credit Matters Dominate

E-minis firm pre-NY, even with the planned Biden-Congressional leadership meeting pushed into next week. The bid in equities is linked to seeming progress in staff-level talks re: those discussions, per people familiar with the talks, cited by several press outlets.

• U.S. Tsys are steeper & cheaper, with TU/UXY steepener block flow observed in Asia-Pac & early London hours. The bid in e-minis and hawkish Fedspeak from Bowman, who noted that “recent economic data have not provided evidence that inflation is on a clear downward path and the Federal Reserve may need to tighten monetary policy further” have been the drivers, with a slight dialling back of FOMC cuts priced into the OIS strip seen.
• BTPs unwound early widening vs. Bunds. The sovereign credit rating situation is front and centre for BTPS, as ECB QT & banking sector TLTRO repayment worries dominate ahead of potential updates from Fitch (current rating: BBB; Outlook Stable) & Moody’s (current rating Baa3; Outlook Negative), slated for today and next Friday, respectively.
• Fedspeak from Daly provides the highlight of the docket during NY hours, while Fed Governor Jefferson and St. Louis Fed President Bullard are due to speak after markets close. Participants will also look at the latest inflation expectations within the U.S. UoM sentiment survey with interest.