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EGBS: Resistance Caps Bund Rally, China Policy Easing Vs. Middle East Risk

EGBS
EurozoneBulletGlobalFixed Income BulletsRegionMarkets

Early London demand for Bunds, futures last +31 at 134.81, sticking to a 134.62-85 range.

  • The bid is perhaps reflective of heightened geopolitical risks centred on the Middle East (evident late Monday).
  • The contract initially traded through yesterday’s high at the overnight open.
  • The September 18 peak (134.86) capped the rally.
  • A pro-growth Chinese monetary stimulus package then supported equities and weighed on bonds.
  • Zooming out, our technical analyst notes that the recent break below the 20-day EMA continues to signal scope for a deeper retracement near-term, potentially towards the 50-day EMA (133.63).
  • OATs will remain in focus after yesterday’s spread widening saw the OAT/Bund threaten a break of 80bp.
  • The German IFO survey headlines the European data calendar today, with comments from ECB’s Nagel, Muller and Escriva also scheduled.
  • Supply-wise, Spain announced a mandate for a new Nov-36 ObliEi. We expect a EUR3-5bln transaction to take place today. Elsewhere, Germany will sell EUR4.5bln of the Sep-26 Schatz.
  • ECB pricing will also be eyed after yesterday’s PMI-driven dovish adjustments.
  • Some sell-side names flagged heightened risks of an October cut following the data.
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Early London demand for Bunds, futures last +31 at 134.81, sticking to a 134.62-85 range.

  • The bid is perhaps reflective of heightened geopolitical risks centred on the Middle East (evident late Monday).
  • The contract initially traded through yesterday’s high at the overnight open.
  • The September 18 peak (134.86) capped the rally.
  • A pro-growth Chinese monetary stimulus package then supported equities and weighed on bonds.
  • Zooming out, our technical analyst notes that the recent break below the 20-day EMA continues to signal scope for a deeper retracement near-term, potentially towards the 50-day EMA (133.63).
  • OATs will remain in focus after yesterday’s spread widening saw the OAT/Bund threaten a break of 80bp.
  • The German IFO survey headlines the European data calendar today, with comments from ECB’s Nagel, Muller and Escriva also scheduled.
  • Supply-wise, Spain announced a mandate for a new Nov-36 ObliEi. We expect a EUR3-5bln transaction to take place today. Elsewhere, Germany will sell EUR4.5bln of the Sep-26 Schatz.
  • ECB pricing will also be eyed after yesterday’s PMI-driven dovish adjustments.
  • Some sell-side names flagged heightened risks of an October cut following the data.