EGBS: Stabilise After Early Rally, US Payrolls In Focus

Bund futures have stabilised just above the Aug 22 high after core FI rallied through the morning, currently +55 at 134.60. A clear breach of the Aug 22 resistance (at 134.50) would expose 134.95, a Fibonacci retracement level.

• Soft industrial production data from Germany and France will have supported FI this morning alongside heavy European equity performance.
• The Eurozone Q2 final GDP reading was revised a tenth lower to 0.2% Q/Q, which wasn’t much of a surprise after Irish data saw a downward revision yesterday.
• Meanwhile, compensation per employee growth was 4.3% Y/Y, well below the Eurosystem staff’s 5.1% June projection (but again, this wasn’t a meaningful surprise for markets).
• The German cash curve has lightly bull flattened, while 10-year peripheral spreads to Bunds are slightly wider owing to the weak equity performance.
• The 10-year OAT/Bund spread continues to hover around 70bps, with new PM Barnier now needing to form a Cabinet with President Macron.
• The US payrolls release remains the key focus for global markets this afternoon.