MNI US OPEN: ECB Set For First Hike In 11 Years

MNI: UK JUN PSNCR GBP12.61 BN

*UK JUN PSNB GBP+22.11 BN

*UK JUN PSNB-X GBP+22.88 BN

*UK JUN CGNCR GBP12.2 BN

FIXED INCOME: All eyes on the ECB

• All eyes are on the ECB meeting today, with markets pricing in around 34bp at writing (i.e. 25bp fully priced with around 35% probability of a 50bp hike priced). Following the Reuters sources piece earlier this week, the September meeting has moved to price in a cumulative 98bp and so if there isn't a 50bp hike today and the ECB doesn't strongly hint towards a larger than 50bp hike we are likely to see the curve come back a bit. However, whether that changes expectations of where rates will be in 1-2-years time is more debatable and there is still scope for the ECB to use hawkish language together with a 25bp hike. Note that the timings for ECB decisions have changed. The policy statement / decision will be released at 13:15BST / 8:15ET with the press conference beginning at 13:45BST / 8:45ET.
• There will also be close attention paid to the anti-fragmentation tool, particularly now that Italian political instability (with Draghi resigning) has seen BTP-Bund spreads widen once more. 10-year spreads had been over 20bp wider on the day earlier, but are now back to 13bp wider at the time of writing.
• The morning session has also been busy for issuance with Spain, France and the UK all holding auctions.
• Elsewhere today we will receive US weekly claims data, the Philly Fed survey and the leading index.
• TY1 futures are down -0-4+ today at 117-20+ with 10y UST yields up 1.9bp at 3.046% and 2y yields up 1.0bp at 3.239%.
• Bund futures are down -0.36 today at 150.92 with 10y Bund yields up 3.0bp at 1.284% and Schatz yields up 4.3bp at 0.634%.
• BTP futures are down -2.12 today at 120.73 with 10y yields up 17.1bp at 3.554% and 2y yields up 17.4bp at 1.932%.
• Gilt futures are down -0.44 today at 114.74 with 10y yields up 4.5bp at 2.183% and 2y yields up 5.9bp at 2.110%.

FOREX: EUR Treads Water Below Week's Highs Ahead of ECB

• Focus turns to the upcoming ECB rate decision, with markets still split as to whether the bank raise rates by 25 or 50bps at today's meeting. Outside of headline rates, markets will also be looking for clarity surrounding the so-called Transmission Protection Mechanism - a mechanic the bank plan to use to combat unwarranted widening spreads in Eurozone government bond markets.
• The conditions surrounding the TPM will be a particular focus today as the Italian 10yr yield surges higher on the resignation of the Italian PM Draghi, who failed to corral sufficient support for his broad coalition. The Italian/German 10y yield spread has blown wider by over 10bps today, with the Italian 10y yield now higher than it's Greek counterpart.
• The Italian news has done little to hinder the EUR's progress, however, with the single currency off the session's best levels but avoiding any test of the late Wednesday lows.
• Equity futures are generally lower early Thursday, indicating a softer open on Wall Street later today. Nonetheless, the risk backdrop remains favourable, with the e-mini S&P printing a new monthly high this week and piercing key resistance at the 55-day EMA.
• Outside of the ECB decision, weekly US jobless claims data is due as well as the July Philadelphia Fed. Outside of G10, both the South African and Turkish central banks also decide on policy.

EQUITIES: A Little Softer Pre-ECB

• Asian markets closed mixed: Japan's NIKKEI closed up 122.74 pts or +0.44% at 27803 and the TOPIX ended 4.15 pts higher or +0.21% at 1950.59. China's SHANGHAI closed down 32.723 pts or -0.99% at 3272.001 and the HANG SENG ended 315.59 pts lower or -1.51% at 20574.63.
• European stocks are weaker pre-ECB, with tech leading and energy dragging (and Italy underperforming amid political uncertainty): German Dax down 89.03 pts or -0.67% at 13317.24, FTSE 100 down 21.31 pts or -0.29% at 7320.4, CAC 40 down 9.51 pts or -0.15% at 6216.02 and Euro Stoxx 50 down 10.69 pts or -0.3% at 3584.12.
• U.S. futures are a little softer, with the Dow Jones mini down 88 pts or -0.28% at 31765, S&P 500 mini down 9.25 pts or -0.23% at 3953.25, NASDAQ mini down 22.75 pts or -0.18% at 12442.5.

EQUITIES: A Little Softer Pre-ECB

• Asian markets closed mixed: Japan's NIKKEI closed up 122.74 pts or +0.44% at 27803 and the TOPIX ended 4.15 pts higher or +0.21% at 1950.59. China's SHANGHAI closed down 32.723 pts or -0.99% at 3272.001 and the HANG SENG ended 315.59 pts lower or -1.51% at 20574.63.
• European stocks are weaker pre-ECB, with tech leading and energy dragging (and Italy underperforming amid political uncertainty): German Dax down 89.03 pts or -0.67% at 13317.24, FTSE 100 down 21.31 pts or -0.29% at 7320.4, CAC 40 down 9.51 pts or -0.15% at 6216.02 and Euro Stoxx 50 down 10.69 pts or -0.3% at 3584.12.
• U.S. futures are a little softer, with the Dow Jones mini down 88 pts or -0.28% at 31765, S&P 500 mini down 9.25 pts or -0.23% at 3953.25, NASDAQ mini down 22.75 pts or -0.18% at 12442.5.

COMMODITIES: Dollar Rebound, Risk-Off Move Weighs

• WTI Crude down $3.44 or -3.44% at $103.5
• Natural Gas down $0.28 or -3.45% at $7.421
• Gold spot down $14.06 or -0.83% at $1707.94
• Copper down $5.9 or -1.77% at $333.05
• Silver down $0.36 or -1.95% at $18.8555
• Platinum down $7.82 or -0.91% at $866.03