Americas Breakfast Briefing

US OPEN/EVENTS AHEAD

Wednesday's US 5yr auction results were deemed 'mediocre' at 4.121% & 2.4 b/c vs 4.331% & 2.35 b/c prior. Today's US supply brings a $44bn 7yr notes (4.276% & 2.58 b/c prior) while Canada sells 2.75% 2055 bonds. Overnight, Japanese Jun PPI rose to 3% y/y from 2.7% prior vs 2.6% f/c. The US data calendar ahead includes Q2 advance GDP (2% f/c vs 1.4% prior), Personal Consumption (2% f/c vs 1.5% last) & GDP Price Index (2.6% f/c from 3.1%). Initial Jobless Claims (238k f/c from 243k previously) & Jun preliminary Durable Goods (0.3% f/c vs 0.1% prior). The big feature again yest was massive yield curve steepening as the short dates heavily outperformed. The US 2-10yr yield spread settled at -14.7bps (+11.8bps in 2 days), a wide since Jul 2022 with -6.5bps the next target & has widened to around -12.8bps this morning. The 2yr yield outright has seen a session nadir of 4.3379% (low since 2nd Feb) with a 2024 base at 4.1168%. The S&P500 index dumped 2.3% to a 6wk low close at 5427.1 with the 38.2% Fibonacci retracement level of the April-July rally kicking in at 5396.1 & futures are little changed.

EUROPEAN ROUND UP

Core EGB futures traded in 54-83 tick ranges with best gains of 39-44 ticks. The 10yr yield spread between the benchmarks has flattened from a near three month wide at 171.2bps to 170.4bps. Yield curves have maintained their steepening path on short end underperformance, the German & UK 2-10yr yield spreads have widened to highs since 30th October 2023 and 2nd March 2023 respectively. There has been a decent raft of data in the first half with French confidence metrics moderating from prior and missed their consensus forecasts & similarly, German IFO components followed suit, coming in weaker and missed expectations. Supply came from Italy who sold EUR 3.5bn of the new 3.1% 2026 bonds at an average yield of 3.1% & with a 1.5 bid to cover ratio, they sold EUR 1.25bn 1.5% 2029 index-linkers at 1.6% yield & 1.51 b/c & also sold EUR 1bn 2.55% 2041 linkers at 2.19% with a 1.48 b/c. Turning to riskier assets, equities have come under heavy selling pressure, declining as much as 1.75% in CAC which fell to a low since the 19th January. Brent has dropped to a five week nadir at $80.23brl.

MARKET HEADLINES

* French Jul Business Confidence fell to 94 from 99 vs unchanged predicted

* French Jul Manufacturing Confidence down to 95 from 99 prior vs 99 f/c

* French Jul Production Outlook Indicator -18 from -12 vs a steady -12 anticipated

* German Jul IFO Business Climate softened to 87.0 from 88.6 prior vs 89.0 f/c

* German Jul Current Assessment down to 87.1 from 88.3 vs 88.5 f/c

* German Jul Expectations softened to 86.9 from 88.8 vs 89.3 predicted

* UK Jul CBI Trends Total Orders fell to -32 from -18, missed the -20 f/c

* UK Jul CB1 Trends Selling Prices down to 2 from 20 vs unchanged f/c

* UK Jul CBI Business Optimism -9 from 9 prior vs 14 expected

* Italy sold EUR 3.5bn 3.1% 2026 bonds at 3.1% &1.5 bid to cover ratio

* UK 2yr yield down to near 6mth nadir at 4.3379

* UK 2-10yr yield spread steepens to wide since 2nd Mar 2023

* US 2-10yr spread out to wide since 12th Jul 2022

* FTSE down to 3mth low & CAC low since 19th Jan

* Poor July German Ifo underlines growth concerns

DAY AHEAD

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