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CREDIT OPEN: EU set to lead pick up in supply

EU stocks look set for minor losses at Tuesday's open as the dust continues to settle on Sunday's second-round legislative vote in France which now leaves a protracted period of political wrangling in prospect given the extent to which the main political blocs fell short of securing a majority.

EU markets have been taking that comfortably in their stride though with some asset classes, notably credit, enjoying a further rebound with iTraxx Main & Xover both hitting their tightest levels on Monday since President Macron called the snap election.

In the equity space, Stoxx60 closed out Monday's choppy session just a shade in the red while CAC40 fared a little worse than most with a 0.63% loss. In the rates space, OATs reversed some initial underperformance, seeing the 10yr spread to bunds close 3bps tighter on day at 62bps, the tightest in over two weeks, and well inside the generic wide above 85bps seen on 28th June.

Over in the US, both the S&P (+0.1%) and Nasdaq (+0.28%) posted record closes Monday as the multi-session winning run continued on approach to today's testimony by Fed Chair Powell to Congress, ahead of which, markets have nudged up the probability of September cut to around 75% (via BBG WIRP).

Following the positive Wall Street close, US index futures suggest the winning run could continue today while Nikkei has enjoyed a tech-led surge of up to 2.43% to a record high, stretching its YTD gain to almost 25%,

A lack of key data today leaves Fed's Powell's testimony as the day's main scheduled event while other speakers comprise ECB's Panetta and Cipollone along with Fed's Barr and Bowman.

Late on Monday, BoE's Haskel signalled that he would vote to keep the benchmark rate unchanged for August's monetary policy meeting although there were more signs overnight that the UK consumer is struggling under the current rate burden where the UK BRC reported that like-for-like retail sales in June unexpectedly fell 0.5% YoY.

Auction supply is back on the agenda and comes from the Netherlands, Austria & US.

For more on latest developments see the European Breakfast Briefing.

Tuesday's supply prospects

Issuance is set to step up a gear on Tuesday with a number of issuers across all asset classes already in the pipeline after recent mandates. That includes the European Union with a two-part euro which will be the main volume booster on the day. As a reminder, four issuers decided to go live with euro deals Monday, led by a trio of IG corporates, raising EUR2.65bn and kicking off a week that is expected to yield EUR22bn in euro IG supply.

** European Union EUR new Oct 2029 & Oct 2054 tap

** RHIPAL EUR500m no grow 2yr LSA

** UK GBP Nov 2054 Linker tap

** JBIC USD 3yr global at SOFR m/s +46 area IPTs

** IADB USD 10yr global SDB at SOFR m/s +58 area IPTs

** Aroundtown EUR 5yr

** Groupama Assurances Mutuelles EUR PNC10 Restricted Tier 1 debut

** Zavarovalnica Triglav EUR100m 20.5NC10.5 Tier 2

** Banca Monte dei Paschi di Siena inaugural EUR 6yr social covered

** Banca Popolare dell Alto Adige EUR300m no grow 7yr covered

** Bendigo and Adelaide Bank EUR long 5yr covered

Stateside, high grade corporate borrowers made quick work of topping the average weekly estimate for the twentieth time this year - of USD15bn for the week. In what appeared to be a successful attempt take advantage of the recent Treasury rally and tap the market ahead of Thursday's CPI report, seven issuers blitzed the market to the tune of USD15.25bn in new ex-SSA debt. For more colour see THE ENDGAME.

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