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CREDIT OPEN: Weaker tone poses challenge for go/no-go calls

European politics are firmly in the spotlight to start the week where uncertainty created by a strong showing for the far right in the European elections is set to drive a weaker open for EU stocks as markets fret over the potential for increased political fragmentation and policy deadlock.

Markets remain at historically elevated levels though. Recall that Stoxx600 hit a fresh all-time high on Friday morning before hot NFPs, as well as firm earnings data in the US and also EU, dealt a blow to easing hopes.

In the FX space, EUR is coming under additional weight after French President Macron called a snap legislative election that will take place in just three weeks. At the same time, DXY remains bid as markets trim Fed rate cut bets ahead of Wednesday's FOMC verdict.

Attention also fell on Japan overnight given the increasing speculation that the BoJ will seek to reduce the size of the regular Rinban operations at this week's meeting, with JGBs under pressure as a result.

On today's docket, with so much to unpack on the political front, and given the looming FOMC meeting, it's unlikely that today's items will have much impact where the line-up comprises Italian Industrial Production, EC Sentix Investor Confidence and US NY Fed 1y Inflation Expectations.

On the supply front, a USD58bn 3yr note sale gets the latest US supply cycle underway.

All eyes will be on French markets this morning where OAT futures are deep in the red to the tune of around 50 ticks ahead of the cash open.

For more on latest developments see the European Breakfast Briefing.

Monday's supply prospects

Respondents in our estimates survey have put forward an average combined forecast of ca. EUR31bn (ex-corp HY) in single currency issuance this week, just less than last week's final haul of EUR32.111bn. SSAs are expected to see the bulk of issuance this week, with the European Union's latest offering expected whilst in sterling the UK is also waiting in the wings.

** Motability Operations Group EUR long 5yr/11yr & GBP 27yr socials

According to our US team's weekly issuance poll, on average, the Street is looking for at least USD20bn in additional ex-SSA supply this week now that the bulk of economic data is out of the way. The guesses for next week ranged from a low of USD12.5bn, to a high of USD30bn. See the IG WEEKLY WRAP UP.

What to watch today (and for the week)

** Key Data: IT Apr Industrial Production (09:00), EC Jun Sentix Investor Confidence (09:30), US May US NY Fed 1y Inflation Expectations (16:00)

** Key Events: ECB's Nagel (10:30) , Holzmann (12:00)

** Auctions: US to sell USD58bn 3yr Notes (18:00)

** Viewpoint - The week ahead:

- Fed (Tuesday-Wednesday). No rate change. SEP dots & Powell presser the focus

- BoJ to hold (Friday). Outside chance of a surprise what for pre-meeting leaks

- US May CPI (Wednesday). May PPI/claims (Thursday). May import prices (Friday)

- UK labour market data (Monday/Tuesday). April GDP (Friday)

- Australia May labour market report (Thursday)

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