With GDP coming in at 3.4% and personal consumption at 3.8%, we still see positive growth momentum, with PCE coming in line with expectations. Overall, the inputs from the AI capex cycle are a net positive for the US economy but put some pressure on bond supply and yields. Today, MSFT announced it will tap the bond market for $25bn across various tenors. I keep saying that this is a remarkable change from previous years, when the supply of bonds and equity was quite low; now we are seeing more equity issuance, etc. Nothing dramatic, but these are elements to keep in mind, as capital is scarce and you need to provide returns to attract investors.

With that said, since sentiment is a big driver of the AI theme, and therefore of economic growth (via the capex cycle), I think the Fed is somewhat reluctant to do too much tightening when oil is moving higher, there is uncertainty around the midterms, and AI could take a toll.

This is fairly clear to me when we look at the ECB. Today’s press conference was rather boring, with nothing new besides the news of Lagarde leaving (thank God), as it looks like we are at a sort of cap for yields. Yes, we have inflation, etc., but I think we are at a point where the tightening has been done (via hikes, spread widening and credit markets), and a growth heat check will come into play. Economic surprises have drifted lower, and we may see some weaker data coming up. At least, that’s my vibe check. That’s why I think there is scope for 5s to outperform 2s and 10s, as I wrote here.

Looking at our global checklist, we see the following:

We continue to be constructive on the AEX due to the AI theme, which is also supported by a positive tailwind from EPS revisions and an overall positive market score. The KOSPI ranks second, but it’s untradable with 71% realized volatility. I like kimchi, but this is a bit too much. We have a positive stance on the Nikkei and the SPX. We think the SPX is being beaten up due to Google’s poor results, while TTF and oil moving lower are boosting European indices. Can we have a rotation trade out of the US into Europe? Yes, we think so, given the midterms and light positioning in Europe. Bullish.

On the rates side, the global checklist is officially under review and new construction. It will be back shortly. With that said, we had a complete washout in OATs and BTPs in October, with wild moves at the front end: carry players got obliterated, and now we see dead bodies around. If you have risk space, we think this is the time to buy. We like the OAT front end, with 64bp of carry, via ASW or versus Schatz. The same applies to Italy via BTS.

That’s all.

Best,

spaghettilisbon

Looking at 1y1y rates, over the past month we have seen lower rates across markets as reported in the table below. USD was the driver, while GBP was the laggard. We have also seen a peak in EUR rates (more on it later). Quite interesting to see how we are at 1m range lows, while still sitting at quite elevated levels on the 3m window.

The same happened in the 5y5y space, where all rates moved lower, led by Japan with 5y5y down almost 35bp over the last month to 3.22; range-wise, they are roughly at 60% of the range, only Japan is at 21% so it looks like 5y5y Japan is a good spot to eventually pay if you believe so.

On global 10s, we clearly see the risk-off in OATs showing up. The spread vs Bunds widened significantly, and we are around 149bp at the time of writing. BTPBund stands at 118bp, so BTPs are now trading through ~31bp. Bonos continue to be a ‘safe’ bet in the periphery space; they widened 18.6bp last month vs Bunds and still remain a positive theme for the investor community. We don’t think we saga on France is closed, but the fact that Moody’s didn’t downgrade is spurring some market relief, spilling also into Italy, Spain, Portugal, and Greece vs core countries.

With the ECB coming up this week, there is something more to add. The situation with France remains fragile, as the price outlook. The rise of Brent to 114$ with the EUR moving lower to 1.11 doesn’t quite help the inflation outlook. Indeed, as the PMI EZ points out:

Moreover, we are seeing some upside in TTF as the weather will be cold and we could see some issues rising there. Over the last month, TTF is up 32%.

So I’d say the ECB can’t be that dovish but needs to reassure the market on both the inflation outlook and the French situation. Yet, as we said before, Italy survived years with high spreads; we think France can eventually do it. The problem is the volatility, and once it settles (maybe late next year), we could see structural buying.

On EUR STIR, last month's move showed once again that reds moved the most (~22.5bp), but it was a parallel move, as most of the curve moved more or less 21bp consistently. For z6z7 we still see 50bp priced, mostly coming from Z6M7, with the usual trade we flagged (BERZ6Z7 and BERZ6Z8) having retraced and showing how the body of the leg is the trade to be on if you expect higher rates.

Lastly, we have seen a pick-up in correlation between equities (Euro Stoxx) and bonds (bund yield) over the last period. If you plot it on a chart, you can see how the trend in equities started around mid-August, while only in late September yields took the same direction, and such a trend came in with TTF picking up and oil prices too amid widening in OATBund. I think we need to monitor growth from now on as econ surprises drifted back down, and we need to square things up.

That’s all for today.

Best,

spaghettilisbon

What a wild day in markets once again. Good news is showing up on the diplomacy front, with Trump opening up to talks with the Iranians at the UN General Assembly in New York. This drove oil prices lower, with Brent at the time of writing hovering around $100. Same for TTF, with futures trading around 73.90, down 5.7 EUR on the day.

Overall, this helps risk sentiment a lot across the board. We see both equities and bonds rallying: we currently have a positive stance on the 60/40 portfolio, and we think it can perform during this period of escalation.

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It’s Fed day, and I guess it’s a good time to review the state of the markets and provide some color from my side.

Let’s start with recent moves in the US, where we can clearly see the massive repricing that went through the SOFR curve.

Yields moved higher, especially in the whites and reds. This is normal: it usually happens when you g…

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Tomorrow we will have the ECB which will raise the deposit rate to 2.50% as anticipated. We’ll see their updated projections, and we will know more about what they do expect. As of today, we just work with the data we have and observe what’s in front of us.

First, pricing for the ECB is clearly aggressive. Looking at ESTR futures, we are pricing another 2 hikes coming with terminal rate around 3.05% in September 2027.

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1. US Treasury Bond Buyback Announcement: Bessent surprised markets with a plan to double longer-dated bond repurchases. Treasuries whipsawed, the 10-year settled near 4.69%, and the dollar hit a three-month low, drawing yield curve control comparisons to Japan.

2. Bitcoin’s Best Week in Over Three Years: Bitcoin jumped about 22%, trading near $77,000, its best week since March 2023. Crypto-linked stocks like Strategy, Coinbase, and Robinhood rode the wave too.

3. Monte dei Paschi’s €34 Billion Dual Bank Bid: MPS launched simultaneous offers for Banco BPM (€25.3bn) and Banca Generali (€8.7bn), a defensive move to fend off Intesa Sanpaolo.

4. Samsung’s $80 Billion Shareholder Return Program: Samsung plans to return up to 110 trillion won to investors, including 30 trillion won in Q3 dividends. Comes on the heels of SK Hynix’s $29bn buyback, both fueled by AI chip demand.

5. Canada-US Trade Deal Progress: Carney is closing in on a deal, with Canada expected to accept reduced US tariffs on aluminum, steel, and autos in exchange for dropping its own retaliatory measures.

Next week: Jackson Hole, July US PCE, and Nvidia earnings.

We have seen some wild moves, with yields moving higher at the beginning of the week in euro space but sideways since Tuesday, hovering around 3.25% on the Bund. The big move was in US fixed income, where Bessent came out with double the amount of buybacks. Clearly the spread vs Bunds moved in favour of UST overperformance, something we have been discussing in recent weeks. We noted how the 1y1y differential was showing 10y UST to be cheap vs Bunds, yet at the time this was a very contrarian trade given the “hike” discussions from the Fed. Despite the announcement, yields retraced higher, but swap spreads continue to perform quite well, sitting around -70.85 on the 30y, up from around -73.5 pre-announcement.

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After a miss on PPI, bets on Fed hikes moved lower again, spurring a rally in fixed income markets and a boost to equities too.

At the time of writing we see USD 1y1y at 3.99, down 8.7bp on the day. Over the past 5 days it is the best performing market compared to EUR, GBP and JPY. Same dynamics in the 5y5y sector, as reported below.

Gl…

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First, we cover net flows from the government into private…

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Market quite volatile these days. Just as reference, the 10y Bund yield moved over the last 10 days on an absolute median of 3bp per day, so yes there was some volatility. This morning we are seeing a sharp move versus the one we saw last week, as Trump said that the US and Iran are having talks and strikes were called off. We’ve seen this movie already. Probably Donnie is long.

With that said, we are going into the holiday season and the market will probably be quite dead over the next 2-3 weeks. As always, I remind you either to take time off or to sharpen your tools. This is a great time to do it.

Scanning across rates, I do not have massive convictions on some trades, actually, very few. Let’s review the changes over recent times though.

We see how over the last month the UK underperformed on 1y1y, but the BoE sounded quite dovish last week in their press conference and triggered a decent move in the whites (reds were not able to follow through because of oil prices).

We also saw EUR moving 27.8bp, followed by 1y1y JPY and USD. All of them were led by the oil price move, while on the 5y5y sector we actually saw JPY lower over the last month and the US leading the move. The latter mostly happened over the last 5 days, I’d say, after the FOMC.

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As of today, a September hike is a done deal. Then, on the back of Trump tweets, we have a push higher.

[RTRS] 23 Jul – 16:29:27 — Trump said on Thursday that he is seriously considering restarting major combat operations in Iran. —Axios

We see Schatz moving to 2.…

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Since I’m headed on holidays, I thought it was time to throw out some thoughts on current markets across equities, rates, and commodities. Not discursive just bullet points.

US: With the minutes published a couple of days ago, we continue to see potential hikes coming later in the year. Inflation still looks like an issue, and the CPI coming…

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Temperatures here are quite high and I’m sweating at 10pm. Sometimes I truly miss AC.

With that said, what a day, with NFP coming in below expectations and triggering buying at the front end, steepening the curve. When we look in detail at positioning, we see that the USD front end is still quite shorted by CTAs. We see it also in the fast momo 1 month and 1 week change, in how short positions were added by the ‘fast money’, as we could call them.

We see on the 2 year futures a score of -0.69, and probably today we saw some short covering. July, I’d say, is gone as a meeting. I had the bias to fade it and pay December 26 or September 26, as it made more sense logically given the task force Warsh announced. With that said, scores remain mixed along the curve. Long end CTAs are long, neutral around the 7/10y point, while still quite short on 2s.

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I want to walk you through why that’s interesting, who the players are, and how I’m thinking about positioning. This is the first piece in a dedicated series.…

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It’s time to provide a comprehensive review of markets on where we stand and what’s next. First, on the Iran/US front we continue to have positive news developments as peace talks continue and more ships are crossing in the Strait of Hormuz. From the Bloomberg index I cover, we are at 14 and probably we will continue to see the normalization trend going forward. As a consequence, crude oil is moving lower along with Brent, the latter hovering around 73.8 dollars per barrel at the time of writing. This is overall positive news for economic activity as higher prices allow for better growth, as the PMI comment highlighted:

“The service sector continues to grow at an especially subdued pace, reflecting push-back from customers over high prices amid low levels of consumer confidence in particular. While there is better news from the manufacturing sector, we remain concerned as factory growth continues to be temporarily buoyed by inventory building amid supply fears. Supply delays grew more widespread in June.”

We therefore expect econ activity to come back stronger as sentiment picks up again. This boost in confidence also comes around a period of 4 weeks where the fiscal impulse will inject USD 254 billion into the US private sector. All else equal, this is ultimately bullish for the economy. Yet, be mindful about the sampling period of PMIs which did not include the MoU signing. Probably we will have upward revisions when the final print is released.

After the first press conference of Warsh, data is king and forward guidance is scrapped. Therefore, interpreting data will be key (you’ve read this ad nauseam probably), and here I’ll try to provide some hints on what I’m seeing. First, the next NFP print coming on the 2nd of July will be quite crucial as it could be the fourth print above 100k. As long as wages do not heat up (not seen in NFIB survey currently) that much, I think this is overall bullish for the economy, but I doubt that July with 9bp priced is a window of opportunity. Probably that meeting will lay out the framework (with the different task forces) on how the Fed will move going forward. Potentially it will inject some volatility in the rates market, but until then there is a lot of theta to go through.

Looking at the indicators I follow, we continue to see economic surprises staying quite elevated, around 50ish, so the economy beat expectations by a mile, I’d say. Short-term, I see still a positive environment where ADP trended lower but remained positive. They peaked around April 20th but we are above 20k jobs and at the same time we are seeing measures such as redbook y/y at 10% and trending upwards since the beginning of 2026. This is reflected in the Weekly Economic Index, printing a 3.10% based on short-term indicators. Therefore, I see the potential for more upside surprises going ahead as sentiment recovers. Sentiment on the equity side is buoyant and we have a positive tailwind from the fiscal impulse. Bullish.

This puts us in the perspective of trying at one point to short some US fixed income. As of now, the US ranks across the board at the bottom of the investment universe, just better than Bunds. Quite interesting is to see the systematic positioning across the board. Our CTA score shows how the front-end is massively shorted while long-end is received.

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We entered a new macro regime with the first hike from the ECB since 2023. It was driven, as expected, by the inflationary impulse from the Iranian conflict and the sustained upside revision in staff projections. The ECB now expects 3% on headline for 2026, core at 2.5%, with growth trimmed lower to 0.8%. Effectively, on a “regime mapping” standpoint, this is a stagflationary regime. The scenario analysis prompted them to hike no matter what. There was no optionality in their language.

The market priced it perfectly. As we pointed out last week, and as I tweeted before the press conference, we thought there was value in receiving the front-end. But now, given the recent newsflow from the Middle East, we may have seen the peak in dovish pricing. Yet over the past 5 days, as of Friday 4pm London time, the 1y1y section performed the best. We were playing the Z6 and H7 contracts as part of the trade idea, and both are now trading in their upper range on a 1m basis (68% and 73% respectively), while still marginally above 50% on the 3m range.

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We start by covering Europe, as today we had the full PMIs. As shown below, we printed a 48.5 versus 48.8 the previous month, and by looking at the trend, growth weakness is likely to emerge. Not surprisingly, given the tightening in conditions due to higher oil prices. Prices, as the comment from S&P Global highlights, are running higher and could hit 4%.

The ECB on the 11th is going to hike 25bp, but after that it’s quite hard to say what they are going to do. Looking at the comment from Schnabel, the June hike is a given, but a lot will then depend on price dynamics and the pass-through into the economy. By looking at ECB pricing, we are just below 50bp on the December meeting, going to 50bp in H7. I think this is currently fair and don’t see much value running shorts or longs at the moment. I wouldn’t mind running M7Z7 flatteners if the Iran war continues and, at that point, the rhetoric remains “ECB gonna hike,” as I think growth there will slow down significantly and demand destruction will run its course.

This also leads me to not being that bullish on peripheral spreads. In the current environment, we are seeing BTP-Bund in the low 70s, and I don’t see a catalyst for a much tighter spread. Italian economic performance seems to stay somewhat stable. PMI came in at 50.4 versus 50.5 in April, but, as S&P Global notes, we are seeing services under pressure. I struggle to see meaningful development going forward: the expected GDP forecast has been revised lower, CPI higher, and the budget balance is pretty much unchanged (-3% in 26, -2.8% in 27). But the chants for the government are simply in line with more spending, and it makes sense, as they are trying to defend the economy going into an election year and can’t afford any big setback. I’m keen to be biased toward a widening of the BTP-Bund spread, but it has to be played tactically.

That said, I think a more juicy widening may be against OATs, and it’s easier to play. We have the usual budget discussions coming up, and economic performance is terrible, to say the least. PMI at 44.9, versus a prior 44.9, a 28-month low: “ring recession alarm bells.” Wider we go, I’m saying.

Maybe you can partially fix it with a win at the World Cup but I guess we will probably need a >5% deficit to offset the recession. OATs, yours.

I also want to spend a few words on Germany. There is optimism there; there are inflationary pressures, but they look more stable. By looking at the fiscal impulse, the government is delivering, especially on the defence side. Looking at it GDP-adjusted, we stand at 3.77% as of April, 8bp higher than last year on total spending. In defence, we stand at 50bp of GDP, 11bp above last year. The government is delivering. I keep wondering whether it will be enough to offset the tight conditions driven by higher energy prices, and, to be honest, I don’t have an answer.

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We provide a review of the current state of affairs in global macro. Last week we focused on Japan, while this time we take a look at Europe and a bit on the US. Plus, we provide an update on our systematic scorecard.

In European markets, I’ve been quite vocal about receiving ECB pricing whenever we approached 3 hikes. This strategy paid off, and by looking at the recent PMIs, we can conclude that the chance of an EZ recession going forward is quite high. First, the EZ PMI slipped to 47.5 from 48.8, the second month in a row below 50, and the trend is clearly deteriorating, driven by services, which printed 46.4. Manufacturing is still holding up (likely due to front-running of orders) and printed 51.4.

When we look at the comments, it’s pretty clear how cloudy the outlook is:

Inflation is a problem. The ECB will act; it will be a hike, which will worsen the outlook. Pricing is still for 53bp into Z6. We are priced at the top of the range on a 1M basis, so it’s simply better to reduce positioning. Yet, there is more juice to come if we reprice higher in yields again. Probably more flattening on the Z6Z7 section of the curve can be expected.

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We cover a bit of economics and then into markets. Since we ar…

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