FOREX: FX OPTION EXPIRY

The Polish presidency of the Council of the European Union has called an emergency meeting of EU trade ministers for this afternoon following the announcement of the imposition of tariffs on EU steel and aluminium exports to the US. Ministers will meet virtually from 1600CET (1000ET, 1500GMT). 

• As Politico reports, there remain divisions between EU members on whether the Union should respond forcefully with its own tariffs or other measures, or attempt to placate US President Donald Trump in order to avoid more potentially damaging tariffs on sectors like the autos industry.

Commerzbank believe that “converging duration free-float of Bunds with that of U.S. Treasuries and gilts suggests that global ASW-curves will have to align further. We hence reiterate our structural shorts in (ultra-)long Bund-spreads, also vs. Schatz, and in 30y OATs vs. swaps.”

Supply-related pressure and a bid in European equities weighs on core global FI markets, biasing gilts lower at the open.

• Futures pierce yesterday’s base, printing as low as 92.83.
• First support at the 20-day EMA (91.63), with the short-term bullish cycle still intact but losing some momentum.
• Yields 1-2bp higher across the curve.
• 10-Year spread to Bunds 1bp tighter at ~207bp, sticking within the multi-week 203.8-213.3bp closing range.
• Local media outlets dominated by the latest fiscal warnings, with the NIESR noting that the UK’s fiscal headroom will have been fully eroded when the new OBR forecasts are released next month. This increases the risk of further tax hikes and spending cuts, although isn’t a new line of thought.
• Hawkish drift in GBP STIRs as gilts soften. BoE-dated OIS showing 58bp of cuts through December vs. ~60bp early today. SONIA futures flat to -2.5.
• Looking forwards, comments from BoE MPC member Greene are due later today (15:00 GMT).
• On the supply front the DMO will come to market with GBP1bln of 0.625% Mar-45 I/L supply.