NATGAS: Natural Gas End of Day Summary: Henry Hub Down 2.5%

Exit polls on the German election so far leave some uncertainty on potential coalition outcomes, while the possibility of debt brake reform apperas likely as of now.

• Exit poll results stand at: CDU/CSU 28.9% (24.1% 2021), SPD 16.2% (25.1% '21), Greens 13.0% (14.8% '21), FDP 4.9% (11.5% '21), The Left 8.5% (4.9% '21), AfD 19.9% (10.3% '21), BSW 4.8% (new).
• Both FDP and BSW remain with some chances of gaining above 5% of votes ultimately - and would not get any Bundestag seats if they fail to do so as per a constitutional threshold.
• The "Grand Coalition" of centre-right CDU/CSU and centre-left SPD (which was seen as the most likely ahead of the election) would only have a Bundetag majority if both FDP and BSW will remain below named threshold. Current polls tilt towards that but leave some uncertainty.
• If pro-business FDP were to make it into Bundestag, that would make a "Germany" coalition (consisting of CDU/CSU, SPD and FDP) the most probable. Such a three-party coalition outcome would be seen to bring less stability to the government. Another option in that case would be the "Kenya" coalition (CDU/CSU, SPD and Greens) - which apperas rather unlikely, though, as CSU and Greens have partially opposing views.
• From a debt brake point of view, a 2/3rds Bundestag majority in favour of parties open for reform seems likely from current polls. However, the Left will likely be needed for such reform, and might push for some concessions from the governing parties then, complicating negotiations.
• More clear results are expected overnight.

The next Fed rate cut is again fully priced for the July meeting, following a 6bp futures-implied move today on the back of soft Services PMI data exacerbated in the afternoon by a risk-off move in equities.

• This comes following a run of mixed-at-best data (retail sales, housing starts, various consumer and business surveys) in the last week and is the first time a July cut has been priced since Feb 7 (just prior to January payrolls data) - previously it was priced for September.
• There's now almost two rate cuts priced through the end of the year (47bp through the December FOMC, an increase of 9bp on the day), the most seen since Feb 5.
• For the week, implied 2025 rate cuts have ranged between 35 and 48bp (the latter seen in the last hour of trade)
• See our US Macro Weekly for more on what to watch next week, with PCE and GDP the data highlights.

• Treasuries look to finish near session highs Friday, second half support spurred by risk-off sentiment as wires recirculated report of a new Covid strain out of China with "pandemic potential" (SCMP).
• Tsy Mar'25 10Y futures climbed to 109-24 high (+18.5), still shy of initial technical resistance at 110-00 (High Feb 7 and the bull trigger); 10Y yield fell to 4.4042% low; curves mixed: 2s10s -1.123 at 22.205, 5s30s +.956 at 40.929. Heavy volumes (TYH over 3.3M tied to quarterly roll action, June takes lead next Friday).
• Early Treasury support triggered by weaker than expected data: flash S&P PMIs w/ composite at 50.4 (cons 53.2) after 52.7 in Jan, services (49.7 vs cons 53.0, after 52.9); and existing home sales were softer than expected in January at 4.08m (cons 4.13m) after an upward revised 4.29m (initial 4.24m). UofM data showed a worrying rise in long-term inflation expectations alongside a deterioration in consumer sentiment.
• US stocks fell hard, DJIA back to January 21 levels while SPX Eminis and Nasdaq withdrew to last Thursday lows. Trading desks also cited today's call weighted option expiration that has historically leaned toward bearish price action in the week after.
• Late weekend focus on German elections take focus over the weekend, before New Zealand retail sales and German IFO data cross. There is a public holiday in Japan Monday.