Some thoughts post-ECB

We had the ECB today, with pricing getting even more aggressive as of 4:40pm, as shown below.

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 2.89%, while bunds flirt with 3.21%. 2s are up 4.9bp on the day and bunds up 3.60bp.

Overall, as expected: curve bear flattening. We also see US rates drifting upwards, with 44bp priced into year-end and US 10y at 4.70 and 30y at 5.17. Wild markets overall. Equities are not taking it well, so the overall price action looks like a stagflationary environment.

I question quite a lot the narrative around how growth can remain resilient in an environment like that, especially in the eurozone. The synthetic index for energy is at the middle of its range, but given the tweet and current trends, we could move easily into the upper range. That’s probably the case when pricing gets silly and loads up a lot of longs in ERM7, Z7.

Another point worth flagging is gasoline inventories and jet fuel for the eurozone — both are running quite low, below their 10/90 intervals from 2015. Are we sure we can afford this? How do we produce goods without gasoline, or fly without jet fuel? I don’t see it as a bullish catalyst.

With that said, we see BTP-Bund at 83.6, +2.2bp on the day, and OAT-Bund at 72.4. In the background, the FN — the Italian alternative party — keeps rising. I keep a bearish stance on BTPs.

Globally, the trend is again for higher yields, with oil back in the 100s.

With the BoJ also ready to hike at a faster rate:

I have quite a bearish stance on growth.

Best,

spaghettilisbon