European bond spreads widening again amid Italy’s political debacle 10-year Italian and German bond yields spread up to 227 bps on the day


Even though the mood in the bond market is calmer compared to the start of yesterday when Italian bonds slumped, the spreads are widening and that highlights investor concern surrounding the situation. The ECB wasn’t comfortable with the development last month so it will be interesting to see if they will come out to say anything this time around, although the circumstances are a little different.

It was all about fragmentation risks before but now Italian politics is adding another risky element to the picture.

US retail sales the key focus today

The US retail sales data today just became a whole lot more critical, after Fed’s Waller sided with a 75 bps rate hike for later this month – only willing to change his mind if retail sales and housing market data are “materially stronger than expected”.

The consensus is for June retail sales to see a monthly increase of 0.8% after the 0.3% drop in May:US retail

The ex-autos reading is expected to see a 0.6% monthly increase after a 0.5% jump in the month before. If meeting estimates, those are some decent numbers for the US consumer but at the end of the day, it is how the Fed interprets them to be is what matters.

An easy way to look at it is that any material beat will push markets to believe that a 100 bps rate hike in two weeks’ time is plausible. However, we’ll have to hear from Fed speakers to confirm that and only Bostic is scheduled to speak today. So, markets may be left to their own devices to think about that.

Meanwhile, any miss on estimates will likely keep market pricing grounded with the option of 75 bps to be cemented. For risk trades, this scenario would be the most ideal after a struggling week – despite modest recoveries late in the session in the past two days.

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