Markets are now favoring the European Central Bank’s 75 basis point increase at its upcoming meeting, ignoring this week’s drop in energy prices. Gilts is hurting as concerns about fiscal spending and foreign capital outflows have tilted the balance in favor of the ECB’s 75 billion dong increase in September. The market is currently pricing in a 125 basis point tightening. in the next two meetings. Another wave of hawkish comments, from the usual skeptics Joachim Nagel and Robert Holzmann, helped convince investors that the hawks were winning the bull debate. What is more surprising is that further initial rate increases and, predictably, flatter curves are occurring as European traded energy prices continue to fall this week. September and October are shaping up to be busy months for supply With so many hawks and slightly lower energy trading, it’s tempting to call the Bund’s 10-year top, but there is another factor happening in September and October that are shaping up to be busy months in terms of supply. Although the volume is not comparable to previous years, we believe that the decrease in issuance is due to more difficult liquidity conditions, we expect a larger impact on the market. The first eight months of the year are an example of this, where despite a drop in volume, supply puts more pressure on bond yields across credit. The boar has no friends (strangers). The UK’s rate continues to rise relative to its European and US counterparts. As we wrote recently, the divergence in energy prices and inflation explains their jump against USD yields. To grow faster than its European peers, one needs to dig deeper into UK-specific issues. In an economy that generates a larger rate of inflation at home, the upcoming fiscal support program is more likely to lead to a more aggressive tightening cycle by the Bank of England (BoE). These concerns could be exacerbated by the current leadership vacuum and uncertainty over the size of additional spending and tax cuts to be revealed. Fear of financial exploitation tends to have the most severe consequences. Due to the larger current account deficit (at least historically), UK markets are more sensitive to a worsening double deficit. The recent drop in overseas gold-plated net buying, still positive but the weakest three months since 2020, as fears of a minor drop in the pound pervaded, did not help. We are still a long way from the simultaneous sell-off of UK bonds, stocks and currencies that took place in March 2020 and caused the BoE to begin quantitative easing again, but this lightens up. confusingly shows an active bond sale plan, in addition to a „passive” reduction in the balance sheet. Today’s Events and Market Outlook Most of the manufacturing PMIs released today will be second readings, with the exception of the Netherlands, Spain and Italy indexes. Unemployment in Italy and the euro area complete the European release list. Supply will remain the main driver of price action in the short term with Spain (3 years / 10 years / 30 years and associates), France (9 years / 10 years / 16 years) and Ireland ( 10 years / 30 years) lined up for today. In the afternoon, the US manufacturing PMI is in its second reading but its ISM equivalent is in its first reading. In addition to the drop in the overall figure, markets will be closely watching the subsequent decline in the price component paid. Jobless claims and construction spending are the other US solutions we are looking forward to. The period of silence leading up to the ECB meeting begins today, so we would be surprised to hear Fabio Centeno comment on monetary policy. The Fed’s quiet period only begins this weekend, so Raphael Bostic could try to outdo his peers.