MIDEAST: Axios-Israeli Officials Think US Strike On Iran May Still Take Place

• In the equity space, a bull cycle in S&P E-Minis remains intact and the latest pullback - for now - is considered corrective. Initial support to watch is 6831.93, the 50-day EMA. It has been pierced, a clear break of this average would signal scope for a deeper retracement and open 6785.50, the 50.0% retracement of the Nov 21 - Dec 11 rally. For bulls, a resumption of gains would refocus attention on the key resistance and bull trigger at 7014.00, the Oct 30 high.
• A bull cycle in EUROSTOXX 50 futures remains intact. Price is trading above the 20- and 50-day EMAs, and has recently cleared 5742.40, 76.4% of the Nov 13 - 21 bear leg. The breach of this latter price point paves the way for an extension towards 5825.00, the Nov 13 high and the bull trigger. First key support to watch lies at 5649.07, the 50-day EMA.

This morning’s soft UK CPI data drives outperformance for gilts, as wider core global FI markets pull back from session highs alongside a recovery rally in oil.

• Gilt futures last +45 at 91.39 vs. early session highs of 91.78.
• Initial resistance at 91.64 has been pierced, fresh upside would target more meaningful resistance at 91.93. Conversely, initial support is located at yesterday’s low (90.50).
• Yields 3-5bp lower, 5s outperform.
• Initial yield support levels of note went untested across the curve.
• A reminder that 10-to 30-Year yields registered fresh month-to-date highs yesterday.
• The gilt/Bund spread briefly traded below the September ’24 closing low (162.01bp) before moving back above. Attempted breaks lower failed in recent weeks.
• GBP STIRs fade from dovish session extremes, with BoE terminal rate pricing once again failing to hold moves below 3.30%.
• BoE-dated OIS prices 23.5bp of easing for tomorrow and ~66.5bp of cuts through December ’26. Liquid contracts are 1.5-7.5bp more dovish on the day.
• SONIA futures 2.5-7.0 higher. Fresh cycle highs for SFIZ6 and cycle lows for SFIZ5/Z6 seen following the CPI data.
• With a cut BoE at tomorrow’s decision effectively cemented by this morning’s data, one question now is will there be enough in the data to convince any additional "hawkish" MPC member, in addition to Governor Bailey, to support a cut.
• Expect our full preview of that event later today.

The German 5s30s curve has retraced around 60% of the early December flattening, keeping an underlying steepening theme intact. The curve is back above 100bps at 102.4bps, up just over 1bp on the session.  Tomorrow’s Eurozone risk events will be key for the direction of the spread into year-end, with the front of the curve eyeing the ECB decision and press conference, and the mid/long-end cognisant of Germany’s 2026 issuance plan. 

• Intraday, the curve has twist flattened, with 2-year yields down almost 1bp after spillover from the softer-than-expected UK inflation report this morning.
• An uptick in crude oil futures on reports that the US is preparing fresh sanctions on Russia if Putin rejects the Ukraine peace deal (alongside overnight developments in Venezuela) looks to have helped yields away from session lows.
• Bund futures are + 7 ticks at 127.63, down from earlier highs of 127.79. Initial resistance at 128.08 (Dec 8 high) remains untested.
• 10-year EGB spreads to Bunds are little changed on the session.
• Eurozone final November core HICP inflation confirmed flash estimates at 2.41% Y/Y (vs 2.37% prior). The German December IFO survey was weaker-than-expected, led by the expectations component. 

Figure 1: German 5s30s (Source: Bloomberg Finance L.P)