EGBS: Bear Cycle In Bund Futures Intact, Sep 25 Low The Next Downside Target
Bund futures breached key short-term support at 128.37 yesterday, confirming a resumption of the bear cycle that started on October 17. Next support is the Sep 25 low at 127.88. Intraday, moves have been relatively modest, with futures down 5 ticks at 128.26.
- There was no tangible reaction in the short-end to slightly firmer-than-expected Eurozone headline HICP data. Core HICP was in line at 2.41% Y/Y (2.4% MNI median, 2.37% prior).
- Germany sold E4.5bln of the 2.00% Dec-27 Schatz, concluding its 2025 capital markets issuance. Demand metrics were a little better than the November re-opening, albeit for a smaller auction size.
- German yields are little changed across the curve. The 10-year Bund yield is consolidating just above the 2.75% figure. The initial topside target in yields is 2.780%, the Sep 25 high.
- The EUR 10s30s curve has established itself above 30bp since mid-November, with the next upside target of note located at the Oct ’21 closing high (35.03bp). The Dutch pension transition remains the medium-term focal point for participants in the long end of the EUR swaps curve
- 10-year EGB spreads to Bunds are marginally tighter, with European equities up almost 0.5%. Budget negotiations remain in focus in France. The 70bp level continues to provide support to the 10-year OAT/Bund spread for now, but agreement on the 2026 budget would pave the way for a move towards 65bps. French core state budget data for October saw a further improvement in YTD tracking.
- In addition to the flash Eurozone inflation data, the Eurozone unemployment rate was a tenth higher than consensus at 6.4% (September was also revised up a tenth to 6.4%).
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
