UK: BOE: Households And Businesses Remain Resilient So Far, But Risks Remain
Dec-06 10:40
The BoE Q4 Financial Stability Report stated that households and business have remained resilient to challenging conditions "so far", but risks remain as higher interest rates continue to pass-through the system.
- The CCyB buffer was maintained at 2%, as the banking sector also shows resilience, with robust capital and liquidity positions.
- The BoE estimates that 55% (around 5 million) mortgages have been repriced since rate hikes began, with the remainder to roll-over by 2026. Mortgage debt servicing burdens are expected to increase, but remain below levels seen in the GFC.
- Robust earnings growth has helped corporate debt service ratios, but disparity can be seen within sectors.
- The BoE continues to track risks associated with UST basis trades by hedge funds, noting that nominal UST shorts by HFs are now larger than during the dash-for-cash in 2020.
- The FPC said that it welcomed FCA proposals to enhance money market fund daily liquid asset requirements to 15% (vs 10% prior) and weekly requirements to 50% (vs 30% prior).
- The Q4 FSR was produced as of November 29, and recent falls in global rates do not invalidate the risks presented in the latest report.
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GERMAN T-BILL AUCTION RESULTS: 6-Month Bubill
Nov-06 10:38
| Previous | 3.757% |
| Avg yield | 3.780% |
| Previous date | Oct 09, 2023 |
| Previous | 1.29x |
| Bid-to-cover | 1.48x |
| Buba cover | 1.97x |
| Previous | 1.69x |
| Type | 6-month bubill |
| Allotted | E1.506bln |
| Previous | E1.525bln |
| Total sold | E2bln |
| Target | E2bln |
| Maturity | May 15, 2024 |
EGBS: Softer as NFP rally Unwinds; Periphery Spreads Mixed
Nov-06 10:38
EGBs sit softer this morning as the NFP-induced rally from Friday largely unwinds. Services PMI's and the Euro Sentix survey this morning did not attract any meaningful reaction. Bund futures are down -0.57 today at 129.97 with 10y Bund yields up 6.0bp at 2.703% and the 2s10s curve 2.5bp steeper at -28.7bp. OATs sit similarly, with futures down -0.58 today at 124.52 and the 2s10s curve 3.0bp steeper at -85bps.
- Periphery spreads to Bunds are mixed with Italy underperforming (10-Yr BTP/Bund spread is 1.3bps wider at 188.1bps today) and Portugal leading slightly (spreads 0.8bps tighter at 66.6bps). Spanish and Italian services PMIs showed diverging fortunes as the former remained in expansionary territory (showing continued inflationary pressures) while the latter fell further into contraction. As flagged earlier, several analysts (JPM, MS) have recommended wideners vs BTPs following the rally seen last week.
- Additionally, the MNI Policy Team reported this morning that Spain is likely to be able to spend at least EUR5bln of its NGEU funds beyond the 2026 deadline (see here). This follows on from similar reports for Italy 2-3 weeks ago (see here)
- ECB-speak from de Guindos, Holzmann and Nagel will be the focus for the remainder of today while today's sovereign issuance only features bills. ECB's Lagarde re-iterated in a speech this weekend that inflation should return to target by 2025 per ECB forecasts, and that she is not worried about political spillovers from the ECB's tightening policy.
OUTLOOK: Price Signal Summary - S&P E-Minis Bull Cycle Remains In Play
Nov-06 10:36
- S&P E-Minis traded higher last week and the contract remains firm. The latest recovery still appears to be a correction, however, price has cleared the 20- and 50-day EMAs. The break of the 50-day average - a key short-term pivot level - has strengthened bullish conditions. Sights are on 4430.50, the Oct 12 high. Key support and the bear trigger has been defined at 4122.25, the Oct 27 low. Initial support lies at 4257.75, the Nov 2 low.
- EUROSTOXX 50 futures traded higher last week as the correction from recent lows extends. Price is through resistance at both the 20- and 50-day EMAs. The broader trend condition is bearish, however, the clear break of the 50-day average, at 4184.60, signals scope for a stronger bull cycle. Sights are on 4256.00, the Oct 12 high. On the downside, key support and the bear trigger lies at 4001.0, the Oct 27 low. Initial support is at 4125.30, the 20-day EMA.
