GILTS: Bull Flattening, Ramsden & Reeves Eyed
Sep-29 09:34
Gilts have rallied alongside global core FI peers to start the week, with U.S. government shutdown risk in focus (despite the equity uptick).
- Lower crude oil prices provide some background support as well.
- Futures traded as high as 90.82 before easing back to ~90.70.
- The bearish technical structure in the contract remains evident, with initial support and resistance located at 90.26 & 91.28, respectively.
- Yields 1.5-3.0bp lower, curve flatter.
- Chancellor Reeves has spoken with several local media outlets before her ~12:00 London address at the Labour Party conference.
- Reeves reiterated the government’s election pledge not to lift the 3 major taxes, while pushing back against the idea of a wealth tax.
- The UK’s ongoing fiscal deterioration is well-documented (limiting gilt rallies and keeping bearish/steepener technical setups in place), as such, pre-Budget comms from Reeves are set to provide the focal point of her address.
- Elsewhere, BBG sources have suggested that Reeves “is debating whether to get rid of the Office for Budget Responsibility’s annual March outlook to strengthen her commitment to holding just a single fiscal event a year and bring greater stability to economic policy making”.
- SONIA futures -1.0 to +2.0, strip twist flattens.
- BoE-dated OIS little changed, showing 4.5bp of easing through year-end and fully discounting the next cut through the end of the April MPC.
- BoE Deputy Governor Ramsden is set to speak from 13:00 London. We view him as the most dovish MPC member that didn’t vote for a rate cut earlier this month.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Nov-25 | 3.960 | -0.8 |
Dec-25 | 3.924 | -4.4 |
Feb-26 | 3.819 | -14.8 |
Mar-26 | 3.788 | -18.0 |
Apr-26 | 3.709 | -25.9 |
Jun-26 | 3.690 | -27.8 |
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RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
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- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
