SONIA: Call fly buyer

The BOE has released two statements on the BOE's money market tools ILTR (PRA statement here) and a discussion paper on the transition to a repo-led operating framework (available here). As part of this, the Bank has opened a consultation - with a deadline for feedback of 31 January 2025.

• From Q2 (proposed date) the reserves available in each auction ILTR will increase from GBP25bln to GBP30bln. The Bank notes that this would mean an increase in the maximum ILTR stock available to GBP720bln.
• "The Bank will improve predictability of allocation for SMF participants during the early stages of transition by increasing the quantity supplied at minimum spreads by 40%–100%, to £7 billion–£10 billion per auction. This is up from £5 billion today. This would increase the stock of reserves available at minimum spreads from £120 billion today to £168 billion–£240 billion."
• "The Bank is still reviewing how the total quantity of reserves supplied in the ILTR is allocated to different collateral sets."
• "Further changes to the ILTR to ensure it is appropriately calibrated to supply a larger stock of reserves for the transition to a repo-led framework will take effect in 2025. Further details on these changes will be announced by the Bank in due course once responses to the Discussion Paper have been taken into consideration."
• Note that Deputy Governor Ramsden is speaking at 13:00GMT today on the BOE's toolkit - so he is likely to elaborate on today's announcements.
• There should be no immediate market impact from these operations - but they increase the Bank's role in a demand-led framework going forward and should help to cushion any small liquidity bumps in the market.

• Fed Funds implied rates broadly consolidate Friday’s dovish tilt after the nonfarm payrolls report saw the unemployment rate surprise higher along with arguably underwhelming revisions to the prior two months.
• Cumulative cuts from 4.58% effective: 22bp Dec, 29bp Jan, 46bp Mar and 67bp Jun.
• SOFR terminal yields at 3.58% (looking out to end-2027) are only 3.5bp lower since the payrolls report but have added an entire 25bp cut since the high seen in the week after the presidential election.
• Today sees a quiet macro docket, with data limited to the October wholesale release and NY Fed inflation expectations whilst the FOMC is now in blackout.  
• See our recap of Friday’s payrolls report here and a broader review of last week’s data and notable Fedspeak here.
• Wednesday’s US CPI report remains in focus – see our earlier summary table of analyst unrounded core CPI estimates ahead of the full MNI US CPI preview that will be published later today. 

• In FX, EURUSD is trading below Friday’s 1.0630 high. Despite being pierced, resistance at 1.0581, the 20-day EMA, remains intact. A close above this average would highlight a clear breach of it and signal scope for a stronger corrective recovery, towards 1.0710, the 50-day EMA. An extension higher would also allow for an unwinding of the recent oversold condition. The medium-term trend direction is down. The bear trigger is 1.0335, Nov 22 low. Initial support to watch lies at 1.0461, the Dec 2 low.
• GBPUSD traded to a fresh short-term trend high on Friday before fading off highs. Recent gains are considered corrective and this has allowed an oversold trend condition to unwind. The pair has breached the 20-day EMA, signalling scope for a stronger. The next resistance to watch is 1.2836, the 50-day EMA, at 1.2840. The medium-term trend direction is down, the bear trigger is 1.2487, the Nov 22 low. First support lies at 1.2617, the Dec 2 low.
• A bear cycle in USDJPY remains intact. The pair traded to a fresh short-term trend low on Dec 3, highlighting a resumption of the retracement of the Sep 16 - Nov 15 rally. Price has recently traded through the 20- and 50-day EMAs - a bearish development. Sights are on 148.17, the 50.0% retracement of the Sep 16 - Nov 15 bull leg. A reversal higher would refocus attention on the bull trigger at 156.75, Nov 15 high. Initial firm resistance is 151.75, the 20-day EMA.