COMMODITIES: Correction Off Recent Lows for WTI Futures Considered Corrective
WTI futures have recovered from the most recent low print - a correction. A bearish theme remains intact. Last week’s sell-off resulted in a move through key support and the bear trigger at $60.85, the Aug 13 low. Clearance of this level strengthens the bear threat and paves the way for an extension towards $57.50, the May 30 low. Initial firm resistance has been defined at $66.42, the Sep 29 high. Clearance of this level would highlight a reversal. A bull cycle in Gold remains in play and this week’s breach of $40000.0 reinforces the uptrend. The move higher maintains the price sequence of higher highs and higher lows. Furthermore, momentum studies highlight a condition known as momentum drag - where momentum remains in overbought territory and moves sideways - a bullish signal. Sights are on $4074.54, a Fibonacci projection. Support to watch is $3775.3, 20-day EMA.
- WTI Crude up $0.58 or +0.94% at $62.31
- Natural Gas up $0.03 or +0.8% at $3.526
- Gold spot up $53.38 or +1.34% at $4037.47
- Copper up $2.2 or +0.43% at $511.85
- Silver up $0.95 or +1.99% at $48.7596
- Platinum up $18.75 or +1.15% at $1645.77
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SONIA OPTIONS: SFIM6 Call Buyer, Targeting 3-4 BOE Cuts Across Next 12m
SFIM6 97.25 calls, bought for 2.0 in 2.5k.
- SFIM6 currently trades at 96.405.
- This trade is targeting almost five BOE cuts across the next 12 months, compared to futures which currently price between one and two 25bp cuts.
- A reminder that following the weak KPMG-REC jobs report overnight, we conclude that the probability of a November 25bp cut is increased a little, with it following the DMP survey last week to be another downbeat labour result.
- However, we still need to see continued deterioration in the official labour market statistics and other labour surveys ahead of the November decision (including Agents' survey). And importantly, any earlier indications regarding pay settlements for 2026 will be key to the decision, too.
SWEDEN: More Tax Cuts Proposed For Autumn Budget
Headlines from Finance Minister Svantesson's ongoing press conference:
- "*SWEDISH GOVERNMENT PROPOSES REDUCTION TO TAX ON EARNED INCOME"
- "*SWEDISH GOVERNMENT PROPOSES CUT TO PENSION TAX AHEAD OF BUDGET"
- "*SWEDISH GOVERNMENT PROPOSES CUT TO TAX ON ELECTRICITY BILLS"
Follows last week's announcement for a temporary halving of food VAT to 6% from April 2026.
These policies form part of the SEK80bln of expansionary measures announced at the end of the August, set to be formally presented at the Autumn budget on September 22.
GILTS: Steady Start For Futures; 5s30s Testing Trendline Support
Uneventful start to the week for Gilt futures, currently +7 ticks at 91.30 with volumes running below recent averages for this time of day. Last week’s rally has highlighted a stronger technical corrective cycle, with the move higher also allowing an oversold trend condition to unwind. Friday’s high was pierced at the open, exposing 91.45 as the next upside target (Aug 15 high).
- The UK curve has lightly bull flattened, with 2/5-year yields little changed and 30-year yields around 0.5bps lower.
- 5s30s is 0.7bps lower at 144.7bps, extending the run of relief flattening that began last Wednesday. The spread is currently hovering around trendline support drawn from the November 2024 low. A clear breach of this support would leave scope for a retracement back towards ~140bps (Aug 14 low).
- 10-year yields are little changed at 4.643%, now 20bps below last Wednesday’s 4.845% high.
- A reminder that the KPMG-REC jobs report released overnight was weak, but had little market impact. The BRC shop sales monitor is released overnight, with monthly activity data for July due on Friday. Most data interest remains on next week’s labour market and inflation data.
- This week, Gilts will likely take cues from global core FI moves, with some focus reserved for political headline flow following Starmer’s reshuffle last Friday.
Figure 1: UK 5s30s Curve (Source: Bloomberg Finance L.P)
