GILTS: Curve Twist Steepens, Fed & Bunds Drive Moves
Dec-11 10:33
The front end of the gilt curve outperforms on spillover from the dovish Tsy reaction to the FOMC decision.
- Still, a pullback from highs in Bunds has helped limit the rally, while leaving long end yields slightly higher on the day.
- Gilt futures +18 at 91.26 vs. session highs of 91.38.
- Bears have negated much of the bullish technical theme. They now look to support layered in at 90.62/53. A break of the latter would strengthen bearish control. Meanwhile, to the upside, resistance comes in at 91.93
- Yields -2bp to +1bp, curve twist steepens.
- Month-to-date ranges comfortably intact across benchmark yields, after November lows held/went untested during the early Dec rally.
- BoE-dated OIS prices 22bp of easing for this month, with a cumulative 57bp of easing priced for the current cycle (vs. ~54bp late yesterday).
- SONIA futures flat to +3.0, with SFIZ6 & Z7 extending bounces from medium-term uptrend support drawn off the Jan lows (flagged yesterday).
- Markets have been unwilling to price less than 50bp of easing from current rate levels, limiting hawkish moves over the last 24 hours.
- Comments from BoE Governor Bailey highlight ongoing unknowns when it comes to the equilibrium level of bank reserves, while suggesting that equilibrium may be reached within the next year or so. He also pointed to the Bank’s focus on meeting demand for liquidity as reserves wind down.
- On the economic front, he affirmed that current savings rates point to a high degree of caution re: the UK economy.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Dec-25 | 3.754 | -22.1 |
Feb-26 | 3.695 | -27.9 |
Mar-26 | 3.617 | -35.8 |
Apr-26 | 3.520 | -45.5 |
Jun-26 | 3.482 | -49.3 |
Jul-26 | 3.426 | -54.9 |
Sep-26 | 3.414 | -56.0 |
Nov-26 | 3.402 | -57.3 |
Dec-26 | 3.404 | -57.1 |
Feb-27 | 3.416 | -55.9 |
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FOREX: EURGBP Bounces from Support Again After Weak Labour Market Report
Nov-11 10:16
- Softer-than-expected UK labour market data has prompted December BoE cut pricing to reach ~80%, and in tandem has provided some renewed pessimism for GBP which sits at the bottom of the G10 leaderboard.
- Downward pressure for GBPUSD (-0.33%) looks set to snap a 4-day winning streak, which saw the pair meaningfully correct from recent cycle lows of 1.3010 to 1.3191 highs on Monday. The bounce fell short of initial resistance at 1.3231, the 20-day EMA. Moving average indicators continue to signal a bearish trend, potentially strengthening the narrative that recent gains could be considered corrective.
- Sterling weakness even more notable in the cross, with EURGBP rising 0.45% to 0.8812 at typing. Once again, dips remain very well supported around the prior breakout level at 0.8769, highlighting the dominant uptrend. Topside targets remain at 0.8835 and 0.8875, the April 2023 high.
- It’s well documented that BoE Governor Bailey is viewed as the key swing vote and this morning’s data increases the odds of him opting to cut next month. However, it is worth noting there will be one more labour market print and two CPI releases before the next decision. With the other 8 MPC members having entrenched views, GBP volatility around non-Bailey speeches is likely to be much reduced ahead of the budget on Nov 26.
MNI: GERMANY ZEW NOV ECONOMIC EXPECTATIONS 38.5
Nov-11 10:00
- MNI: GERMANY ZEW NOV ECONOMIC EXPECTATIONS 38.5
- GERMANY ZEW NOV CURRENT CONDITIONS -78.7
