GILTS: Early Losses Intact, BoE Eyed Later This Week
Gilts hold the bulk of their early sell off, with no real spill over from the tepid recovery in lows seen in German equivalents as political uncertainty comes back to the fore in the largest EU economy.
- Gilts adjusted to the weakness seen in wider core global markets over the long UK weekend at the open.
- Futures have broken through Friday’s low (92.84) and the 20-day EMA (92.65), basing at 92.32 before a recovery to trade at ~92.45 last.
- Next support of note located at the April 17 low (91.73).
- Yields 1-5bp higher, curve steeper.
- 10s last ~4.56% after basing at 4.408% last week.
- Curves remain within multi-week ranges, 2s10s and 5s30s over 10bp off cycle highs.
- Gilt/Bunds ~4bp wider than Friday’s closing levels
- BoE-dated OIS little changed on the day, with the modest hawkish adjustment seen at the open unwound. A 25bp cut later this week is fully discounted, with 92bp of easing priced through year-end.
- SONIA futures are under a little more pressure, last little changed to -6.0
- We expect a 25bp cut this week, in line with market pricing and all sell-side views we have read.
- We have outlined some potential dovish tweaks to the Bank’s guidance verses in the statement, which could pave the way for consecutive rate cuts over the next 3 meetings.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
May-25 | 4.203 | -25.6 |
Jun-25 | 4.077 | -38.2 |
Aug-25 | 3.879 | -58.0 |
Sep-25 | 3.741 | -71.8 |
Nov-25 | 3.585 | -87.4 |
Dec-25 | 3.540 | -91.9 |
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AUSSIE 10-YEAR TECHS: (M5) Strong S/T Bounce
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.915 - High Apr 4
- PRICE: 95.860 @ 16:42 GMT Apr 04
- SUP 1: 95.420/95.300 - Low Feb 13 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.640 - 1.0% 10-dma envelope
Aussie 10-yr futures extended a recent strong bounce through to the Friday close, putting prices through the top end of the recent range. The confirmed breach of 95.851, the Dec 11 high on the continuation contract, reinstates a bull cycle and focuses attention on resistance at 96.207, a Fibonacci retracement point. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
USDCAD TECHS: Bearish Structure
- RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 3: 1.4415 High Apr 1
- RES 2: 1.4308 50-day EMA
- RES 1: 1.4242 High Apr 4
- PRICE: 1.4196 @ 17:10 BST Apr 4
- SUP 1: 1.4028 Low Apr 3
- SUP 2: 1.3986 Low Dec 2 ‘24
- SUP 3: 1.3944 61.8% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD rallied Friday, but remains lower on the week after Thursday’s downleg. The move down has confirmed a clear reversal of the bull cycle between Sep 25 ‘24 and Feb 3. Price is through a key support at 1.4151, the Feb 14 low. This signals scope for an extension towards 1.3944, a Fibonacci retracement. On the upside, key short-term resistance is seen at 1.4308, the 50-day EMA.
CANADA DATA: Unexpected Jobs Contraction Boosts Implied April BOC Cut Chances
Canadian employment unexpectedly contracted in March, falling by the most since January 2022 at -32.6k (+10.0k expected, +1.1k prior) in a sign that the trade war with the US is spilling over increasingly into the "hard" data. The unemployment rate ticked up 0.1pp to 6.7%, in line with expectations and below the November 6.9% high, though unrounded it rose from 6.55% to 6.71% - the largest increase since November.
- The drop in employment was largely due to a 62.0k drop in full-time positions (after -19.7k, the 2nd straight drop), with part-time up for the 4th consecutive month at 29.5k (after 20.8k prior) - that mix is clearly indicative of hiring uncertainty among firms.
- The monthly full-time drop was the 2nd largest since the pandemic lows in the labour market (April 2020). Goods producing jobs fell by 12k (2nd consecutive decline), while services shed 21k (wholesale/retail trade and Information, culture and recreation led losses).
- The participation rate dipped 0.1pp to 65.2%.
- Wages were soft, dropping 0.2% M/M for the first drop since November, with the Y/Y rate slipping to 3.6% from 3.8% prior. The rise in permanent employees' wages of 3.5% Y/Y was well below the 4.1% expected (4.0% prior).
- Market-implied probability of an April BOC rate cut rose to as high as 68% after the data before settling the day at around 55%. That compares to 40% prior to Wednesday's US tariffs announcement.
