FED: Economic Activity Little Changed In Latest Beige Book
The latest Fed Beige Book (link): "Economic activity was little changed since the previous report, according to most of the twelve Federal Reserve Districts, though two Districts noted a modest decline and one reported modest growth."
- Labor: “Employment declined slightly over the current period with around half of Districts noting weaker labor demand. Despite an uptick in layoff announcements, more Districts reported contacts limiting headcounts using hiring freezes, replacement-only hiring, and attrition than through layoffs.”
- That compares to “Employment was flat overall, as both hiring and layoffs increased modestly.”
- Inflation: “Prices rose moderately during the reporting period. Input cost pressures were widespread in manufacturing and retail, largely reflecting tariff-induced increases. Some Districts noted rising costs for insurance, utilities, technology, and health care. The extent of passthrough of higher input costs to customers varied, and depended upon demand, competitive pressures, price sensitivity of consumers, and pushback from clients. There were multiple reports of margin compression or firms facing financial strain stemming from tariffs. Prices declined for certain materials, which firms attributed to sluggish demand, deferred tariff implementation, or reduced tariff rates. Looking ahead, contacts largely anticipate upward cost pressures to persist but plans to raise prices in the near term were mixed.”
- That compares to "Prices rose moderately on average, as certain cost pressures increased. [...] Most contacts expected to face at least modest further cost pressures moving forward, and some were concerned about a possible acceleration of prices in 2026."
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BONDS: EGBs-GILTS CASH CLOSE: Gilt Yields Resume Descent
European bonds broadly gained ground on Monday.
- Core EGBs and Gilts were pressured early by news of a potential China-US trade breakthrough over the weekend, spurring a broad risk-on move.
- But the sell-off petered out by late morning, with yields descending in orderly fashion throughout the rest of the session with no clear driver, ahead of month-end and the ECB decision/Eurozone data later this week.
- In a session with limited data, German IFO came in mixed (current assessment missed, expectations beat).
- On the day, the German curve twist flattened with the UK's bull flattening. Gilts performed overall, carrying through from last week's outperformance.
- OAT spreads moved largely in line with other semi-core EGBs despite a modicum of relief from Friday's lowering of France's outlook by Moody's, as opposed to a fall in the credit rating itself.
- Tuesday's schedule includes the ECB Bank Lending Survey and CPI expectations, though that's not expected to have any impact on the ECB's expected rate hold Thursday. Otherwise the week's highlight is the Eurozone October flash inflation round, with the ECB in its pre-meeting media blackout period. is on the quiet side in the UK (our weekly outlook is here).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.4bps at 1.972%, 5-Yr is down 0.3bps at 2.228%, 10-Yr is down 1bps at 2.616%, and 30-Yr is down 1.7bps at 3.189%.
- UK: The 2-Yr yield is down 1.8bps at 3.781%, 5-Yr is down 1.9bps at 3.883%, 10-Yr is down 3bps at 4.402%, and 30-Yr is down 3.8bps at 5.181%.
- Italian BTP spread down 1.3bps at 77.7bps / French OAT down 0.7bps at 80.1bps
EURGBP TECHS: Trend Structure Remains Bullish
- RES 4: 0.8835 High May 3 2023
- RES 3: 0.8800 Round number resistance
- RES 2: 0.8769 High Jul 28 and the bull trigger
- RES 1: 0.8751 High Sep 25
- PRICE: 0.8730 @ 16:14 GMT Oct 27
- SUP 1: 0.8683/8656 50-day EMA / Low Aug 10
- SUP 2: 0.8633 Low Sep 15
- SUP 3: 0.8597 Low Aug 14 and key support
- SUP 4: 0.8562 50.0% retracement May 29 - Jul 28 upleg
The underlying trend condition in EURGBP is unchanged, it remains bullish and the cross is trading above support. Attention is on key resistance at 0.8769, the Jul 28 high and bull trigger. A break of this hurdle would confirm a resumption of the uptrend. The first support to monitor lies at 0.8683, the 50-day EMA. It has recently been pierced, a clear break of this level would signal scope for a deeper retracement towards 0.8633, the Sep 15 low.
GBPUSD TECHS: Bear Threat Still Present
- RES 4: 1.3613 76.4% retracement of the Sep 17 - Oct 14 bear leg
- RES 3: 1.3544 61.8% retracement of the Sep 17 - Oct 14 bear leg
- RES 2: 1.3527 High Oct 1 and a pivot level
- RES 1: 1.3393/3471 20-day EMA / High Oct 17 and a key resistance
- PRICE: 1.3328 @ 16:13 GMT Oct 27
- SUP 1: 1.3249 Low Oct 14 and the bear trigger
- SUP 2: 1.3220 0.764 proj of the Sep 17 - 25 - Oct 1 price swing
- SUP 3: 1.3142 Low Aug 1 and a key support
- SUP 4: 1.3041 Low Apr 14
GBPUSD maintains a softer short-term tone for now. Recent weakness highlights the end of the corrective bounce between Oct 14 - 17. Sights are on key short-term support at 1.3249, the Oct 14 low and a bear trigger. A breach of this level would confirm a resumption of the downleg that has been in place since Sep 17. Key near-term resistance is at 1.3471, the Oct 17 high. A break would signal a possible reversal.
