BONDS: EGBs-GILTS CASH CLOSE: Bund Yields Pull Back Ahead Of ECB
Apr-16 18:58
German instruments outperformed UK counterparts at the short end, but vice versa at the long end Wednesday.
- European core instruments gained in initial morning trade, due in part fo softer-than-expected UK CPI data and some concerns over China-US trade tensions.
- However, risk assets recovered following the publication of a Bloomberg sources piece casting more soothing tones ("China Open to Talks If US Shows Respect"), pushing Bunds and Gilts to the weakest levels of the day.
- Bunds and Gilts would retrace higher, and close near the middle of the session's ranges. On the day, the German curve bull flattened to through the 10Y tenor (a poor auction weighed on the 30Y segment), with the UK's twist flattening.
- Periphery / semi-core EGB spreads were mixed.
- Thursday's highlight is the ECB decision - MNI's preview is here. The ECB is widely expected to cut its three key rates by 25bp this week, taking its deposit rate to 2.25%. As MNI reported in a sources piece today, the Statement could adjust its statement to emphasise that rates are at the upper end of its range of estimates of neutral ("MNI SOURCES: ECB Likely To Adjust Or Remove 'Restrictive'")
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.8bps at 1.748%, 5-Yr is down 2.9bps at 2.061%, 10-Yr is down 2.5bps at 2.509%, and 30-Yr is down 0.1bps at 2.914%.
- UK: The 2-Yr yield is up 1.2bps at 3.974%, 5-Yr is down 1.7bps at 4.093%, 10-Yr is down 4.5bps at 4.603%, and 30-Yr is down 6.7bps at 5.36%.
- Italian BTP spread up 0.5bps at 118.7bps / Spanish down 0.5bps at 70.1bps
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US STOCKS: Late Equities Roundup: Oil & Estate Management Continue to Lead
Mar-17 18:45
- Stocks quietly extended session highs in Monday's second half, SPX eminis back to March 10 levels amid a lack of any specific headline driver as policy uncertainty over global trade remains. Currently, the DJIA trades up 467.25 points (1.13%) at 41956.15, S&P E-Minis up 58.25 points (1.02%) at 5750.75, Nasdaq up 143.4 points (0.8%) at 17898.4.\
- Energy and Real Estate sectors continued to outperform in late trade, oil and gas stocks leading gainers as crude prices rebounded (WTI +.40 at 67.58): Targa Resources +3.50%, Marathon Petroleum +3.43%, Valero Energy +3.20% and ONEOK +2.85%.
- Investment trusts and management shares buoyed the Real Estate sector: BXP +4.99%, Simon Property Group +3.20%, Iron Mountain +2.91% and Digital Realty Trust +2.67%.
- On the flipside, Consumer Discretionary and Communication Services sectors underperformed in late trade, Tesla -4.61%, Garmin -1.07%, Ulta Beauty -0.80% and Deckers Outdoor -0.60%.
- Meanwhile, interactive media and entertainment shares weighed on the Communication Services sector: Meta Platforms -0.41%, Alphabet -0.21% and Paramount Global +0.04%.
GBPUSD TECHS: Bull Cycle Remains In Play
Mar-17 18:30
- RES 4: 1.3175 High Oct 4 2024
- RES 3: 1.3119 76.4% retracement of the Sep 26 ‘24 - Jan 13 bear leg
- RES 2: 1.3048 High Nov 6 ‘24
- RES 1: 1.2995 High Mar 17
- PRICE: 1.2985 @ 16:25 GMT Mar 17
- SUP 1: 1.2862 Low Mar 12
- SUP 2: 1.2778 20-day EMA
- SUP 3: 1.2656 50-day EMA and a short-term pivot support
- SUP 4: 1.2556 Low Feb 28
The GBPUSD trend outlook remains bullish. Moving average studies are in a bull-mode position, highlighting a clear dominant uptrend. The pair has recently pierced a Fibonacci retracement at 1.2924, 61.8% of the Sep 26 ‘24 - Jan 13 bear leg. A clear break of this price point would open 1.3048, the Nov 6 2024 high. Initial firm support is 1.2656, the 50-day EMA.
CANADA: CPI Seen Accelerating Amidst End Of Tax Holiday Uncertainty
Mar-17 18:20
- Headline CPI is seen accelerating from 1.9% to 2.2% Y/Y in tomorrow’s February report, owing to a strong non-seasonally adjusted 0.6% M/M (or 0.7% M/M in the below median).
- There’s another wide range to analyst forecasts, ranging from 2.0-2.7% Y/Y in the Bloomberg survey after the 1.9% in January.
- Our review below covers 2.1-2.7%, including CIBC and JPMorgan at 2.1% and RBC at 2.5% (not in Bloomberg survey) and Scotia at 2.7%.
- This uncertainty is likely down to the ending of the GST/HST tax holiday mid-month after its two-month window started mid-Dec.
- GS on the matter: “our forecast assumes 36bp of payback following the removal of the sales tax holiday in mid-February, although we acknowledge some uncertainty around how the cumulative 56bp boost will be distributed across February and March.”
- Core CPI meanwhile (the average of CPI-median and CPI-trim), which will continue to not be directly impacted by the indirect tax changes, is seen accelerating a tenth further to 2.8% Y/Y for what would be its strongest since October.
- Three- and six-month run rates stood at 3.0% and 3.1% annualized respectively in January.
- The BoC forecast from the January MPR saw headline CPI averaging 2.1% Y/Y in Q1 (and more recently saw it at circa 2.5% specifically in March per last week’s decision statement) and core CPI averaging 2.5% Y/Y in Q1 with those core forecasts having got off to a bad start for the quarter.
- BoC-dated OIS currently has 10-11bp of cuts priced for the April BoC decision, after the Bank cut its overnight rate target by 25bps last week to 2.75% for the middle of its estimated neutral rate range of 2.25-3.25%.
