BONDS: EGBs-GILTS CASH CLOSE: Early Steepening Holds After Soft US CPI
Jun-11 16:18
European curves steepened modestly Wednesday.
- Bunds and Gilts were under some pressure early in a global move, with some eyeing supply and some optimism on US-China trade talks which concluded late Tuesday.
- In the event, European bonds saw limited reaction to US President Trump's social media announcement that the US and China had reached a tentative trade deal. But they rallied strongly in line with Treasuries after US inflation came in softer than expected.
- Gilts held bear steepening through UK Chancellor Reeves' spending review announcement, the content of which had largely been reported beforehand, though the short-end closed stronger on the session following the US CPI move.
- There were slight upward revisions to the ECB's forward looking wage tracker compared to the April vintage, but the broader theme of softening compensation pressures remains intact.
- The German and UK curves both twist steepened, with Gilts modestly outperforming Bunds. Periphery /semi-core EGB spreads closed mixed.
- Thursday's data is highlighted by UK monthly activity, along with some final Eurozone May inflation readings. There are also multiple ECB speakers, including Muller, Escriva, Knot, Schnabel, and Guindos.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.2bps at 1.845%, 5-Yr is up 0.3bps at 2.126%, 10-Yr is up 1.2bps at 2.535%, and 30-Yr is up 3.5bps at 3.005%.
- UK: The 2-Yr yield is down 0.6bps at 3.913%, 5-Yr is down 0.5bps at 4.043%, 10-Yr is up 1bps at 4.552%, and 30-Yr is up 2.4bps at 5.278%.
- Italian BTP spread down 0.2bps at 91.1bps / French OAT unchanged at 67.2bps
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BOE: Taylor Sees Himself As Bit Activist
May-12 16:14
- Taylor speaking in a fireside chat at the BOE Watchers' conference: "I see myself as being a bit activist" [in the context of Willem Buiter and other external members in the 1990s].
- "It was interesting that Paul mentioned that the activism, or the willingness to dissent of externals was also creating space for the internals to be different as well."
- Recall that Taylor dissented in favour of a 50bp cut and has been very forthright with his views in previous public appearances. This was his first vote for a 50bp cut but he previously dissented in favour of sequential cuts in December (although voted for Bank Rate on hold in March).
US 10YR FUTURE TECHS: (M5) Bear Cycle Extension
May-12 16:06
- RES 4: 112-20+ High May 1 and a bull trigger
- RES 3: 112-01+ High May 2
- RES 2: 111-22 High May 7 and a key near-term resistance
- RES 1: 111-08 20-day EMA
- PRICE: 110-10 @ 16:51 BST May 12
- SUP 1: 110-01+ 76.4% of the Apr 11 - May 1 bull leg
- SUP 2: 109-08 Low Apr 24 and key support
- SUP 3: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
- SUP 4: 108-21 Low Feb 19
Treasury futures traded sharply lower Monday as the reversal that started May 1, extends. The next support to watch is 110-01+, a Fibonacci retracement point. Clearance of this level would strengthen a bearish theme and expose a key support at 109-08, the Apr 24 low. Key near-term resistance has been defined at 111-22, the May 7 high. A break of this level is required to signal a potential reversal.
OPTIONS: Larger FX Option Pipeline
May-12 16:01
- EUR/USD: May14 $1.1150-65(E1.3bln), $1.1390-10(E1.9bln); May15 $1.1000(E1.0bln), $1.1090-00(E3.2bln), $1.1385-90(E1.2bln), $1.1410(E1.0bln); May16 $1.1200(E2.4bln)
- USD/JPY: May15 Y145.00($2.0bln); May16 Y145.00-20($1.2bln)
- AUD/USD: May15 $0.6475(A$1.2bln)
- NZD/USD: May15 $0.5880(N$1.0bln)
- USD/CAD: May16 C$1.3975-85($1.2bln)
- USD/CNY: May15 Cny7.3000($1.2bln)
