BONDS: EGBs-GILTS CASH CLOSE: Gilts Boosted By Soft UK CPI Ahead Of BOE, ECB
Gilts easily outperformed peers Wednesday as UK CPI came in on the soft side of expectations.
- The UK CPI miss was broad-based, with downside surprises in services, core goods and food inflation contributing to outperformance in the short-end/belly of the curve in early trade.
- Bunds were boosted only briefly by UK developments but weakened throughout most of the session, including a small leg lower on confirmation that the German Bundestag approved a defence procurement package worth E50bln.
- In other data, German IFO Business Climate unexpectedly fell for a second consecutive time in December.
- The UK curve bull steepened on the day, with Germany's bear steepening. Periphery/semi-core spreads closed little changed overall.
- Thursday's focus will be the ECB (MNI preview) and BOE (MNI preview) decisions.
- For the BOE, a 5-4 vote split in favor of a 25bp cut is expected but analysts are split over what happens after December. The ECB is set to hold rates, with attention on the updated macroeconomic projections and the balance of risks to inflation and growth.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.3bps at 2.137%, 5-Yr is up 1.4bps at 2.466%, 10-Yr is up 1.9bps at 2.864%, and 30-Yr is up 1.9bps at 3.485%.
- UK: The 2-Yr yield is down 5.8bps at 3.708%, 5-Yr is down 4.7bps at 3.913%, 10-Yr is down 4.3bps at 4.475%, and 30-Yr is down 3.5bps at 5.223%.
- Italian BTP spread up 0.7bps at 70.5bps / French OAT up 0.5bps at 71bps
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US: FED Reverse Repo Operation: Excess Liquidity Measure Rises Slightly
RRP usage rises to $3.172B with 7 counterparties this afternoon from last Friday's $1.559B - lowest level since mid-March 2021. Compares to this years highest excess liquidity measure off $460.731B on June 30.
EURUSD TECHS: Monitoring Resistance
- RES 4: 1.1728 High Oct 17
- RES 3: 1.1694 50.0% retracement of the Sep 17 - Nov 5 bear leg
- RES 2: 1.1669 High Oct 28 and key resistance
- RES 1: 1.1656 High Nov 13
- PRICE: 1.1596 @ 16:06 GMT Nov 17
- SUP 1: 1.1530/1469 Low Nov 7 / 5 and the bear trigger
- SUP 2: 1.1425 1.500 proj of the Oct 17 - 22 - 28 price swing
- SUP 3: 1.1392 Low Aug 1 and bear trigger
- SUP 4: 1.1313 Low May 30
EURUSD is trading below last week’s high. Resistance to watch is 1.1669, the Oct 28 high. A break of this level would strengthen a short-term bull theme and highlight a stronger reversal. Note that moving average studies are in a bear-mode position. This highlights a dominant downtrend and suggests that gains since Nov 5 are corrective. A reversal lower would refocus attention on key support at 1.1469, the Nov 5 low.
OPTIONS: Some Exiting Of Upside Leaning, Though Overall Upside Bias Remains
Monday's Europe rates/bond options flow included:
- RXZ5 129.50/129/128.50/128p condor (+1/-1.7/+0.4/+0.3), sold at 16.5 in 10
- RXG6 129.50/131.00/131.50/134.50 broken c condor vs 127.50/126.50ps, bought the condor for 4.5 and 5 in 7.5k
- ERM6 98.25/98.43/98.50/98.68 call condor vs 97.87 put. Buys back puts/sells call condor, paying 1.75 and 2 in 10k. Recall this was bought for example for 1.5 (bought condor vs put) in 10k on Oct 22
- ERM6 97.8125/98.3125RR, bought the Call for 0.75 in 8k
- ERM6 98.12/98.37cs, bought for 4 in 5k
- 0RH6 98.00^ bought in 4k vs 0RH6 96.68/98.18^^ sold in 6k Paid 13.25 and 13.5
