BONDS: EGBs-GILTS CASH CLOSE: Peripheries Outperform
Bunds underperformed Gilts with the German curve bear flattening Monday.
- Core FI got off to a weak start in digesting weekend developments including stronger oil prices before stabilising mid-morning, only to relapse to session's weakest levels around midday despite no discernable headline triggers.
- While they recovered from session lows, Bunds' underperformance came amid uncertainty over the medium-term fiscal impact of last week's German court ruling on the government's usage of off-balance sheet COVID funds (BBG published a sources article in the afternoon corroborating weekend reports that the debt brake might be suspended for 2023).
- Periphery EGBs benefited from Moody's after hours on Friday revising Italy's outlook to stable from negative, and revising Portugal's rating up two notches to A3 (outlook stable).
- In contrast to the German curve, the UK's twist steepened, with fiscal matters in focus in the form of the Autumn Statement's release Wednesday (and ahead of that, public finance data first thing Tuesday morning). Tuesday sees BoE's Bailey and colleagues before a parliamentary committee.
- Also Tuesday, we get several ECB speakers including Lagarde, Schnabel, and Centeno.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 6.3bps at 3.027%, 5-Yr is up 4bps at 2.571%, 10-Yr is up 2.3bps at 2.611%, and 30-Yr is up 0.1bps at 2.803%.
- UK: The 2-Yr yield is down 1.5bps at 4.531%, 5-Yr is down 0.7bps at 4.112%, 10-Yr is up 2.1bps at 4.125%, and 30-Yr is up 1.1bps at 4.552%.
- Italian BTP spread down 3.6bps at 173.4bps / Portuguese down 2.3bps at 64.2bps
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AUSSIE 10-YEAR TECHS: (Z3) Medium-Term Trend Direction Cemented Lower
- RES 3: 96.160 - High Jul 20
- RES 2: 96.050 - High Sep 4 and a key resistance
- RES 1: 95.924 - High Sep 15
- PRICE: 95.265 @ 16:16 BST Oct 20
- SUP 1: 95.175 - Low Oct 20
- SUP 2: 95.102 - Lower 3.0% Bollinger Band
- SUP 3: 94.488 - 1.0% 10-dma envelope
The Aussie 10yr futures broader trend direction is down, with prices returning lower still into the Thursday close. Key support and the bear trigger at 95.660/95.670, the Aug 17 low/Jun 17 2022 low has been breached, confirming the resumption of the medium-term downtrend. The focus is on 95.102, the 3.0% Lower Bollinger Band. Initial key resistance has been defined at 96.050, the Sep 4 high.
ITALY: S&P Affirm Italy at BBB, Outlook Stable
- *S&P: ITALY 'BBB/A-2' RATINGS AFFIRMED; OUTLOOK STABLE (BBG)
- The following commentary was attached to the report:
- "By 2025, S&P project that Italy's real GDP growth will recover to above 1%, helped by accelerated deployment of the Next Generation EU funds, which we believe will likely extend beyond 2026"
- "Economic growth will decelerate in 2023 and 2024 on the back of rising private sector savings, tightening credit conditions, slowing manufacturing, and weakening global trade: S&P"
USDCAD TECHS: Bullish Trend Structure Remains In Place
- RES 4: 1.3920 2.0% 10-dma envelope
- RES 3: 1.3862 High Mar 10 and a key resistance
- RES 2: 1.3805 High Mar 24
- RES 1: 1.3786 High Oct 5 and the bull trigger
- PRICE: 1.3701 @ 17:06 BST Oct 20
- SUP 1: 1.3569 Low Oct 10
- SUP 2: 1.3559 50-day EMA
- SUP 3: 1.3417 Low Sep 29
- SUP 4: 1.3381 Low Sep 19 and a key support
The USDCAD trend outlook is unchanged and remains bullish. The pair remains above the 20- and 50-day EMAs. The 50-day average intersects at 1.3559 and marks a key short-term support. A clear break of this average would signal scope for a deeper correction. Sights are on 1.3786, the Oct 5 high. Clearance of this level would confirm a resumption of the uptrend and open 1.3862, the Mar 10 high.
