BONDS: EGBs-GILTS CASH CLOSE: Short-End Underperformance As Data Comes In Solid
Gilts bear flattened Thursday, with core EGBs twist flattening.
- Short-end underperformance was the theme globally as firmer risk sentiment and equities, as well as solid economic data, prompted modest central bank easing/cutting repricing.
- UK GDP data proved firmer than expected, helping Gilts underperform Bunds early and indeed throughout the day.
- Later, there was some hawkish repricing in the US front end that maintained pressure in Europe, after data showed lower-than-expected jobless claims, stronger regional Fed manufacturing surveys, and solid import price data helping the US dollar jump for a spell.
- Eurozone data didn't have much impact: Spanish and French final December HICP confirmed flash estimates, German 2025 GDP was in line at 0.2%, and Eurozone industrial production for November surprised to the upside following
Italian data earlier. - Yields closed near the session highs. Periphery/semi-core EGB spreads tightened modestly on the day.
- Friday's calendar includes final December inflation data from Germany and Italy, with an appearance by ECB's Escriva and release of a speech text from BOE's Bailey.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 2.3bps at 2.098%, 5-Yr is up 1.8bps at 2.386%, 10-Yr is up 0.5bps at 2.819%, and 30-Yr is down 1.8bps at 3.404%.
- UK: The 2-Yr yield is up 4.5bps at 3.67%, 5-Yr is up 5.6bps at 3.86%, 10-Yr is up 4.8bps at 4.388%, and 30-Yr is up 3.4bps at 5.126%.
- Italian BTP spread down 1.1bps at 62.5bps / French OAT down 0.6bps at 67.4bps
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EURJPY TECHS: Bullish Trend Structure
- RES 4: 184.63 Bull channel top drawn from the Feb 28 low
- RES 3: 184.34 2.236 proj of the Jul 31 - Sep 29 - Oct 2 price swing
- RES 2: 183.43 1.0% 10-dma envelope
- RES 1: 183.16 High Dec 12
- PRICE: 182.23 @ 16:30 GMT Dec 16
- SUP 1: 181.20 20-day EMA
- SUP 2: 179.09 50-day EMA
- SUP 3: 177.15 Low Nov 10
- SUP 4: 176.50 Bull channel support drawn from the Feb 28 low
The trend structure in EURJPY remains bullish and fresh cycle highs last week reinforce current conditions. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. Recent gains resulted in a breach of 182.01, the Nov 20 high and a bull trigger, confirming a resumption of the trend. Sights are on 184.63, the top of a bull channel drawn from the Feb 28 low. First key support is 181.20, the 20-day EMA.
USDJPY TECHS: Trading Above Support At The 50-Day EMA
- RES 4: 158.87 High Jan 10 and a key resistance
- RES 3: 158.29 2.618 projection of the Sep 17 - 26 - Oct 1 price swing
- RES 2: 158.00 Round number resistance
- RES 1: 156.95/157.89 High Dec 9 / High Nov 20 and bull trigger
- PRICE: 154.82 @ 16:23 GMT Dec 16
- SUP 1: 154.40 Low Dec 16
- SUP 2: 154.00 50-day EMA and a key support area
- SUP 3: 152.82 Low Nov 7
- SUP 4: 151.54 Low Oct 29
Despite the latest pullback, the trend condition in USDJPY is bullish. The move down between Nov 20 - Dec 5 appears to have been a correction and the recovery from the Dec 5 low highlights the end of the corrective phase. However, support at 154.00, the 50-day EMA, remains exposed. A clear breach of this average would undermine the bull theme and signal scope for a deeper retracement. For bulls, a resumption of gains would open 158.00.
BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform On UK PMIs, Wage Growth
EGB yields dipped Tuesday amid mixed global labor market and activity data, but Gilts weakened.
- Slightly weaker-than-expected Eurozone December flash PMIs had little impact on core EGBs. In the UK however Gilts were kept on the back foot amid a firm PMI print and labour market data that showed higher-than-expected earnings growth.
- The delayed US nonfarm payrolls report was initially seen as weak due to a sizeable unemployment rate rise, but the move fully reversed in part due to strong US retail sales alongside, and saw Gilts and Bunds yields hit session highs.
- Yields were content to come off of the lows into the cash close, ahead of Wednesday's UK CPI release and Thursday's ECB / BoE decisions.
- On the day, the German curve bull steepened slightly, with the UK's bear steepening. Periphery/semi-core EGB spreads fell modestly.
- Aside from UK CPI (MNI's preview here), German IFO and Eurozone final November inflation data feature Wednesday.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.6bps at 2.134%, 5-Yr is down 1.7bps at 2.452%, 10-Yr is down 0.8bps at 2.845%, and 30-Yr is down 0.6bps at 3.466%.
- UK: The 2-Yr yield is up 1.2bps at 3.766%, 5-Yr is up 1.3bps at 3.96%, 10-Yr is up 2.2bps at 4.518%, and 30-Yr is up 1.9bps at 5.258%.
- Spanish bond spread down 1.2bps at 43.6bps / French OAT down 0.4bps at 70.5bps
