BONDS: EGBs-GILTS CASH CLOSE: UK Curve Bull Flattens Ahead Of BOE
Jun-18 16:19
Curves bull flattened Wednesday, with Gilts modestly outperforming Bunds ahead of Thursday's BOE decision announcement.
- Early trade saw some bull steepening led by Gilts after UK CPI data looked in line with expectations.
- There was a broad rally across core FI for almost the entire remainder of the session however, with the long end leading gains.
- The main triggers were weak-leaning US data (jobless claims and residential construction), with lower oil prices as US President Trump seemingly views a near-term resolution on the Iran-Israel conflict.
- The German and UK curves both bull steepened on the day. Periphery/semi-core EGB spreads were little changed.
- Overnight focus will be on the US Federal Reserve, but the BOE takes centre-stage Thursday - MNI's preview is here.
- It would be a surprise to markets if the outcome is anything other than an on hold decision with unchanged official guidance. Expectations are relatively strongly pointing towards a 7-2 vote split for a hold/cut respectively.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.6bps at 1.842%, 5-Yr is down 3.8bps at 2.103%, 10-Yr is down 3.8bps at 2.497%, and 30-Yr is down 4.1bps at 2.944%.
- UK: The 2-Yr yield is down 3.5bps at 3.888%, 5-Yr is down 4.7bps at 4.006%, 10-Yr is down 5.5bps at 4.495%, and 30-Yr is down 5.4bps at 5.229%.
- Italian BTP spread down 0.2bps at 95bps / French OAT unchanged at 71.5bps
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FOREX: USD Dip Stabilises, RBA Policy Statement Key
May-19 16:16
- Headed through the European close, the greenback is holding the bulk of the day's losses having backtracked around 0.5% on the back of the Moody's downgrade late on Friday. Through APAC hours, JPY and CHF were the original outperformers, but a notable step higher in EGB/Gilt yields, a general steepening of the curve hindered progress and outperformance switched to EUR and GBP into the NY crossover.
- The RBA rate decision is a focus Tuesday. The Bank are expected to cut rates a further 25bps to 3.85%, but AUD/USD's range trade since the beginning of the month signals a market with little concern over easier policy. The policy statement will be watched carefully as markets priced a further 2 x 25bps cuts beyond assumed easing tomorrow, despite tariff uncertainty and the prospect of further stimulus from China.
- Canadian CPI for April is due Tuesday, ahead of which USD/CAD remains in a consolidation pattern after correcting higher to trade either side of 1.40. 1.4022 marks notable resistance ahead, the 200-dma, above which markets trade the best levels since mid-April. The 50-dma will imminently form a death cross, indicating strong short-term downward momentum.
- GBP/USD traded as high as 1.3404 through the initial phase of USD sales this morning, but has backtracked to clock only a ~75 pip gain on the day. CPI stats on Wednesday should prove pivotal here as the BoE's MPC remain divided on near-term rates strategy without hard data on wages through April.
CRYPTO: Senate Expected To Hold Second Vote On Stablecoin Bill Appox 17:30 ET
May-19 15:47
The United States Senate is expected to hold a procedural vote at around 17:30 ET 22:30 BST on the 'GENIUS Act', a landmark bipartisan crypto bill to regulate stablecoins. The bill has been revised after Democrats blocked a first attempt at passing the bill earlier this month, citing concerns over big tech firms issuing their own stablecoins and the Trump family's business dealings with the crypto industry.
- Barron's notes: "Among other provisions, the bill would require stablecoins, whose value is typically pegged to the dollar, to hold reserves of liquid, safe assets like Treasury bills. Issuers would also have to follow anti-money-laundering and terrorism finance rules and to give holders of coins priority to recoup their money in a bankruptcy."
- Democrat negotiators noted in a memo late last week that the revised legislation strengthens "provisions on anti-money laundering, foreign issuers, national security safeguards, consumer protection," and includes, "measures to preserve the safety and soundness of our financial system.”
- The memo added that Democrats have received "assurances" from Republicans on other outstanding issues, includuing limitations on big tech firms issuing stablecoins, expanded prohibitions on interest-bearing stablecoins and “a broad savings clause guaranteeing the application of existing federal consumer protection laws, including but not limited to protections stemming from the Consumer Financial Protection Bureau and the Federal Trade Commission,” per Politico.
OPTIONS: Larger FX Option Pipeline
May-19 15:41
- EUR/USD: May21 $1.1140-50(E1.3bln), $1.1250(E1.1bln), $1.1390-05(E2.1bln); May22 $1.1175(E1.9bln); May23 $1.1145-50(E1.1bln), $1.1180-85(E1.1bln), $1.1300(E1.0bln), $1.1330-50(E1.3bln), $1.1400(E1.1bln)
- USD/JPY: May23 Y144.00($1.4bln), Y145.00($1.9bln)
- GBP/USD: May22 $1.3260-70(Gbp1.5bln)
- USD/CAD: May22 C$1.4050($1.3bln); May23 C$1.4000-15($1.2bln)
