BONDS: EGBs-GILTS CASH CLOSE: Yields Dip Ahead Of UK Labour Market Data
Jun-09 16:27
European yields fell modestly Monday, with bellies outperforming on core curves.
- Bunds and Gilts were solid early, the former continuing a partial recovery from the post-ECB lows.
- The rally lost steam though. There was a modicum of risk appetite on reports suggesting the US and China could reach an agreement on key issues central to their trade dispute (including on export restrictions/rare earths), while higher oil prices weighed in early afternoon trade.
- Core FI would get a bit of a lift from a notable downtick in US consumer inflation expectations (NY Fed), helping cement modest gains.
- The German and UK curves leaned slightly steeper overall, with 5Ys slightly outperforming.
- Periphery/semi-core EGB spreads were little changed, with BTPs slightly outperforming.
- Tuesday's highlight is the UK labour market report - MNI's preview is here. The most important number remains the private AWE ex-bonus, which consensus expects to fall to 5.3% in the 3-months to April from 5.56%Y/Y in the 3-months to March. The UK spending review comes Weds.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.6bps at 1.864%, 5-Yr is down 1.9bps at 2.156%, 10-Yr is down 0.9bps at 2.567%, and 30-Yr is up 0.3bps at 3.012%.
- UK: The 2-Yr yield is down 1bps at 4.003%, 5-Yr is down 1.7bps at 4.138%, 10-Yr is down 1.2bps at 4.632%, and 30-Yr is down 1.1bps at 5.328%.
- Italian BTP spread down 0.6bps at 92bps / French OAT unchanged at 67.2bps
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MACRO OUTLOOK: US PPI/Retail Sales And Powell Follow On Thursday [2/2]
May-09 20:17
- Core PCE implications will then be watched closely in Thursday’s PPI report, and we expect with additional focus on portfolio management after last month’s huge upward revision to February.
- Retail sales, whilst only reported in nominal terms, will offer a keenly awaited look at consumer behavior.
- Real spending moderated to 1.8% annualized in Q1 after 4.0% in Q4 despite likely tariff front-running, with April a good test of how much discretionary spending was pulled forward.
- Finally, Powell provides “Opening Remarks” at the Second Thomas Laubach Research Conference, although he’s allotted twenty minutes so there is scope for more substantive remarks than you’d usually expect. His message at Wednesday’s FOMC press conference was one firmly of being in no hurry to cut rates amidst huge uncertainty. He also appeared to put more weight on hard data over soft indicators that appear more stagflationary in nature.
MACRO OUTLOOK: US CPI Offers Look At April Tariff Distortions on Tuesday [1/2]
May-09 20:15
- The week’s US data calendar is highlighted by CPI inflation on Tuesday although PPI inflation and retail sales reports on Thursday are in close second. All three releases are going to be important, offering further hard data for April in the first month under reciprocal tariffs. What’s more, PPI and retail sales are followed by Fed Chair Powell just ten minutes after their release (more on that below).
- Core CPI inflation is seen accelerating to 0.3% M/M in April, with six unrounded estimates we’ve seen to date averaging 0.27% M/M.
- A potential for a ‘low’ 0.3% aside, it’s still likely a swift acceleration from a particularly soft 0.06% M/M in March which was in large part down to surprisingly abrupt declines in lodging away from home (-3.5%) and airfare (-5.3%) prices.
- This lodging weakness carried over to core PCE inflation back in March, at just 0.03% M/M after a particularly strong 0.50% M/M in February in a large wedge with core CPI at 0.23% M/M.
- Markets currently price a next Fed cut with the September FOMC meeting.
USDCAD TECHS: Pressuring Resistance
May-09 20:00
- RES 4: 1.4296 High Apr 7
- RES 3: 1.4111 High Apr 4
- RES 2: 1.4041 50-day EMA
- RES 1: 1.3943 High May 9
- PRICE: 1.3930 @ 16:06 BST May 9
- SUP 1: 1.3751 Low May 6
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
USDCAD has recovered from its recent lows. Despite the recovery, the trend condition remains bearish and short-term gains are considered corrective. A fresh cycle low on Tuesday reinforces the bearish theme. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Note that moving average studies are in a bear mode position, highlighting a dominant downtrend. Key resistance is seen at 1.4041, the 50-day EMA.
