BONDS: EGBs & Gilts Hold Much Of Early Weakness
Feb-05 10:33
EGBs and gilts sit a little above softest levels of the day after a combination of wider macro impulses (Fed chair Powell’s weekend interview & hawkish BoJ sources) and UK matters (corporate expectations re: price rises, ONS adjustments to labour market data and slightly firmer-than-flash final PMIs) providing the obvious sources of early pressure this week.
- ECB & BoE-dated OIS have unwound a little more of the rate cuts priced for ’24 across their respective strips (127bp of ’24 cuts now priced for the ECB, ~85bp for the BoE) but also sit a little off session extremes as core bonds stabilise.
- The burden of supply (via an ongoing EFSF 10-Year syndication and dual-tranche supply from the EU) will also be providing some background pressure.
- Final Eurozone services and composite PMI readings failed to alter the economic narrative, printing in line with the flash estimates.
- Eurozone PPI was near enough in line with expectations.
- Technical support in Bund futures (134.31) has held so far, with the contract registering a low of 134.33 (last 134.45). German cash yields are 4.0-4.5bp higher, with any early flattening pressure unwound.
- Peripheral spreads to 10-Year Bunds are little changed to 1bp tighter on the day.
- Gilts near enough respected early session lows post-domestic PMI data (lows of 98.20 thus far). Although the contract has broken last week’s base it has not tested initial support at the Jan 16 low (98.16), which protects the bear trigger (97.57).
- Cash gilt yields are 4-7bp higher, as the curve bear flattens.
- The U.S. ISM survey, aforementioned European supply, comments from BoE’s Pill & Fedspeak from Goolsbee and Bostic headline from here.
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USDCAD TECHS: Corrective Rally Falters
Jan-05 21:00
- RES 4: 1.3482 200-dma
- RES 3: 1.3469 50-day EMA
- RES 2: 1.3409 1.0% 10-dma envelope
- RES 1: 1.3399 High Jan 05
- PRICE: 1.3327 @ 16:08 GMT Jan 05
- SUP 1: 1.3177 Low Dec 27
- SUP 2: 1.3093 Low Jul 14 and key support
- SUP 3: 1.3002 2.0% 10-dma envelope
- SUP 4: 1.2992 50.0% retracement of the 2021 - 2022 bull phase
The broader USDCAD trend outlook remains bearish, and with the Friday rally sold, focus could again turn lower. The 50-day EMA resistance above at 1.3469 has held, keeping the over-arching downtrend intact. The pair last week cleared a bear trigger at 1.3480, the Dec 4 low. Furthermore, all key short-term retracement points have been breached. On any return lower, sights are on 1.3093, the Jul 14 low and a key support.
US TSYS: Markets Roundup: Tsys Weaker After Noisy Dec NFP, Weak ISM Discounted
Jan-05 20:53
- Treasury futures holding weaker after the bell, near the middle of a wide session range following this mornings headline NFP data. Mar'24 10Y futures -11 at 111-20.5 vs. 111-06.5 low; curves steeper: 3M10Y +6.503 at -133.760, 2Y10Y +4.017 at -34.770.
- Deemed "noisy", the higher than expected jobs gain was tempered by down revisions for the two prior releases (Dec jobs gain of 216k vs. 175k est, prior down-revised to 173k from 199k).
- Coupled with lower than expected ISM services data (50.6 vs. 52.5 est), ISM Services Employment (43.3 vs. 51.0 est) and Services New Orders (52.8 vs. 56.1 est) underlying rates gapped higher (10Y yield fell to 3.9513% low from 4.0971% high). Support gradually evaporated through midday with underlying futures holding weaker into the close with 10Y yield at 4.0476% (+.0489%).
- The vast U.S. services sector is set to sustain modest growth in coming months despite a surprisingly poor end to last year, with possible Federal Reserve rate cuts helping to stimulate demand later in the year, Institute for Supply Management chair Anthony Nieves told MNI Friday.
- Traders tentative as they await next week's CPI and PPI inflation measures on Thursday and Friday respectively.
CANADA: Analysts On Dec Labour Report [2/2]
Jan-05 20:33
- GS: “Given softer activity data and continued progress on inflation (including in non-shelter core services) we continue to think that the BoC will deliver 25bps cuts at its April and June meeting, followed by quarterly cuts until reaching a terminal rate of 3.25% in 2025Q3.”
- RBC: “The BoC will still be cautious about pivoting to rate cuts too quickly - and wage growth is still running above the pace historically consistent with their 2% inflation target. But our own expectation is that the economic backdrop is soft enough for inflation to continue to move lower and that the BoC will start to push the overnight rate lower around mid-year this year.”
- TD: “It will be difficult for the BoC to draw any firm conclusions given the noisy tone of today's report, but we expect the Bank to view the sharp acceleration in LFS wages with a few grains of salt, given the large divergence against alternative measures of wage growth. [..] Our broader bias here is still for Canadian investors to be more sensitive to downside surprises than positive ones, as investors appear eager to embrace a more aggressive easing profile in Canada. With that in mind, 2s5s and 2s10s look too inverted.”
