EQUITIES: EU Cash Opening Calls - Focus on Tech

Modest hawkish repricing in GBP STIRs with energy prices firming on the back of the closure of the Saudi East-West pipeline and delay of the meeting between Iran & Gulf states (that aimed to establish a short-term transit route through the Strait of Hormuz).

• Market remains close to last week’s multi-month hawkish extremes as a result. With ~6.5bp of tightening priced for this week’s BoE decision, 46.5bp priced through year-end and 102bp showing through June.
• Year-end pricing saw a ~17bp hawkish shift last week, while June pricing saw a ~37bp hawkish move, as oil rallied and cross-market adjustments to the ECB and U.S. data factored in.
• SONIA futures little changed to -3.5.
• This week’s tier 1 UK data comes in the form of labour market data (Tuesday) and CPI (Wednesday), ahead of Thursday’s BoE decision.
• Expect our preview of the data releases later today.
• There is a unanimous expectation amongst the sell-side notes that we have read for Bank Rate to be maintained at 3.75% on Thursday.
• We expect an unchanged 6-3 vote, most likely with little change to the Monetary Policy Statement. We don't think Governor Bailey nor Deputy Governor Ramsden sounded hawkish enough at the TSC hearing to change their vote imminently to support a hike
• The biggest wildcard in our view is Lombardelli - we were a little surprised that her paragraph in the July Minutes was less hawkish than we had expected - but we still view her as the most likely 4th member to support a hike.
• Current pricing of hikes seems aggressive to us, and our base case would be that this may be pared back somewhat, but any encouraging signs to set up a future hike (including a signal of potential support from Lombardelli) would likely see market participants not want to fight current pricing. Of course, this is all with the caveat that market pricing is hugely dependant upon developments in the Middle East.

Overnight upside in crude caps any demand for gilts in early trade today.

• Futures -9 at 84.23.
• The trend condition in the contract remains bearish and last week's breach of support at 84.74, the Sep 2 low and bear trigger, confirms a resumption of the downtrend. Sights are on 83.60, a Fibonacci projection point, with last week’s low (83.86) providing intermediate support. Initial firm resistance is seen 85.81, the 20-day EMA.
• Closure of the Saudi East-West pipeline following attacks underscores ongoing supply risks in the energy markets. That was compounded by news that a planned Monday meeting between Iran and several Gulf States, aiming to create a temporary shipping lane through the Strait of Hormuz, has been postponed. Energy firmed, but oil benchmarks remain shy of last week’s highs.
• This week’s tier 1 UK data comes in the form of labour market data (Tuesday) and CPI (Wednesday), ahead of Thursday’s BoE decision.
• Expect our preview of the data releases later today.
• There is a unanimous expectation amongst the sell-side notes that we have read for Bank Rate to be maintained at 3.75% (more on STIR pricing to come in our usual early morning bullet).
• The annual BoE APF decision is also due this week. We (and the market) look for active sales to broadly continue at their current pace. This would imply a GBP50bln total reduction in the APF stock over the Oct ‘26-Sep ‘27 period (active sales of around GBP19.5bln). There is a risk of GBP55bln in our view - but anything more than that would be unlikely given the BoE's aim to keep this programme predictable. A biggest question is on the maturity breakdown and whether there will be a change to this year's 40/40/20 short/medium/long breakdown - we don't think this likely but if there was a reduction in longs (or even cessation of active sales of longs) this could have a notable impact on the curve.

With ~94% of districts counted, the Swedish election result remains on a knife edge. Opposition parties are currently on track for 176 seats, compared to 173 for the incumbent Tido parties. We will likely have to wait till Wednesday for a more conclusive result, with votes from Swedes living abroad and those counted by municipalities still to be incorporated. 

• The projected result is much closer than that implied by the SVT Valu and TV4/Novus exit polls, which put the opposition on course for just over 180 seats. Relative to those exit polls, outperformance for the Moderate party and underperformance from the Greens stands out the most.
• The Liberals look set to exceed the 4% threshold to re-enter Parliament, with 5.4% of votes at present – validating a late bounce in pre-election polling.
• This could set the stage for protracted, potentially difficult coalition formation. For MNI’s pre-election scenarios, see our preview here
• So far, there’s little market reaction in SEK FX or SGBs to the projected election result. As noted in our preview, primary focus once a coalition is formed will be on the fiscal policy mix, and the impact this could have on the medium-term growth outlook.