BRENT TECHS: (F6) Short-Term Bear Threat

The Gilt curve unsurprisingly bull steepens following the lower-than-expected UK CPI data, with 2-year yields down 7bps and 30-year yields down 4bps. Yields have moved away from opening lows during the first 20 minutes of Wednesdday trade.

• 10-year yields are down 6bps at 4.419%, after printing a 3.395% low. Yields have narrowed the gap to support at 4.363% (Apr 7 low), which remains intact for now. Clearance of this level would quickly expose trendline support drawn from the November 2022 low, coming in at 4.338% today.
• The 10-year Gilt Bund spread is 6bps tighter at 186bps. Initial support is the August 1 closing low of 184.5bps. Clearance of his level would expose the March 11 low at 177.5bps.
• There have been a couple of factors behind recent Gilt outperformance: Dovish UK labour market and inflation data, slightly better-than-expected September public sector finance figures, and reports that Chancellor Reeves may may increase fiscal headroom above the c. GBP10bln seen in the last two fiscal events.
• Some recent news on the fiscal front:
  • The Chancellor is looking at “extending the equivalent of employer national insurance contributions to partners, in a move which experts have estimated could affect around 200,000 people and raise £1.9bn” (FT)
  • “ The Treasury is expected to close a tax loophole that retailers have argued gives online giants such as Shein an unfair advantage over high street chains, as chancellor Rachel Reeves looks to shore up the public finances…..Currently overseas retailers are allowed to send small packages worth less than £135 to the UK without being charged import duties, a loophole that industry experts claim costs the exchequer up to £600mn a year” .(FT)
• Digestion of the inflation data, and the associated repricing of the near-term BOE rate path, will likely dictate the session ahead. Flash PMI data is due on Friday. 

Figure 1: 10-year Gilt Yields (Source: Bloomberg Finance L.P.)

German cash tax revenue (excl. municipality taxes) through September stands at 74.4% of planned 2025 revenue according to finance ministry data published yesterday. This compares favourably to a historical average of 72.8% of realized full year revenues raised through September. The difference of around 1.6 percentage points amounts to around E14.3bln when put in nominal terms of the E893.31bln full year 2025 tax estimate from the spring projections, which Finance Minster Klingbeil is scheduled to update Thursday.

• For these tax estimates, Handelsblatt sees an overall upward correction in the order of E50-100bln through the next five years as plausible - albeit something they view as negligible compared to total projected revenues of above E5000bln over that horizon.
• Looking at federal-only data, the German fiscal deficit through September amounts to E50.2bln in September - roughly around the middle of deficits ran through September in recent years (see lower chart). The data puts the current magnitude of fiscal easing into context, especially against years such as 2021 in which a wide set of Covid fiscal countermeasures were implemented.
• The government published updated fiscal deficit projections through 2028 last week. However, headline figures published are already outdated as they were based on spring GDP forecasts. Government commentary implied that based on a rough upside of E18bln / E34bln for 2025 / 26 general government revenues, when extrapolating historical correlations to the autumn GDP forecast update, the German general fiscal deficit would amount to 4.5% of GDP in 2026 and 3.5% in 2027 (vs official estimates of 4.75% 2026 / 4.25% 2027). Focus during Thursday's update should be on a comparison of the new projections vs the mentioned rough upside sketched by the government.
• The tax projection press conference is scheduled for Thursday 10:00 BST / 11:00 local time.

• RES 4: $56.153 2.500 proj of the Aug 20 - Sep 16 - 17 price swing   
• RES 3: $55.444 2.382 proj of the Aug 20 - Sep 16 - 17 price swing
• RES 2: $55.000 - Round number resistance
• RES 1: $52.622/54.480 - High Oct 21 / 17 and the bull trigger   
• PRICE: $49.046 @ 08:15 BST Oct 22
• SUP 1: $47.550 - Intraday low  
• SUP 2: $45.142 - 50-day EMA
• SUP 3: $41.135 - Low Sep 17  
• SUP 4: $40.404 - Low Sep 4

Trend signals in Silver are bullish and the latest sharp pullback is considered corrective. Note that the trend condition is overbought and a deeper retracement would allow this condition to unwind. Support at the 20-day EMA, at $49.053, has been pierced. A clear break of the EMA would signal scope for a corrective pullback towards the 50-day EMA, at $45.142. Key resistance has been defined at $54.480, the Oct 17 high.