GILTS: Futures Close Gap Lower, BoE Eyed
Aug-06 13:41
{GB} GILTS: Gilts futures have closed the opening gap lower, with the passage of European supply, move away from session highs in equities and some dovish leaning Fedspeak seemingly contributing over the past few hours.
- Gilt futures register highs of 92.73 before fading back to 92.65.
- Initial support and resistance 92.24 & 92.84, respectively.
- Yields are 2bp lower to flat, curves hold steeper.
- Bulls have not been able to force 10s meaningfully through 4.50% since the break back above in early July (this week’s low at 4.496%, last trading 4.51%).
- Similar price action in 2s around the 3.80% mark.
- UK headline flow remains light since the overnight comments from thinktank NIESR (pointing towards the need for sizeable tax hikes and an in line with market pricing view on BoE raters).
- SONIA futures off lows given the recovery further out the curve, last +1.5 to -1.5.
- Exposure to dovish call structures have dominated in SONIA options markets today.
- BoE-dated OIS once again nears discounting of 50bp through year-end after printing ~47bp earlier today.
- Over 90% odds of a cut remain priced for tomorrow’s BoE decision.
- With markets pricing a cut with near certainty, the delivery of such a move would mean that focus shifts quickly to the vote split, the tone of the press conference, any changes to assumptions in the scenarios and any signalling ahead of September’s QT decision.
- Our full preview of the event can be found here.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 3.986 | -23.1 |
Sep-25 | 3.946 | -27.1 |
Nov-25 | 3.793 | -42.4 |
Dec-25 | 3.721 | -49.6 |
Feb-26 | 3.601 | -61.5 |
Mar-26 | 3.564 | -65.3 |
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RIKSBANK: Implied Probability of August Cut Down to 20% Following Flash CPI
Jul-07 13:37
- Even though today’s Swedish June flash inflation report saw a 0.4pp rounded upside surprise, analysts had expected volatile components to drive the Y/Y acceleration in CPIF ex-energy. If these components (e.g. package holidays) were the sole drivers of the June increase, it would significantly dampen the hawkish impact of the release.
- Meanwhile, the Riksbank’s June minutes portrayed an Executive Board that is more concerned about weak demand pulling inflation below target in the medium-term than known upside risks. In this light, Thursday’s May monthly activity data will be important to monitor (despite its volatile/revision-prone nature). Early consensus looks for monthly GDP to fall 0.2% M/M (three estimates ranging between -0.4% M/M and -0.2%; vs 0.4% prior).
- Markets now assign just a ~20% implied probability of a 25bp Riksbank cut on August 20 according to sell-side estimates. That’s down from a ~50% chance before the inflation data. 2-year SEK swap rates are also up 8.5bps to the highest since June 26.
- SEK has mostly consolidated this morning’s post-data strength and remains the G10 outperformer. EURSEK is down 0.85%, but initial support at the 20-day EMA of 11.1042 has not been tested. NOKSEK is down 0.9% at 0.9410, off lows of 0.9377.
- We haven't seen any sellside forecast changes following the inflation data, but there remains a split of opinions on the terminal rate:
- Handelsbanken continue to expect a cut in August.
- JP Morgan still see one more cut in September.
- Danske Bank forecast no more cuts, but note that “we still see some downside risk to our call”. DNB and Nordea also expect no more easing this cycle.
SONIA OPTIONS: Latest Call Flies Buyers
Jul-07 13:35
- SFIQ5 96.20/96.30/96.40c fly, bought for 1.5 in 15k total.
- SFIV5 96.10/96.20/96.30c fly, bought for 1.5 in 6k.
MNI EXCLUSIVE: EU Update On Trade Talks With U.S.
Jul-07 13:33
EU officials give an update on talks with the U.S. -- on MNI Policy MainWire now, for more details please contact sales@marketnews.com.
