EU CREDIT HEADLINE: Jaguar Land Rover: Profit Warning    

The December ’26 SONIA future (SFIZ6) has extended on yesterday’s outperformance vs. Euribor (ERZ6). This leaves the SFIZ6/ERZ6 spread at the lowest level since late September (154.5bp last), ~10bp off month-to-date closing highs.

• We think the market has more room to reprice a dovish BoE outlook than a dovish ECB outlook, which points to the risk of further downside in the SFIZ6/ERZ6 spread.
• The next level of downside interest comes in at the September closing low, 153bp. A meaningful break there would expose cycle closing lows at 145bp.
• Downside risks to the spread remain evident, given the relatively shallow pricing of the BoE cutting cycle. ~10bp of easing priced through year-end, with the next cut not fully discounted until the March MPC.
• Yesterday’s data showed the UK labour market continues to slow, signalling a need for further easing. However, sticky inflation data had previously deferred the pricing of further easing and presents a risk to dovish views.
• Meanwhile, ECB rhetoric points to monetary policy being in a “good place”, suggesting the bank is nearing the end of the easing cycle.
• Markets still price greater-than-even odds of one further ECB cut in the cycle, with several Governing Council members noting the risks to inflation are skewed towards the downside.

Fig. 1: SONIA/Euribor December ’26 Futures Spread (SFIZ6/ERZ6)

Source: MNI - Market News/Bloomberg Finance L.P.

• In the equity space, a sharp sell-off in S&P E-Minis last Friday appears corrective - for now. The contract has found support below the 50-day EMA, currently at 6605.62, and the Oct 10 low of 6540.25 has been defined as a key short-term support. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. The bull trigger is 6812.25, the Oct 9 high.
• The trend condition in EUROSTOXX 50 futures is unchanged, the direction is up and the latest pullback appears to have been a correction. A key support zone between 5553.01 - 5481.41, the area between the 20- and 50-day EMAs, remains intact. A clear break of the 50-day average would highlight a stronger reversal. On the upside, the bull trigger is 5689.00, the Oct 2 high. Clearance of this hurdle would confirm a resumption of the uptrend.

• SX5E (19th Dec) 4400p, trades 10.80 and 11.00 in 44k.
• SX5E (20th Mar) 4800p, trades 58 in 33k.
• SX5E (18/12/26) 5600^, trades for 770.8 in 15k.