GILTS: Labour Market-Driven Rally Holds, Next BoE Cut Priced For Sep
Jun-10 09:38
Gilts remain underpinned after drawing support from softer-than-expected wage data and a larger-than-expected fall in payrolled employees.
- Downticks in e-minis and European equity indices provided further support (but lacked an overt driver), even with the FTSE 100 benefitting from a softer GBP.
- Gilt futures traded as high as 92.66 before fading back to ~92.50, adding more than 70 ticks vs. yesterday’s settlement.
- Initial resistance located at the June 5 high (92.63) has been pierced, with bulls now looking to a Fibonacci resistance point (92.79).
- Yields 5-7bp lower, 10s outperform on the curve.
- 2-Year yields set for the lowest close seen since May 9, while 10s and 30s trade below their respective closes from the same day.
- 2s10s holds above 60bp, with recent moves below that level limited in scope and short-lived.
- 5s30s trade around 120bp after the recent run of closes below the level.
- GBP STIRs now fully discount the next 25bp cut come the end of the September MPC, with 48bp of cuts showing through year-end (vs. 41bp late yesterday). Labour market data drives things there.
- Books on the 1.75% Sep-38 I/L gilt syndication are closed, with demand nearing ~GBP60bln ~15 minutes before books closed (per bookrunners).
- Macro matters are set to dominate for the rest of the day, with domestic inputs (comments from BoE’s Saporta & the government spending review) set to come back to the fore tomorrow.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Jun-25 | 4.208 | -0.3 |
Aug-25 | 4.019 | -19.3 |
Sep-25 | 3.957 | -25.5 |
Nov-25 | 3.800 | -41.2 |
Dec-25 | 3.730 | -48.2 |
Feb-26 | 3.629 | -58.3 |
Mar-26 | 3.606 | -60.6 |
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MACRO OUTLOOK: US PPI/Retail Sales And Powell Follow On Thursday [2/2]
May-09 20:17
- Core PCE implications will then be watched closely in Thursday’s PPI report, and we expect with additional focus on portfolio management after last month’s huge upward revision to February.
- Retail sales, whilst only reported in nominal terms, will offer a keenly awaited look at consumer behavior.
- Real spending moderated to 1.8% annualized in Q1 after 4.0% in Q4 despite likely tariff front-running, with April a good test of how much discretionary spending was pulled forward.
- Finally, Powell provides “Opening Remarks” at the Second Thomas Laubach Research Conference, although he’s allotted twenty minutes so there is scope for more substantive remarks than you’d usually expect. His message at Wednesday’s FOMC press conference was one firmly of being in no hurry to cut rates amidst huge uncertainty. He also appeared to put more weight on hard data over soft indicators that appear more stagflationary in nature.
MACRO OUTLOOK: US CPI Offers Look At April Tariff Distortions on Tuesday [1/2]
May-09 20:15
- The week’s US data calendar is highlighted by CPI inflation on Tuesday although PPI inflation and retail sales reports on Thursday are in close second. All three releases are going to be important, offering further hard data for April in the first month under reciprocal tariffs. What’s more, PPI and retail sales are followed by Fed Chair Powell just ten minutes after their release (more on that below).
- Core CPI inflation is seen accelerating to 0.3% M/M in April, with six unrounded estimates we’ve seen to date averaging 0.27% M/M.
- A potential for a ‘low’ 0.3% aside, it’s still likely a swift acceleration from a particularly soft 0.06% M/M in March which was in large part down to surprisingly abrupt declines in lodging away from home (-3.5%) and airfare (-5.3%) prices.
- This lodging weakness carried over to core PCE inflation back in March, at just 0.03% M/M after a particularly strong 0.50% M/M in February in a large wedge with core CPI at 0.23% M/M.
- Markets currently price a next Fed cut with the September FOMC meeting.
USDCAD TECHS: Pressuring Resistance
May-09 20:00
- RES 4: 1.4296 High Apr 7
- RES 3: 1.4111 High Apr 4
- RES 2: 1.4041 50-day EMA
- RES 1: 1.3943 High May 9
- PRICE: 1.3930 @ 16:06 BST May 9
- SUP 1: 1.3751 Low May 6
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
USDCAD has recovered from its recent lows. Despite the recovery, the trend condition remains bearish and short-term gains are considered corrective. A fresh cycle low on Tuesday reinforces the bearish theme. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Note that moving average studies are in a bear mode position, highlighting a dominant downtrend. Key resistance is seen at 1.4041, the 50-day EMA.
