GILTS: Light Pressure This Morning, Tight Ranges On The Day
Jun-27 09:32
Gilts came under light selling pressure in early European trade, but have stabilised alongside similar moves in global peers, with ranges remaining tight.
- Firmer-than-expected European inflation data and increased optimism surrounding a Sino-U.S. trade agreement provided the early weight.
- Futures last -13 at 93.12, narrow 93.06-36 range on the day.
- The bullish technical outlook remains intact, but momentum is stalling a little.
- Initial support located at the 20-day EMA (92.64), while the June 25 high (93.57) presents initial resistance.
- Yields flat to 1bp higher across the curve, 10s under the most pressure.
- Fundamentals continue to point to further curve steepening after the pullback from ’25 highs in spreads.
- Spread to Bunds last 191bp, unable to force a close below 190bp despite this week’s tightening (spread move largely driven by the German issuance outlook). A break below 190bp would expose the April closing low (184.8bp).
- Local focus remains on PM Starmer’s decision to pare back welfare cuts, owing to pressure from his own party. Negative fiscal readthrough for the UK, odds of tax hikes/spending cuts elsewhere rise.
- Post-settlement/early Friday modest dovish moves in GBP STIRs fade given cues from the long end.
- BoE-dated OIS showing ~53.5bp of cuts through year-end after respecting the 55bp zone over the past couple of sessions.
- ~80% odds of a 25bp cut priced for August and 26.5bp showing through September.
- Little of note on the UK calendar ahead of the weekend, which will leave macro and geopolitical cues at the fore.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 4.015 | -20.2 |
Sep-25 | 3.951 | -26.6 |
Nov-25 | 3.780 | -43.8 |
Dec-25 | 3.682 | -53.5 |
Feb-26 | 3.547 | -67.0 |
Mar-26 | 3.507 | -71.0 |
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EUROPEAN INFLATION: Services Help Belgian Core Inflation Ease In May
May-28 09:30
Belgian May flash HICP inflation was 2.8% Y/Y, down from 3.1% in April for the lowest reading since Januaary 2024. Annual CPI inflation eased to 2.01% (vs 2.55% prior), while CPI ex-energy and unprocessed foods decelerated to 2.59% Y/Y (vs 2.82% prior).
Looking at the major sub-components on a CPI basis:
- Services inflation eased to 3.65% Y/Y (vs 3.96% prior) despite an uptick in rent inflation to 3.60% (vs 3.51% prior). Airfares saw a -13.8% Y/Y reading, meaning the transport component pulled down headline inflation by 0.49pp.
- Food inflation was 2.04% Y/Y (vs 2.48% prior).
- Energy inflation was -1.10% Y/Y (vs +0.95% in April and 5.48% in March). On a monthly basis, there were declines in natural gas (-6.2%) and electricity (-4.0%), which pulled down respective annual rates. Fuel inflation was -9.9% Y/Y.
Figure 1: Belgium CPI Trends
FOREX: USD Index Fades Off High, Keeps Price Inside S/T Downtrend
May-28 09:27
- The USD Index has faded back just below the 100.00 handle to erase overnight gains and keep the price inside the downtrend drawn off the failed test of the 50-dma back in mid-May. Headlines and newsflow have been few and far between for markets, with a semblance of stability for the Japanese yield curve helping contain markets, as well as reduced newsflow on the flow of trade deals with the US.
- NZD is outperforming following the RBNZ rate decision. While the bank cut rates - as expected - by 25bps to 3.25%, the board suggested that the base rate is near the 'neutral' zone, which may limit the space for further rate cuts ahead. NZD/USD bounced well off the overnight low of 0.5924 in response, but is yet to make a test on yesterday's 0.6007 highs.
- CAD is among the poorest performers in G10, slipping despite a more favourable backdrop for oil prices. Brent crude prices are more stable above the week's lows, however slippage across core equity benchmarks is undermining the recent pick-up in short-term downward momentum for USD/CAD (evident in the 50-dma showing below the 200-dma last week).
- Month-end flows should pick up through US hours, particularly as today marks month-end value date. We see a series of sizeable option strikes set to expire at today's cut that could keep a lid on spot markets in a quiet news backdrop: EUR/USD sees $1.1300(E1.4bln), $1.1390-00(E1.4bln), while USD/JPY trades in close proximity to Y143.90-00($1.9bln).
- The Fed minutes is unlikely to garner too much market focus later today, with the release covering the most recent, relatively uneventful, rate decision. The data slate is similarly quiet, as is the speaker schedule - with only BoE's hawk Pill set to speak at 1600BST/1100ET, however he is likely to repeat comments made in recent weeks.
BONDS: Bund/Schatz curve Block trades
May-28 09:24
Bund/Schatz block trades, suggest as Steepener, although the flow in the past few minutes have been on the flattening side.
- RXM5 2.5k sold at 130.85.
- DUM5 13.9k bought for 107.335.
