UK FISCAL: Market reactions to the remit and consultation agenda (2/2)
Nov-26 10:26
- We think there is a good chance that the long-dated syndication is cancelled, which would result in the size of the long-dated bucket being reduced, particularly as some auctions may also be cancelled. The initial reaction to this may be a flattening of the curve.
- However, this may be somewhat nuanced. The DMO consultation agenda (published later at 15:30GMT) normally includes some guidance on any new gilts under consideration for the upcoming quarter (FQ4, Jan-Mar) as well as some thoughts on the syndications. Regarding the syndications, the DMO can either leave options open or lead with a relatively strong view on what the most likely gilt is.
- The Jan-41 gilt could be sold via syndication in either the long-dated bucket (if sold in January) or the medium-dated bucket (if sold in Feb/Mar).
- If this we have had a long syndication cancelled but it is hinted as that the Jan-41 gilt is the likely choice in the consultation agenda for a medium syndication, some of the flattening of the curve in the 10-15 area may be reversed.
- Equally, if the long syndication isn't cancelled and then a new green is proposed in the long bucket with the Jan-41 gilt in the medium bucket, this may lead to some steepening of the curve (particularly 10s20s assuming the new green gilt has a maturity around the 18-20 year area).
- If we don't get a new 10-year gilt launch via syndication in March, we think that there is a good chance we still see a syndication, but in April instead (hence slipping into the next fiscal year). And hence, we don't think 10-year supply over the next 6 months will be hugely impacted by today's announcement.
- In terms of how FX reacts to these announcements, we think FX as a whole will probably be led by gilt futures. Smaller compositional changes and curve moves might not be so relevant here, but a bit steepening of the curve and material moves in gilt futures could drive the currency. Moves in the front-end (more likely driven by the policies outlined, particularly how disinflationary they are) are likely to be a bigger driver of FX overall, however.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
LOOK AHEAD: Monday Data Calendar: Dallas Fed Mfg Activity, 2Y & 5Y Note Auctions
Oct-27 10:23
- US Data/Speaker Calendar (prior, estimate)
- 10/27 1030 Dallas Fed Mfg Activity (-8.7, -7.8)
- 10/27 1130 US Tsy $77B 26W bill & $69B 2Y Note auctions (91282CPE5)
- 10/27 1300 US Tsy $86B 13W bill & $70B 5Y Note auctions (91282CPD7)
- Source: Bloomberg Finance L.P. / MNI
UK FISCAL: GBP3bln said to be needed to balance "unexpected" health spending
Oct-27 10:23
- There are reports that the NHS needs an extra GBP3bln to "avoid making cuts." This is said to be comprised of GBP1bln cost of redundancy payments (from senior management at regional health boards), around GBP1.5bln on higher drug prices (due to a likely deal with the US) and 2xGBP300mln due to strike costs (from the resident doctors' strikes in July and the strike called for in November).
- Minister for Health Wes Streeting was by the asked in an interview with Laura Kuenssberg about both the strike and the redundancy payments and whether the Treasury or the Department for Health would be footing the bill and he dodged the question, noting that he didnt not want to add to Budget speculation.
- Its unclear how this will play out - but these payments are not currently accounted for in the Department for Health's budget - so unless there are cuts this will increase the amount that Chancellor Rachel Reeves needs to find at the Budget.
EUR: FX Exchange traded Option
Oct-27 10:18
EURUSD (7th Nov) 1.1600p, sold at 0.0020 in ~1.2k.
