OIL: Mid-Day Oil Summary: Crude Steady

• MNI: US MBA: MARKET COMPOSITE -1.9% SA THRU OCT 31 WK

The SPGB/OAT/PGB butterfly is off all-time lows, but the bounce has been limited and has already started to fade as weakness in equity markets weighs on OATs in RV terms.

• OATs have become more of a risk proxy given France’s ongoing fiscal deterioration and political risk premium.
• This contrasts with the positive fiscal dynamics and sovereign rating trajectories for Spain and Portugal, and the clear differentiation continues to hamper French paper on this structure.
• Ongoing French political risks and prolonged Budget uncertainty only deepen downside risks for OATs here, particularly with no clear outcome in sight at this stage.
• Note that the latest local media reports point to French PM Lecornu being set to offer concessions to the Socialist Party in order to advance the social security budget (covered by our political risk team recently), although it is uncertain whether the offer will actually be tabled/accepted.

Fig. 1: 10-Year Spain/France Portugal Butterfly

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

• On the commodity front, a fresh cycle low last week in Gold highlights an extension of the bear cycle that started Oct 20. The retracement since Oct 20 has allowed an overbought trend condition to unwind. The 20-day EMA has been breached, signalling scope for a test of the 50-day EMA, at $3867.3. Clearance of this EMA would strengthen a short-term bear theme. Initial resistance is at $4161.4, the Oct 22 high.
• WTI futures are unchanged and the contract remains in a corrective cycle for now. Note that price has recently traded through the 50-day EMA, currently at $61.03. The breach of this EMA signals scope for a stronger recovery. Note too that a resistance at $62.34, the Oct 8 high, has also been pierced. A clear move through it would expose key resistance at $65.77, the Sep 26 high. First key support and the bear trigger is unchanged at $55.96, the Oct 20 low.