US TSY FUTURES: Mix Of Short Setting & Long Cover Seen On Wednesday

• The BOE's ILTR operation saw weekly takeup of GBP1.280bln (the smallest since 2 September) with a net increase of GBP0.560bln (also the smallest increase since 2 September).
• Overall this puts the outstanding amount at record high of GBP61.479bln (up from GBP60.919bln last week).
• Takeup was expected to be lower at this operation as this was the first operation with the Bank Rate +3bp spread for Level A collateral (up from Bank Rate flat in all operations up to last week). As this was telegraphed in advance we think some of those who may have wanted to use the facility this week and in coming weeks may have looked to lock in the cheaper rate at previous operations).

• In the equity space, S&P E-Minis maintain a softer short-term tone. The breach of support at 6655.70, the Nov 7 low cancels recent bearish signals and signals scope for an extension of the current corrective cycle. Note that price has also breached support at the 50-day EMA. An extension would open 6540.25, the Oct 10 low and the next key support. Initial firm resistance to watch is 6793.65, the 20-day EMA.
• A medium-term bull trend in EUROSTOXX 50 futures remains intact, however, the latest sell-off highlights a stronger corrective cycle. The move down this week has resulted in the breach of two key support points; 5606.50, the 50-day EMA, and 5604.50, the base of a bull channel drawn from the Aug 1 low. The breach signals scope for a deeper pullback and opens 5503.00, a 50.0% retracement of the Aug 1 - Nov 13 bull cycle. Initial resistance to watch is 5675.90, the 20-day EMA.

Gilts initially drew support from a move lower in global equity markets, before stabilsation in wider risk sentiment and an uptick from session lows in crude oil limited demand.

• Gilt futures trade +8 at 92.47 vs. highs of 92.60.
• Initial support and resistance located at 91.94 & 92.85. Our technical analyst still deems the recent weakness to be corrective at this stage.
• Yields ~0.5bp lower across the curve.
• 2s10s and 5s30s got within 1bp of October closing highs.
• Gilt/Bunds 1.5bp wider at 183.5bp after failing to push above 185bp in recent sessions, still holding most of the recent recovery from sub-175bp.
• The GBP.125bln tender of the 4.75% Dec-30 line passed smoothly.
• BoE-dated OIS pricing 18.5bp of easing for December (~75% odds of a cut).
• SONIA futures little changed to +2.0, with SONIA-implied BoE terminal rate pricing little changed on the day, at 3.39%.
• Comments from BoE’s Pill (voted to leave rates unchanged earlier this month) & Dhingra (the most dovish MPC member) are due today.
• A reminder that we do not expect much market vol. to stem from any non-Bailey BoE comments in the lead up to the December decision, given the entrenched views of the other MPC members (Bailey is deemed the key swing voter).
• Immediate focus remains on tomorrow’s inflation data (click for our full preview) and next week’s Budget.