US TSYS: Modestly Twist Steeper, TY Bear Threat Still Present

It is a rare occasion when Prime Minister's Questions is a market moving or relevant event, with the last instance coming in July when images of Chancellor of the Exchequer Rachel Reeves in an emotional state in the House of Commons, amid speculation over her position, sparked a notable selloff in UK assets. Today's session (starting at the top of the hour, livestream here) could garner more interest given the political and media furore over the past 12 hours following a series of briefings from Downing Street figures regarding the possibility of leadership challenges against PM Sir Keir Starmer from prominent centrists in cabinet: Health Secretary Wes Streeting or Home Secrerary Shabana Mahmood. 

• The subsequent counter-briefings and internal political infighting within Downing St and the wider centre-left Labour party has only added to perceptions of chaos and instability at the heart of gov't.
• A cover story from The New Statesman (seen as the political journal of record for the centre-left in the UK) claims that "In today’s Labour Party, there is constant, fevered discussion about the prospect of a leadership challenge in May (after the local, Scottish and Welsh elections) or in the aftermath of the Budget, about the possible contenders and the exact mechanism by which it would be done."
• Polls from multiple outlets showing Labour falling to third, or even fouth place nationwide. The poor polling is also specific to Starmer. A satisfation survey from Ipsos shows Starmer with the worst approval ratings of any prime minister since it began taking surveys in 1977.
• This comes in terms of worst net rating (-66, nearest comparison John Major in Aug 1994 and Rishi Sunak in Apr 2024, both -59), the worst 'satisfied' rating (13%, nearest Rishi Sunak Apr 2024 and Liz Truss Oct 2022, both 16%), and 'dissatisfied' rating (79%, nearest Margaret Thatcher Mar 1990 and John Major Aug 1994, both 76%). 

Chart 1. Leader Satisfaction, Worst Rating for Each PM, %

Source: Ipsos

OI data shows a clear skew towards net long setting as SOFR futures rallied in the wake of the soft weekly ADP employment data on Tuesday. Only limited instances of net short cover were seen through the blues.

• Still, akin to what was seen in the long end, limited net OI swings may point to low conviction given the lack of market familiarity with the weekly ADP readings and questions surrounding crossover with official labour market data.

• In FX, EURUSD traded higher Tuesday. The pair has breached an initial important resistance at 1.1584, the 20-day EMA. The break paves the way for an extension of the corrective cycle, towards the 50-day EMA, at 1.1623. A clear break of the 50-day average would highlight a potentially stronger bull cycle. On the downside, a reversal would refocus attention on the bear trigger at 1.1469, the Nov 5 low. Clearance of this level resumes the downtrend.
• The trend outlook in GBPUSD remains bearish and recent gains still appear corrective. The move higher has allowed an oversold trend condition to unwind. Firm short-term resistance to watch is at the 20-day EMA, at 1.3223. Clearance of this hurdle would signal scope for an extension towards the 50-day EMA, at 1.3327. For bears, a resumption of the downtrend would open 1.2971, a 1.382 projection of the Sep 17 - 25 - Oct 1 price swing. The trend structure in USDJPY remains bullish and this week’s gains reinforce current conditions. Today’s climb has delivered a print above 154.48, the Nov 4 high and bull trigger. This confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Sights are on 155.53, a 2.00 projection of the Sep 17 - 26 - Oct 1 price swing. Initial support to watch lies at 152.84, the 20-day EMA.