BOC: Most Analysts Continue To See Lengthy Rate Hold, Some Still See Cuts (1/2)
Dec-11 19:55
The Bank of Canada's December meeting communications were largely in line with expectations, if leaning a little dovish in downplaying recent upside data surprises. Markets currently imply a 25bp hike by the BOC's October 2026 meeting. Our full review of the December meeting is here
- The only adjustment in future rate expectations that we saw post-meeting came from BofA, which remains an outlier in seeing 50bp of cuts in 2026 but has pushed back the timing to 25bp cuts in April and June (previously March and April) with risks leaning toward "a hold or even a hike". BofA writes that the BOC will ease after a lengthy pause "as trade uncertainty persists, with the USMCA review set for July 2026, and as economic softness emerges-even under the BoC's own GDP projections".
- We didn't see any view change from ING, which is the only other bank that saw a 2026 cut going into the BOC decision (25bp in early 2026).
- JPMorgan reiterated that the BOC is set to hold rates through 2026: "We anticipate little material risk for upside surprises to inflation that would warrant tighter policy next year, given the persistent slack in the economy and further cooling in shelter inflation and other previously sticky sources of inflation."
- Goldman Sachs likewise still sees no change in 2026, noting the BOC's "characterization of the economy as slightly dovish, while the guidance was balanced. Given our expectation that activity will remain subdued and price pressures contained, we expect the Bank to remain firmly on hold for the next several meetings, although we see both upside and downside risks around our forecast in the latter half of 2026."
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US TSYS: Late SOFR/Treasury Option Roundup: Upside Calls as Rate Hike Odds Rise
Nov-11 19:49
SOFR & Treasury options shifted to low delta call buying - particularly in Jan'26 10Y calls after a slow start to the session. Underlying futures extended highs after the ADP showed a decline in jobs - futures holding narrow range since late morning, while projected rate cut hold firmer vs late Monday levels (*): Dec'25 at -16.8bp (-15.5bp), Jan'26 at -27.1bp (-25.1bp), Mar'26 at -38.3bp (-35.2bp), Apr'26 at -44.9bp (-41.3bp).
- SOFR Options: (Note Nov options expire Friday)
- Update, over +25,000 SFRF6 96.62/96.75/97.00 2x3x1 call flys, 2.25-2.75 vs. 96.435/0.09%
- +10,000 SFRZ5 96.31 calls, 3.5 ref 96.245
- +4,000 SFRF6 96.43/96.62/96.75 call flys, 3.5
- +10,000 0QZ5 97.00/97.25 call spds, 5.25 ref 96.905
- -5,250 0QZ5 96.93/97.06 call spds, 4.0
- -3,000 SFRX5 96.50 calls, 1.5 ref 96.25
- +4,000 SFRZ5 96.43/96.50, 0.5 vs. 96.28/0.05%
- Block, +5,000 0QH6 96.25/96.50 put spds, 3.5 ref 96.895
- 1,300 SFRX5 96.18/96.25 box
- Block, -10,000 SFRZ5 96.50/96.62 call spds, 0.25
- Block/screen, 4,000 SFRG6 96.68/96.81/96.87/97.00 call condors, 0.75
- 4,000 SFRZ5 96.37/96.56 call spds vs. SFRF6 96.56/96.75 call spds, 2.5 net/Jan bought over
- +4,000 SFRZ6 96.12/96.50/96.75 broken put flys, 2.5
- -2,000 SFRX5 96.18/96.31 strangles, 0.5
- 9,350 SFRX 96.18 puts, .25-0.50 total volume over 17,500
- over 8,300 SFRX5 96.25 puts
- -6,500 SFRZ5 96.43/96.68 call spds, 0.25-0.50
- Treasury Options:
- 2,000 USZ5 120/122 call spds 4
- 6,100 TYZ5 117.5/120 1x2 call spds ref 113-00
- Update over +117,000 TYF6 114 calls, 29 vs. 112-30.5 to -31.5/0.30% (open interest 51,680)
- 1,000 TUZ5 104.5/104.62 1x2 call spds
- 2,000 FVZ5 109.75/110/110.5/110.75 call flys ref 109-14
- 1,250 TYZ5/TYF6 115 call calendar spds
- 2,000 TYZ5 111.5/112 put spds, 1
- -3,500 TYZ5 112.75 calls, 24 vs. 112-23.5/0.47%
- +2,500 Wednesday weekly TY 112.5 puts, 1 vs. 112-26/0.28%
- +2,500 Wednesday weekly TY 112.75 calls, 21 vs. 112-24/0.45%
COMMODITIES: WTI Rallies, Spot Gold Steady As Correction Appears Over
Nov-11 19:42
- Crude prices are higher today, amid strength in oil product markets, with WTI on track for its highest close since Nov 3.
- WTI Dec 25 is up by 1.5% at $61.0/bbl.
- In the US, the House will return tomorrow to vote on the continuing resolution that could reopen the government by Friday. The bill to provide US government funding until Jan 30 passed the Senate with the support of a number of Democrats.
- For WTI futures, an upward corrective cycle remains intact for now. Price has traded through the 50-day EMA, at $60.85, signalling scope for a stronger recovery.
- Initial resistance is at $62.59, the Oct 24 high. A clear move through it would expose key resistance at $65.77, the Sep 26 high. The bear trigger is $55.96, the Oct 20 low.
- Despite the broader pressure on the USD, meanwhile, following the release of weak US ADP jobs data, spot gold has unwound earlier gains to be broadly unchanged on the day at $4,119/oz.
- There may be some short-term positioning dynamics in play here, given the 3.5% rally from last Thursday’s lows.
- From a technical perspective, the downleg for gold since Oct 20 appears to have been a correction, which has allowed an overbought condition to unwind.
- Recent gains suggest that correction is now over, with price above a key support at the 50-day EMA at $3,898.9. Initial resistance is seen at $4,161.4, the Oct 22 high, a clearance of which would refocus attention on $4,381.5, the Oct 20 high and bull trigger.
BONDS: EGBs-GILTS CASH CLOSE: Gilts Easily Outperform On Soft Labour Data
Nov-11 19:41
Gilts easily outperformed peers Tuesday.
- UK labour market data broadly came in on the soft side, driving an early bull steepening rally. A December BOE cut is now around 80% priced from <70% prior, helping the UK short-end strengthen (2Y yields hit a post-Aug 2024 low).
- Treasuries led a global rally in early afternoon on weekly ADP private sector payrolls data that showed a notable contraction in the 4-week period to Oct 25.
- In other data, German ZEW underperformed in both expectations and current conditions.
- BOE MPC hawk Greene reiterated her previously aired areas of focus, having no impact on the short end & gilts.
- On the day, the German curve lightly bull flattened, while the UK's held its early bull steepening.
- Periphery/semi-core EGB spreads were little changed vs Bunds.
- Wednesday's calendar includes Italian industrial production and final German CPI. We also get commentary from ECB's Schnabel and de Guindos, as well as BOE's Pill.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.4bps at 2.001%, 5-Yr is down 0.9bps at 2.259%, 10-Yr is down 1bps at 2.658%, and 30-Yr is down 0.6bps at 3.254%.
- UK: The 2-Yr yield is down 8.3bps at 3.724%, 5-Yr is down 7.8bps at 3.857%, 10-Yr is down 7.4bps at 4.387%, and 30-Yr is down 6.7bps at 5.172%.
- Italian BTP spread up 0.1bps at 74.5bps / French OAT down 0.4bps at 76.4bps
