EM CEEMEA CREDIT: Nigeria: WB projections for fiscal gap

• Following the August MPC meeting, Deutsche Bank had looked for the next cut in Q4-25 but had been 50/50 between November and December. It has now firmed up its call and looks for a 25bp cut in December for four reasons: a later Budget, more data available by December, pay settlement data being clearer by December and with Governor Bailey not pushing back on further rate cut timing at the TSC last week. Indeed, Deustche Bank notes that "with the August decision being 'finely balanced' the Governor may be more inclined to wait until year-end before pulling the trigger on another rate cut, bridging some of the gap within the MPC."
• Deutsche Bank does note that November isn't completely off the table and there is still a "decent risk that the MPC sticks to its pace of quarterly rate cuts – at least until it gets to the very top end of Bank staff’s neutral rate estimations (2.25% - 3.75%)." It also notes that if there is more pronounced weakness in labour market data before November or in the DMP survey it "could also shift the odds back towards November."

• In the equity space, a bull cycle in S&P E-Minis remains intact and the latest pullback has once again proved to be a shallow correction. The contract traded to a fresh cycle high last week, breaching the Aug 28 high of 6523.00. This confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Sights are on 6543.75 next, a 2.00 projection of the Apr 7 - 10 - 21 price swing. Initial support to watch is 6447.06, the 20-day EMA.
• A corrective bear cycle in EUROSTOXX 50 futures remains in play. Recent weakness resulted in a breach of 5368.74, the 50-day EMA. The clear break of this average strengthens a short-term bearish threat and signals scope for a deeper retracement towards 5166.00, the Aug 1 low and a key support. On the upside, initial resistance to watch is 5378.06, the 20-day EMA. A clear break of it would be a bullish development.

The 10-year Gilt/Bund spread is 1bp wider today at 199bps, amid a fairly subdued start to the weak. The spread reached a multi-month closing high of 203bps on August 27.

• Data hasn’t had a discernible impact on FI market pricing: German July industrial production was stronger-than-expected at 1.3% M/M (vs 1.0% cons; prior revised to -0.1% from -1.9% initial) while the September Euro Sentix survey was weak at -9.2 (vs -2.0 cons, -3.7 prior). In the UK, the KPMG-REC report on jobs continued to portray a softening labour market.
• The German curve has lightly twist flattened, but 5s30s is only 0.7bps flatter at 106.9bps.
• Meanwhile, Gilt yields are 0.5-1.5bps higher, with a bear flattening dynamic in play. UK 5s30s is hovering around trendline support drawn from the November 2024 low, currently at 144.9bps.
• Futures ranges have been tight, with Bunds -2 ticks at 129.07 and Gilts -4 ticks at 91.19.
• 10-year EGB spreads to Bunds are up to 1bp tighter, led by BTPs. The BTP/Bund spread is back at 83bps after testing 90bps last week.
• French PM Bayrou is expected to be ousted by a no-confidence vote this afternoon. Market prices may already incorporate an expectation for a new administration to make budget concessions, potentially limiting the scope for further OAT/Bund spread widening following the vote.