GILTS: Off Lows, Energy Prices Remain Key
Commodity price swings continue to dominate, with the Iran conflict remaining front and centre.
- An earlier reduction of geopolitical risk premia has faded, with bonds and equities back from recovery highs and crude oil off pullback lows as markets question the timing of comments made by the Iranian Deputy Foreign Minister, noting that “Iran is ready to abandon its nuclear program on condition that the United States presents a satisfactory alternative offer”.
- Elsewhere, ongoing attacks on tankers in the Gulf underscore energy supply issues, presenting inflationary risks.
- Gilt futures -45 at 91.76, in a 91.46-92.15 range.
- Initial support and resistance located at 91.14 and 92.34, respectively, with this week’s sharp reversal lower cancelling a bullish technical backdrop.
- Yields 3.5-5.0bp higher, bear flattening resumes alongside the inflationary risks.
- The GBP3.5bln 4.00 May-29 gilt auction was well-received, with relatively firm pricing vs. secondary levels, albeit with a slightly wider price tail vs. the prior auction (reflective of current vol.).
- Week-to-date yields highs went untested across the curve during the early sell off, although 10s briefly traded through 4.50%.
- BoE-dated OIS showing ~27bp of cuts through year-end vs. ~34bp late yesterday and hawkish extremes of ~16bp earlier in the week.
- Market pricing still looks overly cautious when it comes to the degree of rate cuts showing, particularly given risks to the labour market. We believe the next move lower in Bank Rate could come as soon as April (~13.5bp of easing priced through that event at present).
- There was little in the DMP survey to sway any MPC member's vote.
- Geopolitics and cross-market inputs will continue to dominate today.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Mar-26 | 3.681 | -4.8 |
Apr-26 | 3.594 | -13.5 |
Jun-26 | 3.550 | -17.9 |
Jul-26 | 3.508 | -22.1 |
Sep-26 | 3.491 | -23.8 |
Nov-26 | 3.461 | -26.7 |
Dec-26 | 3.458 | -27.1 |
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EQUITIES: This Week's Gains Reinforce Bullish E-Mini S&P Theme
A bull cycle in Eurostoxx 50 futures remains intact and Monday’s rally reinforces this theme. Key support to monitor lies at the 50-day EMA at 5857.60. A clear breach of this average would signal scope for a deeper retracement. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on the key resistance and bull trigger at 6072.00, the Jan 14 / 15 high. The trend in S&P E-Minis is bullish and Monday’s strong gains reinforce this theme. The move higher also suggests that the recent bear threat merely resulted in a short lived correction. Attention is on key resistance and the bull trigger at 7043.00, the Jan 28 high. A break of this level would confirm a resumption of the primary uptrend and open 7080.92, a Fibonacci projection. Key support and a bear trigger has been defined at 6814.50, the Jan 21 low.
- Japan's NIKKEI closed higher by 2065.48 pts or +3.92% at 54720.66 and the TOPIX ended 109.71 pts higher or +3.1% at 3645.84.
- Elsewhere, in China the SHANGHAI closed higher by 51.992 pts or +1.29% at 4067.738 and the HANG SENG ended 59.2 pts higher or +0.22% at 26834.77.
- Across Europe, Germany's DAX trades higher by 142.95 pts or +0.58% at 24940.47, FTSE 100 lower by 2.02 pts or -0.02% at 10339.36, CAC 40 up 26.28 pts or +0.32% at 8207.45 and Euro Stoxx 50 up 37.08 pts or +0.62% at 6044.59.
- Dow Jones mini up 1 pts or +0% at 49524, S&P 500 mini up 14.25 pts or +0.2% at 7016.75, NASDAQ mini up 132.25 pts or +0.51% at 25982.25.
EGB OPTIONS: RX weekly 127.50/127.00 Put Spread Sold
RX weekly 127.50/127.00 put spread 8K given at 9 (expire Friday).
GILT AUCTION RESULTS: Decent gilt auction
- Decent gilt auction with solid bid-to-cover and the LAP (lowest accepted price) coming in higher than any time in the last 45 minutes of the bidding window.
- Following the results the 4.75% Oct-35 gilt has hit a new intraday high (currently 101.292 at writing) and helped to pull gilt futures around 7 ticks higher.
