STIR: Over 50bp Of BoE Cuts Priced Tthrough Dec After U.S. Data
Aug-01 15:12
A similar dovish repricing seen in the GBP short end following the U.S. data.
- SONIA futures are 0.5-8.5 firmer on the day, with July lows in SFIZ5 & Z6 left intact during this morning’s sell off.
- BoE-dated OIS continues to price over 90% odds of a cut at next week’s decision, with a cumulative 27.5bp priced through September, 44.5bp showing through November and 51.5bp showing through year-end.
- December pricing sticks within the multi-week 44-58bp of cuts range, with markets and the sell-side continuing to lean towards 2x 25bp cuts (at the MPR meetings of August and November) through year-end, in line with our own current view.
- Anything other than a 25bp cut at Thursday's MPC decision would be a huge shock.
- Accompanying guidance is widely expected to be left unchanged with the "gradual", "restrictive" and "careful" buzzwords all likely to remain. The focus will therefore be on the updated inflation projections in the MPR as well as the vote split.
- Based on the 17 previews that we have read so far that have provided vote split expectations:
- The modal expectation is a 2-5-2 vote split (7/17).
- 11 expect two votes for 50bp cut, 3 expect one vote, 3 expect no votes for 50bp cut
- 2 expect three votes for on hold, 9 expect two votes on hold, 4 expect 1 vote on hold, 2 expect no votes for on hold.
- 2-4-3 (50-25-0) is the most split committee within an analyst's base case, 0-9-0 is also an analyst's base case.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 3.985 | -23.2 |
Sep-25 | 3.942 | -27.6 |
Nov-25 | 3.773 | -44.4 |
Dec-25 | 3.701 | -51.6 |
Feb-26 | 3.580 | -63.7 |
Mar-26 | 3.539 | -67.8 |
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GILTS: Off Lows, Curve Holds Steeper, Reeves' Future Eyed
Jul-02 15:04
The space seems to have found a base for now, with little in the way of fresh information since PM Starmer expressed his “full support” for Chancellor Reeves.
- Still, that didn’t prevent a sell off in UK paper after his comments surrounding her future (and her tears) in the Commons generated notable selling as speculation surrounding her departure and the potential for a loosening of the fiscal rules intensified.
- Futures based at 91.63, but have retaken 92.00 in recent trade,
- The recovery from lows could represent some profit taking amongst shorter-term market participants, or it could reflect the lack of new news surrounding Reeves’ future since Starmer’s attempted reassurances.
- Yields are 1.5-15.5bp higher on the day, 5-8bp off session highs, although much of the curve steepening remains intact.
- 140bp capped the steepening move in 5s30s, with limited moves above that level lacking any real momentum.
- Long end swap spreads have also recovered from lows alongside gilts but remain lower on the day.
US STOCKS: Early Equities Roundup: Health Care Hammered, Centene Pulls Guidance
Jul-02 15:04
- Stocks are mixed in early Wednesday trade, unwinding a portion of Tuesday's moves - Dow Jones Industrials are mildly weaker vs. decent gains in Nasdaq with tech stocks bouncing. Currently, the DJIA trades down 30.09 points (-0.07%) at 44466.49, S&P E-Minis up 13.25 points (0.21%) at 6262, Nasdaq up 160.4 points (0.8%) at 20362.9.
- Pres Trump announced a trade deal with Vietnam midmorning, helping support equities in general but tech stocks in particular. "The Terms are that Vietnam will pay the United States a 20% Tariff on any and all goods sent into our Territory, and a 40% Tariff on any Transshipping. In return, Vietnam will do something that they have never done before, give the United States of America TOTAL ACCESS to their Markets for Trade. In other words, they will “OPEN THEIR MARKET TO THE UNITED STATES,” meaning that, we will be able to sell our product into Vietnam at ZERO Tariff."
- Leading gainers in the Information Technology sector included: First Solar +4.07%, NXP Semiconductors +3.17%, Apple +2.17% and NVIDIA +2.00%. The Materials sector followed with miners, chemicals and steel producers leading in the first half: Freeport-McMoRan +5.18%, Albemarle +3.93%, Nucor +1.61% and Newmont +1.28%.
- Health Care and Energy sectors underperformed in the first half, care and services providers weighed on the former with Centene hammered -39.89% after withdrawing earnings guidance for 2025. Following suit, Molina Healthcare fell -20.06%, Elevance Health -9.00% and Humana -3.21%.
- The Wall Street Journal reported “Centene's move comes after industry bellwether UnitedHealth pulled its guidance for the year and replaced its chief executive. It is likely to add to investors' nervousness about the entire insurance sector, which has felt the effect of higher-than-expected medical costs. Humana and CVS Health's Aetna struggled last year, with CVS also bringing on a new CEO."
US DATA: Vehicle Sales Continue To Sag, Set To Keep Lid On Retail Sales
Jul-02 15:02
Wards Automotive reports that light vehicle sales came in at 15.34mln (SAAR) in June, a 2% M/M drop from 15.65mln prior and the third consecutive sequential fall.
- This was the worst month of sales in 10 months, after nearing 18mln sales in March in what was clearly demand pulled forward ahead of anticipated tariff impacts.
- It suggests continued sluggishness in vehicle retail sales, which are the largest category in the monthly Census Bureau retail report.
- In May's retail sales report, vehicle sales dropped the fastest in 11 months at 3.9% M/M (-0.6% prior), driving the overall 0.9% drop in retail sales. However note that they are not included in the Control Group category, which printed a solid +0.4% in May.
- There's no consensus yet for the June retail sales print (due July 17), though the Wards data will probably keep expectations subdued.
