EGBS: Regional Equity Rally Lending Support To Bund Futures
Nov-12 10:40
- A short-term bear cycle in Bunds remains intact, with initial resistance at 129.31 (20-day EMA) untested. Intraday, Bunds are down 13 ticks at 129.10. With market moving headline flow light, Bunds appear to be taking cues from the 1% uptick in European equity futures.
- German yields are up to 1bp higher today, and 20/30-year Bund supply is now in the rear view. Results were generally acceptable, though the 30-year line saw slightly weaker demand metrics than the 20-year.
- Ahead of the supply, we saw what looked to be an RX/UB steepener trade in futures (~E325k DV01), which helped German 10s30s to a session high of ~59.5bps.
- 10-year EGB spreads to Bunds have narrowed as a result of the equity rally. OATs outperform, with the 10-year spread to Bunds down 2bps to ~74.5bps – the lowest since August,
- The EUR 10s30s swap curve has steepened almost 7bps since October 30, and is on track for a fresh cycle closing high at ~29bp. Confirmation of/reiterations surrounding the transition plans of large Dutch pension funds has reignited steepener interest, albeit with positioning in these trades already deemed to be somewhat heavy. 30bp presents the next obvious area of upside interest, followed by the Oct 7 ’21 closing level (35.03bp).
- German final October HICP confirmed flash estimates at 2.3% Y/Y, while Italian industrial production rebounded in September, rising 2.8% M/M, well above the 1.5% consensus.
- ECB’s de Guindos is scheduled to speak later this morning. We don’t expect any new signals.
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LOOK AHEAD: Monday-Tuesday Data Calendar: Fed Speakers
Oct-13 10:38
No scheduled data Monday, cash Tsys closed due to Columbus Day holiday, Globex full session. Focus on Fed Chair Powell's economic outlook at NABE meeting tomorrow.
- US Data/Speaker Calendar (prior, estimate)
- 10/13 1255 Philly Fed Paulson economic outlook NABE meeting (text, Q&A)
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- 10/14 0600 NFIB Small Business Optimism
- 10/14 0845 Fed VC Bowman moderated discussion ay IIF (no text)
- 10/14 1130 US Tsy $86B 13W & $77B 26W bill auctions
- 10/14 1220 Fed Chair Powell economic outlook NABE meeting (text, Q&A)
- 10/14 1300 US Tsy $95B 6W bill auction
- 10/14 1525 Fed Gov Waller, payments panel at IIF (no text, Q&A)
- 10/14 1530 Boston Fed Collins moderated discussion (text, Q&A)
- Source: Bloomberg Finance L.P. / MNI
OUTLOOK: Price Signal Summary - Bear Threat In Oil Futures Remains Present
Oct-13 10:38
- On the commodity front, a bull cycle in Gold remains intact and today’s fresh cycle marks a bullish start to this week’s session. The move higher maintains the price sequence of higher highs and higher lows. Sights are on the $4100.00 handle, and $4113.5, a 2.618 protection of the May 15 - Jun 16 - 30 price swing. Note that the trend is in overbought territory. A move down would be considered corrective and would allow the overbought set-up to unwind. Support to watch is $3836.5, the 20-day EMA.
- A bearish theme in WTI futures remains intact. Friday’s move down confirmed a resumption of the bear leg - support at $60.40, the Oct 2 low, has been breached. This highlights an extension of the bearish price sequence of lower lows and lower highs. The move down opens $57.50 next, the May 30 low. On the upside, initial key resistance is at $66.42, the Sep 29 high. Clearance of this level would highlight a reversal. First resistance is $62.75, the 50-day EMA.
NORGES BANK: SEB Expect Certificates To Widen FRA-OIS, Lower NB Rate Path
Oct-13 10:34
SEB believe Norges Bank’s plans to introduce certificates as an additional tool to drain structural liquidity would lead to “wider NOK FRA-OIS spreads and a cheapening of T-bills. Meanwhile, normal market drivers should dominate the outlook for the NOK exchange rate”.
- While details are still scarce, a return of FRA-OIS spreads to pre-2024 levels “seem reasonable”, according to SEB. “This would imply a widening in FRA-OIS spreads of approx. 10bps and create larger demand for FX forwards in 3- to 6m space. However, we also see a risk of increased volatility in money market spreads”.
- Due to uncertainty around timing, and a likely gradual increase in certificate volumes over time, “the impact should be larger further out on the curve rather than in the very front end. “
- “Creating a new tradeable asset class in NOK will cheapen short-dated T-bills and possibly the very front-end of the NGB curve as certificates offer an alternative (low duration) placement for FX.”
- Finally, “larger money market premiums will lower Norges Bank’s rate path. In its Sep25 MPR, Norges Bank assumed a stable 3m money market premium of 15bps until end-2028. An adjustment of 10bps to the long-term forecast would (normally) have an equally large impact on the rate path.”
