STIR: Reports Re: Walk Back Of Income Tax Hike Drives Hawkish BoE Repricing
Nov-14 07:43
The source reports suggesting Chancellor Reeves has scrapped her plans to increase income tax drives hawkish repricing in the GBP short end.
- The report suggested that the Chancellor will look to increase a range of smaller taxes (gambling and expensive property are mentioned as key focus areas), in addition to lowering the tax thresholds for different rates of income tax.
- The market is questioning Reeves’ capability when it comes to delivering a credible Budget.
- BoE-dated OIS 1-5 less dovish across liquid contracts, with 18.5bp of easing now priced for December, 27bp through February, 36bp through March, 45.5bp through April.
- SONIA futures 0.25-7.0 lower, curve steepens.
- The latest REC-KPMG report on jobs noted revealed a “further, albeit softer, decline in the recruitment of permanent staff at the end of the third quarter. Vacancies data meanwhile highlighted a drop in demand for staff. The shift in demand and supply for workers placed downward pressure on pay, with both permanent salaries and temp pay rates up only marginally”. The latest sign of a softening labour market.
- Little of note on the UK calendar ahead of the weekend, with gilt market reaction to the fiscal headlines eyed.
- CPI data is due next week.
| BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
| Dec-25 | 3.783 | -18.6 |
| Feb-26 | 3.698 | -27.1 |
| Mar-26 | 3.610 | -35.9 |
| Apr-26 | 3.513 | -45.6 |
| Jun-26 | 3.472 | -49.7 |
| Jul-26 | 3.424 | -54.5 |
| Sep-26 | 3.408 | -56.1 |
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GILTS: Rally Extends On Global Cues
Oct-15 07:35
Gilts follow peers higher as the reduction in short-term French political risk and late Tuesday comments from Fed Chair Powell provide support.
- Futures through resistance at 92.06 and 92.14, strengthening the recent bullish theme. Contract trades as high as 92.39.
- Fresh extension higher would target projection resistance (92.72).
- Yields 4-5bp lower across the curve.
- 10s through support at the August 11 low (4.548%). Uptrend support drawn from the Dec ’24 low is very close (4.536%). The next level of note below there is the August low (4.496%).
- 30s have broken through uptrend support drawn off the April low (5.370%) and trade ~3bp above their August low (5.309%).
- The dovish repricing in GBP STIRs extends a little further.
- SONIA futures 0.5-4.5 firmer, BoE-dated OIS showing ~10bp of easing through year-end.
- The DMO will sell GBP1.5bln of the 0.125% Aug-31 I/L line this morning.
- Comments from BoE’s Ramsden & Breeden are due later today, although the settings and topics of the discussions may limit scope for meaningful comments on monetary policy.
- A reminder that BoE Governor Bailey pointed to the trade off in managing inflation and a softening labour market late on Tuesday. He steered clear of any guidance when it comes to future interest rate decisions. Next week’s CPI data is key.
GILT TECHS: (Z5) Impulsive Rally Strengthens A Bull Theme
Oct-15 07:20
- RES 4: 93.30 1.236 proj of the Sep 3 - 11 - 26 price swing
- RES 3: 93.00 Round number resistance
- RES 2: 92.72 1.000 proj of the Sep 3 - 11 - 26 price swing
- RES 1: 92.36 Intraday high
- PRICE: 92.31 @ 08:10 BST Oct 15
- SUP 1: 91.60/90.90 Low Oct 14 / 20-day EMA
- SUP 2: 90.26/89.94 Low Sep 26 / 76.4% of the Sep 3 - 11 correction
- SUP 3: 89.36 Low Sep 3 and a key support
- SUP 4: 89.00 Round number support
A bull cycle in Gilt futures remains intact following recent strong impulsive gains. Today’s extension higher from the open strengthens current conditions. The contract has recently cleared key resistance at 91.82, the Sep 24 high. The breach opens 92.72 next, a Fibonacci projection. Price needs to trade below support at 90.26, the Sep 26 low, to reinstate a bearish theme. Initial firm support lies at 90.90, the 20-day EMA.
USD: Westpac Recommend Tactical DXY Short
Oct-15 07:13
Westpac recommended a tactical short in the DXY overnight.
- The entry point was 98.85 & they would add more at 99.35, with a stop set at 99.65.
- They stress that they have relatively low conviction in the trade, “against the backdrop of a large and growing list of stories to process - unsettled politics and associated fiscal risks in Japan and France, escalating tensions in the bilateral U.S.-China economic relationship over rare earths, tariffs and shipping fees, and not least the ongoing U.S. government shutdown”.
- However, they point to “encouraging pockets of stability” as the driver of the recommendation.
- They highlight “French sovereign spreads have narrowed in recent days, while Japanese opposition parties are coalescing in ways that appear to undercut Takaichi’s chances of becoming PM”.
- They also provide some cross-market reasoning, suggesting that “more decisively, the recent run-up in DXY has left it expensive vs. 2- & 10- yield spreads”.
