BUNDS: Risk for Yields is unchanged

• Looking first at private sector pay growth ex-bonus: The 3m Y/Y reading of 2.89% Y/Y was in line with consensus and follows 2.96% prior (revised up from 2.94% initial so the rounded prior moves up to 3.0%). It’s the lowest rate since October 2020, and a little below the BOE’s 2.99% Q2 forecast from the April MPR. A reminder that MPC members and BOE publications have recently noted that due to compositional effects, AWE data understates actual earnings growth.
• 3m/3m annualised momentum nonetheless pulled back to 2.24% (vs 2.39% in April, 2.20% in March). It remains below the 2015-2019 average of 2.85%
• The single month pay growth print was 2.67% Y/Y, down from 2.87% in February when this cohort was last surveyed. Looking across cohorts, it’s the lowest single month reading since September 2020.
• Across industries 3m Y/Y pay eased in financial and business services (2.3% Y/Y vs 2.5% prior) and manufacturing (2.8% Y/Y vs 3.0% prior), and rose in construction (-0.2% Y/Y vs -0.6% prior) and wholesaling/retailing/hotels/restaurants (3.6% Y/Y vs 3.5% prior). 

• RES 4: $103.26 - High May 5 and a bull trigger
• RES 3: $98.88 - High May 22
• RES 2: $95.44 - 76.4% retracement of the May 18 - Jul 2 bear leg
• RES 1: $91.42 - High Jul 20
• PRICE: $88.43 @ 07:08 BST Jul 21
• SUP 1: $81.27/70.14 - 20-day EMA / Low Jul 2 and the bear trigger  
• SUP 2: $69.32 - 76.4% retrace of the Dec 16 ‘25 - May 18 bull leg   
• SUP 3: $63.00 - Low Feb 3
• SUP 4: $58.83 - Low Dec 16 ‘25

Brent futures are trading closer to their recent highs. The latest rally has resulted in a move through resistance around the 50-day EMA - at $83.05. The break suggests scope for a stronger bounce and sights are on $95.44, the 76.4% retracement points of the bear leg between May 18 - Jul 2. Key support has been defined at $70.14, the Jul 2 low. Support at the 20-day EMA lies at $81.27.

Softer-than-expected headline wage data results in a marginal dovish reaction in gilts (ex-bonus measures were in line). Slightly lower-than-expected PSNB figures (and revisions lower) also lend support. A reminder that quality/collection issues hampered this labour market report this month.

• At first glance, there doesn’t look to be much in here that could change any MPC members vote at next Thursday’s decision. There is plenty more data still due this week (headlined by CPI tomorrow) and we’ll have more on the labour market report details in due course.
• Gilt futures +11 at 86.70.
• A bear cycle in remains intact in the contract and a fresh cycle low on Monday reinforces the theme. This paves the way for an extension towards 86.20, a 76.4% retracement point. Initial firm resistance has been defined at 88.07, the Jul 10 high. A clear break of this hurdle is required to signal a possible reversal.
• SONIA futures flat to +2.0 vs. +1.0 to -1.0 pre-data.
• Much of today’s focus will fall on how UK markets react to PM Burnham’s cabinet picks, particularly the selection of former Defence secretary Healey as Chancellor (Mahmood was the favourite for that role as of last week, but it appears that she sat too far to the right within the Labour spectrum). While Healey isn’t from the left of Labour it would seem that his appointment placated any worry from that wing of the ruling party.
• Elsewhere, PM Burnham told reporter that he would stick to the existing fiscal rules, although he highlighted that he would use “flexibility” within the rules as he seeks to reboot the UK economy.
• On the supply front, the DMO will sell GBP5bln of the 4.00% May-29 gilt this morning.