GILTS: Risks To Bears Increases, Little Impact From Soft GDP

Gilts have firmed as European equity benchmarks edge away from highs, but the move has stalled.

• There was no lasting net impact from the softer-than-expected Q4 GDP data.
• Futures topped out at 91.30, last +19 at 91.22.
• The 20-day EMA was breached yesterday, increasing the risk to the bearish technical theme. Next resistance of note located at the Jan 22 high (92.13), as the contract extends the bounce from cycle lows. Fibonacci resistance (91.73) provides some intermediate interest.
• Yields flat to -1.5bp, curve flatter.
• A reminder that we had flagged downside risks to the GDP release ahead of time.
• BoE-dated OIS flat to 1bp more dovish through year-end, pricing 17.5bp of cuts for March, 23bp through April, 32bp through June and 45.5bp through November. Markets remain unwilling to fully discount 50bp of cuts at this stage, with political & fiscal risks probably providing some limit.
• We don't think this morning’s data will have much impact on the MPC. Voters are much more concerned about forward-looking growth prospects rather than backward looking data like this. On the margin it probably helps a little as it removes the possibility of a high print causing a headache, but next week's CPI and labour market data, as well as growth indicators such as the PMIs are much more important.
• Little of note on the UK calendar for the remainder of the day.