UK DATA: Services PMI: MPC doves will be encouraged as firms don't pass on costs
There has been an upward revision to the services (and composite) UK PMIs, but the key thing for the MPC in our opinion will be that despite cost increases, services firms feel that they are constrained regarding their ability to pass on price increases so November prices charged were at their lowest increase in "just under five years." The doves will be encouraged by this, and it is another roadblock cleared ahead of the December MPC meeting. Tomorrow we will see DMP data.
Highlights from the press release
- "Around 29% of the survey panel recorded a rise in their average cost burdens, while only 2% signalled a reduction."
- "Despite a sharp and accelerated pace of input price inflation, the latest survey indicated only a marginal rise in output charges across the service economy. Moreover, the rate of prices charged inflation eased markedly in November to its lowest for just under five years. Anecdotal evidence suggested that rising competition and weak sales pipelines had constrained service providers' ability to pass on higher business costs."
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MNI: UK OCT FINAL MANUF PMI 49.7 (49.6 FLASH, 46.2 SEP)
- MNI: UK OCT FINAL MANUF PMI 49.7 (49.6 FLASH, 46.2 SEP)
GILTS: Sell-Side Holds Neutral To Bullish View On Gilts
The latest round of weekly sell-side reports that we have read points to a neutral to bullish view when it comes to gilts:
- Bank of America: We retain a bullish tactical bullish bias.
- Goldman Sachs: Recent outperformance can extend and we lower our 10-Year forecasts to 4.25% at end-2025 (from 4.40%) and 4.00% at end-2026 (from 4.25%). The main driver of outperformance is ongoing disinflation, which should calm long-end risk premium and allow the BoE to cut below market pricing. The upcoming Budget should also help sustain modestly lower yields. There should only be modest revisions to near-term supply, whereas the required fiscal tightening measures should weigh on growth and inflation. Most importantly, the scale of the budget adjustment will likely mean the UK government adopt a more credible set of deficit-reduction measures, which should improve the market’s view of the fiscal outlook. The DMO is also likely to keep WAM relatively low, although we do not expect further skew away from long-end issuance allocation.
- TD Securities: We expect 10s to remain within the 4.30-4.50% range near term. A push lower would require substantive shifts in the BoE’s rhetoric at the November meeting. Our year-end forecast for Gilts remains at 4.40%. Steepening bias on the curve has been losing momentum globally. Our expectations of lower duration supply makes us favour 5s30s gilt flatterers.
BONDS: Off Lows As Oil Falls From Highs
Little in the way of headline flow to really explain the recovery from lows in wider core global FI markets over the last hour or so, with the move coinciding with some weakness in crude oil and a bid in the broader USD.
