EU CREDIT UPDATE: SHBASS €750m 10Y Green Sr Non-Pref - Final Terms

The September Philadelphia Fed Nonmanufacturing Business Outlook Survey showed a modest pickup in regional services sector activity, albeit remaining soft overall with a weaker outlook.

• The regional level general activity index picked up to -12.3 from -17.5, however the firm-level reading pulled back significantly to 5.8 from 24.6 prior which had been a 41-month high (and now looks like an extreme outlier). The 6-month activity outlooks for both regional and firm-level activity reversed August's rise, falling to 4-month lows in the case of the regional reading.
• New orders dropped to 0.5 from 21.5 (3-month low), with employment mixed (full-time jumped to 9.4 from -3.8 for a 4-month high, but part-time dropped to -7.3 from -2.8 for a 4-month low.
• There was some modest relief on the prices paid front, which dropped to 38.8 from 43.2 - but the former was the 2nd-highest reading since early 2023, and pressures remain elevated overall. Prices received ticked up to the highest level of the year at 21.8 from 20.1, however, potentially suggesting firms are passing on prices to clients, and thereby reducing input-related margin pressures.
• The Philly surveys have been a little erratic the last few months and often outliers to regional peers, and appear to be so again on activity (NY Fed fell back sharply even as Philly improved) but overall these line up with the NY Fed's services survey in prices paid moderating slightly with prices received ticking up. 

Gilt futures respect initial resistance at the 20-day EMA (91.11) on the first test, as bulls shake off the impact of this morning’s poorly received 30-Year supply.

• A break of that resistance level would switch upside focus to the September 11 high (91.82)
• Yields last 3-5bp lower, curves flatter, with 2s10s and 5s30s still unable to retest last week’s pullback lows.
• This morning’s comments from BoE chief economist Pill didn’t really add much new to the monetary policy debate, as he outlined his thoughts on QT and the overall economic outlook.
• Accordingly, GBP STIRs looked through the headlines, taking cues from further out the curve for much of the session.
• SONIA futures last flat to +2.0.
• BoE-dated OIS little changed to 3bp more dovish on the day, showing 6bp of cuts through year-end and not fully discounting the next rate cut until the end of the April MPC meeting.
• Market still trades at the hawkish end of the recent range and we think underappreciates the odds of a cut through year-end.
• Looking ahead, Brightmine wage data will cross overnight (00:01 London).
• Elsewhere, The DMO will come to market with GBP4.75bln of the 4.375% 2030 gilt tomorrow morning.
• Finally, BoE’s Greene will speak late on Wednesday, covering supply-side shocks and monetary policy (17:30 London).

ITV reports, "The Treasury’s working assumption, ahead of receiving the first official set of forecasts from the Office of Budget Responsibility (OBR), is that taxes will have to be increased by GBP30bln in the budget on November 26. A full two-thirds or GBP20bln of those rises [...] stem from a summer review by the OBR of the supply-side of the economy..." 

• The article claims HMT expects a 0.2 percentage point downgrade in the forecast for UK productivity growth, requiring GBP20bln in tax hikes. The remaining GBP10bln can be more readily attributed to gov't policy, and is required on account of the backbench Labour rebellion over proposed personal independence payment (PIP) cuts and higher debt servicing costs.
• There has been notable media coverage of a report from the centre-left Resolution Foundation think tank, calling for Labour to break its manifesto commitment to no increases in income tax, VAT, or National Insurance contributions.
• As MNI noted earlier (see 'GILTS: Firmer On Wider Cues, Supply Provides Litmus Test For Long End Demand', 08:09BST), the report suggests Chancellor of the Exchequer Rachel Reeves "could raise ~GBP6bln by cutting employee national insurance contributions by 2ppt and raising the basic rate of income tax by the same amount. Note that this would only cover around 20% of the fiscal shortfall, but it would be a way of not increasing taxes on "working people" and might avoid some more painful taxes elsewhere that could hit growth harder or increase CPI."