GBP: Sterling Trend Indicators Pointing South

EXECUTIVE SUMMARY

• Norges Bank has signalled since September that policy rates will likely be kept at 4.50% through the end of 2024. As such, anything other than another hold in rates would be a significant surprise to markets.
• The September MPR rate path assigned a near-certain implied probability of a 25bp cut in Q1 2025, so it won’t be a surprise for Norges Bank to signal such an intention in the December policy statement.
• The December decision includes an updated MPR and rate path projection. Immediate focus for markets will be on whether Norges Bank indicates that a cut is more likely in January (an interim meeting) or March (an MPR meeting).
• Focus will then turn to the path for easing through 2025 and 2026. It is likely that the December rate path will be revised a little higher through the forecast horizon, tilting towards three rather than four cuts in 2025.
• Analysts are unanimous in expecting Norges Bank to remain on hold in December, with most looking for the first cut to be delivered in March.  

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• On the commodity front, Gold has pulled back from its recent highs. Trend signals remain bullish and a move lower is considered corrective - for now. A key short-term resistance at $2721.4, the Nov 25 high, has recently been pierced and this represents a positive development. A resumption of gains would expose key resistance at $2790.1, the Oct 31 high. Clearance of this level would confirm a resumption of the primary uptrend. First key support is $2605.3, the Nov 26 low.
• In the oil space, a bearish threat in WTI futures remains present and recent gains are - for now - considered corrective. A resumption of the bear cycle would open $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support. For bulls, a stronger reversal to the upside would instead refocus attention on the key short-term resistance at $77.04, the Oct 8 high. Initial firm resistance to watch is unchanged at $72.41, the Nov 7 high.

• Treasuries have been pushed lower by spillover from notably stronger than expected UK wage growth, although volumes are subdued ahead of US retail sales later today and of course the FOMC decision tomorrow.
• Cash yields are 2.5-3bp higher on the day in what’s broadly a parallel shift higher.
• 10Y yields are at session highs of 4.426% (+3.0bp). We wrote earlier that 4.50% is the next obvious technical level in yields but that it’s also worth noting that the benchmark continues to operate within the medium-term downtrend channel drawn off the '23 high (upper boundary at 4.46% today).
• TYH5 has recently touched a session low of 109-20 (- 07+) albeit on low volumes of 240k.
• The decline sees an extension of the bear cycle, testing support at 109-20 (Nov 20/21 low) having already pierced 109-22 (76.4% of Nov 15 - Dec 6 upleg). A continuation lower would expose 109-02+, the Nov 15 low and key support. For those looking at the 4.50% yield, it equates to 109-05 today.
• Data: Retail sales Nov (0830ET), NY Fed Services Dec (0830ET), IP/Cap Util Nov (0915ET), Business inventories Oct (1000ET), NAHB housing index Dec (1000ET)
• Note/bond issuance: $13bn 20Y re-open - 912810UF3 (1300ET)
• Bill issuance: US Tsy to sell $65B 42-day CMB (1130ET)