BUNDS: /SWAPS: ASWs Dive Lower Following Fiscal Reform Shock
Last night’s German fiscal reform headlines also drag ASW spreads lower across the curve.
- The long end leads the move, with Buxl vs. 3-month Euribor ~5.2bp narrower.
- Schatz ASW hits fresh ’25 lows, while Bobl, Bund and Buxl ASWs all hit fresh cycle lows (all vs. 3-month Euribor).
- We had stressed that the outlook for long end swap spreads remained bearish, but the unexpected size, scope and speed of the tabled fiscal reform package is being felt across the curve.
- Focus now moves to ratification of the package, which needs to be pushed through before the new Bundestag sits later this month, with support from the Greens/Liberals required (both have criticised the table, although the Greens have not ruled out support for the debt brake tweaks).
- In terms of additional issuance surrounding fiscal tweaks, Commerzbank suggest that “the additional money for defence will most likely not become funding relevant before next year. Higher issuance for investment could perhaps happen more quickly but is also unlikely on a larger-scale near-term. Germany has never been able to meet its budgeted investment plans in recent years. Last year, €56.7bn was spent, which was a record high, but well short of the €70.8bn that was budgeted, and this year's financing plan already includes investments of €81bn”.
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GOLD TECHS: Trend Needle Points North
- RES 4: $2900.0 - Round number resistance
- RES 3: $2867.5 - 1.50 proj of the Nov 14 - Dec 12 - 19 price swing
- RES 2: $2845.2 - 1.382 proj of the Nov 14 - Dec 12 - 19 price swing
- RES 1: $2817.6 - 1.236 proj of the Nov 14 - Dec 12 - 19 price swing
- PRICE: $2786.7 @ 07:30 GMT Feb 1
- SUP 1: $2728.1/2687.5 - 20- and 50-day EMA values
- SUP 2: $2656.9 - Low Jan 13
- SUP 3: $2614.8 - Low Jan 6
- SUP 4: $2583.6 - Low Dec 19 and a key support
A bull cycle in Gold remains in play. Last week’s extension higher resulted in a print above $2790.1, to record a fresh all-time high. The climb confirms a resumption of the primary uptrend and maintains the bullish price sequence of higher highs and higher lows. Attention is on $2817.6 next, a Fibonacci projection. The first key support to watch is $2687.5, the 50-day EMA. The 20-day EMA is at $2728.1.
BTP TECHS: (H5) Corrective Bull Cycle Remains In Play
- RES 4: 121.88 76.4% retracement of the Dec 11 - Jan 13 bear leg
- RES 3: 120.98 61.8% retracement of the Dec 11 - Jan 13 bear leg
- RES 2: 120.25 50.0% retracement of the Dec 11 - Jan 13 bear leg
- RES 1: 120.06 Intraday high
- PRICE: 119.86 @ 07:06 GMT Feb 3
- SUP 1: 118.65/117.16 Low Jan 24 / 13 and the bear trigger
- SUP 2: 116.59 76.4% retrace of the Jun - Dec ‘24 bull cycle (cont)
- SUP 3: 116.07 Low Jul 8 ‘24 (cont)
- SUP 4: 115.45 Low Jul 3 ‘24 (cont)
Recent gains in BTP futures continue to highlight a corrective phase. The latest move higher has resulted in a breach of both the 20- and 50- day EMAs. This signals scope for an extension and sights are on 120.25, a Fibonacci retracement. On the downside, initial key support to watch lies at 118.65, the Jan 24 low. Clearance of this price point would highlight a reversal and the end of the correction.
EGBS: Commerzbank Remain Constructive On Bunds
Commerzbank maintain a “constructive duration stance in Bunds.”
- They suggest that any “setbacks from U.S. headwinds or an uptick in euro area inflation should provide better buying opportunities. “GB spreads are more likely to consolidate, in line with the general risk sentiment.”
