UK FISCAL: Ten big picture takeaways from the Budget (3/3)
Nov-28 16:44
- 7. The gilt remit revision for FY25/26 was a little smaller than expected. And more skewed away from long-dated and linker issuance than expected.
- 8. We had expected a further skew away from long-dated issuance through the cancellation of a long-dated syndication but the DMO maintained this and cancelled all long-dated gilt auctions in FQ4 (Jan-Mar). By announcing that the long-dated syndication was planned for January this means that it is very likely the 15-year Jan-41 gilt will be the only notable long-dated issuance in FQ4. Hence the only opportunity for any issuance of a longer maturity will be via the two long gilt tenders in the quarter. We had expected we would see at least one 30-year auction in the quarter, so this has helped flatten the curve.
- 9. The linker syndication was also cancelled. This also helped contribute to a reduction in higher duration and a reduction in long maturity issuance from the DMO.
- 10. From a political point of view, concerns that the Budget might not be passed and that Chancellor Reeves’ position is under threat imminently have rescinded with the parliamentary Labour party (PLP) responding very warmly to the “mansion tax” and 2 child limit on Universal Credit benefits removed. However, we still think that both Reeves and Starmer are not necessarily comfortable in their positions with the next major test likely to be the May 2026 local / devolved parliamentary elections.
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FOREX: Risks Tilted Towards USDJPY Downside Over BOJ/FED Decisions
Oct-29 16:43
- We see hawkish risks headed into the BoJ decision Thursday. A full 25bps hike is not priced until March next year, potentially tilting markets for a more aggressive pricing of faster hikes after this week's meeting.
- Assuming an unchanged decision, the focus will be on hiking risks into year-end. While only a small minority of the BoJ board (we had two dissenters looking for a 25bps hike at the Sep meeting) sees the inflation goal as having already been met, the core membership of the board isn’t at this stage yet.
- In one of our recent exclusives, we highlighted that while U.S. trade policy may weigh on the Bank of Japan’s internal assessment of underlying CPI from late this year into early 2026, policymakers do not expect it to derail its rate-hike path from the December meeting onwards. Further confidence in this path of travel could spur repricing for December, supporting JPY as a result.
- An overnight USDJPY straddle incorporates a move of +/- 110 pips from current spot levels, potentially highlighting that key resistance around 153.25 (respected on Monday) will continue to cap the topside.
- Conversely, a move lower for USDJPY might garner more momentum given the more optimistic tone provided by US/Japan officials this week and as short-term positioning is squeezed. Market participants will also be aware that the politically driven gap at the start of the month has yet to be filled, and would require a move to 147.47 for this to happen. Interim support levels to watch are 151.19 (20-day EMA) and 149.38, the Oct 17 low.
OPTIONS: Larger FX Option Pipeline
Oct-29 16:04
- EUR/USD: Nov04 $1.1635-40(E1.3bln)
- USD/JPY: Oct31 Y152.50($1.2bln)
- USD/CAD: Oct31 C$1.3500($1.1bln)
MNI EXCLUSIVE: EC inflation forecasts will have to take account of ETS2
Oct-29 15:54
European Commission inflation forecasts will have to take account of the ETS2 carbon-trading scheme..-- On MNI Policy MainWire now, for more details please contact sales@marketnews.com
