COMMODITIES: Trend Condition in WTI Futures Remains Bearish

EGB spreads vs. Bunds little changed to 1bp tighter this morning, with BTPs outperforming.

• The 10-Year BTP/Bund spread threatens to break below 70bp, a level that has not been closed below since January ’10.
• Firmer than-expected Italian PMI data has factored into BTP outperformance.
• OATs consolidate yesterday’s widening (trading out to 74bp vs. Bunds). A reminder that yesterday’s underperformance in French paper was largely driven by local media reports suggesting that the centre-right Horizons, which sits as part of the governing coalition, will not back the draft Social Security Finance Bill (PLFSS) in the 9 December vote. That vote will prove crucial for the future of PM Sebastien Lecornu's administration.

GBP edges to a new high and through yesterday's 1.3275 on the better-than-expected PMI print; futures markets see some interest on the move, prompting the best volumes of the day. Prices are now meeting an uptrendline drawn off the Nov13 high on the 15min candle chart - meaning further strength here could trigger more on the followthrough.

• Mirroring the move, EURGBP has firmly rejected the test of 0.88 overnight, erasing the majority of Monday's rally. This works against the bullish trend set-up in the cross - and this spell of weakness appears corrective until a close below the 50-day EMA, currently at 0.8755.

Yields 1.5bp higher to 0.5bp lower, curve flatter, with little reaction to the firmer-than-expected final services PMI data. Presence of the impending GBP4.75bln 4.00% May-29 gilt auction likely weighing on the front end/belly.