GILTS: Twist Steepening Holds Into BoE
Gilts are little changed from our previous update as we work towards the latest BoE decision (with 33bp of tightening priced into the OIS strip and 45/61 economists surveyed by BBG looking for a 25bp hike vs. 16/61 looking for a 50bp step). That leaves futures -50 or so, off session lows, while cash Gilts run 5bp richer to 5bp cheaper as the curve twist steepens.
- Positioning in Gilt futures is long, per our latest positioning indicator report, although longs were trimmed last week.
- Technically, Gilt futures traded lower last week and in the process breached support at 96.11, the Jul 21 low. This highlights a bearish threat and this week's move down reinforces this condition. Note that the 20-day EMA has also been breached - a bearish development. Today's extension lower has resulted in a break of 94.58, the Jul 17 low and this opens 94.20 next. Initial firm resistance is at 96.19, the Jul 31 high.
- SONIA futures are +4.5 to -3.0, twist steepening, while BoE-dated OIS terminal policy rate pricing hovers just below 5.85%, with participants paring hawkish bets in recent weeks as the combination of tier 1 data and a lack of meaningful BoE policy guidance facilitated a dovish repricing after the aggressive hawkish move seen into the early part of July.
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ESM ISSUANCE: 3-month bill auction result
| Type | 3-month bills |
| Maturity | Oct 5, 2023 |
| Amount | E1.045bln |
| Target | E1.1bln |
| Previous | E1.084bln |
| Avg yield | 3.4620% |
| Previous | 3.2281% |
| Bid-to-cover | 2.67x |
| Previous | 2.54x |
| Previous date | Jun 06, 2023 |
US 10YR FUTURE TECHS: (U3) Remains Soft
- RES 4: 115-00 High Jun 1 and a reversal trigger
- RES 3: 114-06+ High Jun 6
- RES 2: 113-30+/114-00 50-day EMA / High Jun 13
- RES 1: 112-21/113-18 Low Jun 22 / High Jun 15 and key resistance
- PRICE: 111-25+ @ 11:21 BST Jul 4
- SUP 1: 111-25+ Low Jun 30 and intraday low
- SUP 2: 111-14+ Low Mar 9
- SUP 3: 110-27+ Low Mar 2 and key support
- SUP 4: 110-00 Low Nov 9 2022 (cont)
Treasury futures remain soft following last week’s extension lower. Support at 112-12+, the Jun 14 low and a bear trigger, has been cleared. This marked the end of the recent period of consolidation and confirms a resumption of the current downtrend. The focus is on 111-14+, the Mar 9 low, while further out, scope is seen for a move towards 110-27+, the Mar 2 low and key support. Initial firm resistance is seen at 113-18, the Jun 15 high.
OUTLOOK: Price Signal Summary - Bounce In Gold Considered Corrective
- On the commodity front, trend conditions in Gold remain bearish and the latest short-term gains are considered corrective. Fresh trend lows last week reinforce current bearish conditions, confirming a resumption of the downtrend and extending the price sequence of lower lows and lower highs. The focus is on $1885.8, the Mar 15 low. Key resistance is $1985.3, the May 24 high. Initial resistance is at $1933.9, the 20-day EMA.
- In the oil space, WTI futures remain in a bear mode condition and recent gains appear to be corrective. Support at $67.21, the May 31 low, was again pierced last week, a clear break of this level would open $64.41, the May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. The contract is trading below resistance at $75.70, the Jun 5 high. Clearance of this level would signal a reversal. Initial firm resistance is $72.72, the Jun 21 high.
