RENEWABLES: UK Morning Wind Forecast

Risks to tomorrow’s ECB decision are becoming increasingly more balanced, with the EUR front-end fading a degree of recent hawkish repricing. ECB-dated OIS now price just 3bps of hikes the end of next year, down from an extreme of 10bps last Wednesday. 

• Primary focus for tomorrow remains on the updated macroeconomic projections and the balance of risks to inflation and growth. Analysts expect upward revisions to both GDP and core HICP projections.
• We expect a repeat of a data-dependent and meeting-by-meeting approach, with no pre-determined path.
• MNI’s full ECB preview is here
• Markets still judge the next move in ECB rates to be a hike, with the ESTR 1y1y rate at 2.09% (versus an overnight rate of 1.93%).  Improving regional growth momentum and the expected impulse from higher German fiscal spending have raised the bar to near-term cuts.  
• Intraday, Euribor futures are +0.5 to +3.0 ticks through the blues, with dovish spillover from the softer-than-expected UK inflation report.

UK paper rallies in the wake of the soft CPI data.

• A reminder that the CPI data looks pretty soft across the board.
• With a cut BoE at tomorrow’s decision effectively cemented, one question now is will there be enough in the data to convince any additional "hawkish" MPC member, in addition to Governor Bailey, to support a cut. The market is very much looking for a 5-4 split on the MPC, so a 6-3 vote tomorrow would be a surprise (5-4 remains our base case).
• Gilt futures top out at 91.78, before fading back to trade +67 at 91.61 last.
• Initial resistance at 91.64 has been pierced, fresh upside would target more meaningful resistance at 91.93.
• Yields 5-7bp lower, 5s outperform.
• Initial yield support levels of note are untested across the curve.
• A reminder that 10-to 30-Year yields registered fresh month-to-date highs yesterday.
• 10-Year gilt/Bunds ~5bp in the wake of the data, last 162.1bp. Gilt bulls will want to see a close below the September ’24 closing low (162.01bp) to signal further outperformance.
• BoE-dated OIS pricing ~67bp of easing through end of ’26 vs. ~60bp late yesterday.

• RES 4: 92.55 High Nov 11 
• RES 3: 92.31 High Nov 12          
• RES 2: 92.00 Round number resistance
• RES 1: 91.78/93 Intraday high / High Nov 27      
• PRICE: 91.57 @ 08:06 GMT Dec 17
• SUP 1: 90.50 Low Dec 16       
• SUP 2: 90.28 Low Nov 21  
• SUP 3: 90.00 Round number support    
• SUP 4: 89.86 Low Nov 19 and the bear trigger     

Gilt futures have gapped higher today. Recent activity highlights 90.50, the Dec 16 low, and 91.93, the Nov 27 high, as two important short-term directional triggers. A clear breach of 90.50 would signal scope for a deeper retracement towards 89.86, the Nov 19 low and bear trigger. For bulls, a stronger resumption of gains and a breach of 91.93, would instead signal scope for a climb towards resistance at 92.55, the Nov 11 high.