AMERICAS OIL: "US Dec. Manufacturing PMI 51.8 vs Flash Reading 51.8" -bbg

Long end UK swap spreads have widened further this week, even with 30-Year gilt yields little changed since the market close that followed the Budget.

• This points to a consistent post-Budget reduction in UK fiscal risk premium, with the 30-Year swap spread nearing the October ‘24 closing high (-74.99bp).
• While medium-term fiscal risks remain evident (with a particular focus on the backloaded nature of the fiscal tightening outlined in the Budget) the market has welcomed the (questionable) increase in fiscal headroom and ongoing WAM reduction in issuance, promoting swap spread widening.
• 30-Year swap spreads have rallied by ~10bp since the November 20 close, a break of the aforementioned October ’24 high would switch focus to the clustered resistance area at -70bp/-69.96bp and -69.71bp.
• It seems that a fresh gilt-negative catalyst is a pre-requisite for any fresh spread narrowing at this point e.g. slower-than-envisaged UK growth, political unrest or fresh questions surrounding the UK fiscal outlook.

Fig. 1: UK 30-Year Swap Spread (bp)

Source: MNI - Market News/Bloomberg Finance L.P.

• MNI: US NOV FINAL SERV PMI 54.1 (55.0 FLASH, 54.8 OCT)
• US NOV FINAL COMP PMI 54.2 (54.8 FLASH, 54.6 OCT)

• RES 4: 6953.75 High Oct 30 and bull trigger
• RES 3: 6900.50 High Nov 12
• RES 2: 6852.56 76.4% retracement of the Oct 30 - Nov 21 bear leg 
• RES 1: 6864.50 High Dec 1    
• PRICE: 6831.75 @ 14:32 GMT Dec 3
• SUP 1: 6674.50/6525.00 Low Nov 25 / 21  
• SUP 2: 6500.00 Round number support 
• SUP 3: 6476.62 23.6% retracement of the Apr 7 - Oct 30 uptrend
• SUP 4: 6427.00 Low Sep 2  

S&P E-Minis are holding on to their recent gains following the recovery from the Nov 21 low. The climb has resulted in a breach of the 20- and 50- day EMAs. This highlights a bullish development and the likely end of the corrective cycle between Oct 30 and Nov 21. A continuation higher would signal scope for a move towards the key resistance and bull trigger at 6953.75, the Oct 30 high. Key support lies at 6525.00, the Nov 21 low.