BONDS: UST Beta Driving Gilts This Morning, Little Reaction In Bunds To EZ Data
Oct-30 09:33
As expected, Gilts have been driven by fiscal headlines and UST spillovers this week. The hawkish reaction in US FI to yesterday’s Fed press conference has pushed 10-year Gilt yields up 4bps to 4.43%. 10-year Bund yields meanwhile are up 2.3bps to 2.64%, generally looking through this morning’s heavy data calendar. That leaves the 10-year Gilt/Bund spread 1.7bps wider at 178.7bps. A reminder that the spread registered a fresh year-to-date closing low yesterday.
- Bund futures are down 26 ticks at 129.31, while Gilts are down 31 ticks at 93.47. Both contracts are off session lows.
- In the Eurozone, focus remains on this afternoon’s ECB decision (1315GMT) and press conference (1345GMT). We expect President Lagarde to adopt a broadly neutral tone to maintain optionality.
- This morning’s data hasn’t generated much reaction in EGBs. Spanish and German state-level flash inflation prints have surprised to the upside, Meanwhile, French flash Q3 GDP was stronger-than-expected, Germany was broadly in line, while Italy surprised to the downside. On net, risks to the Eurozone-wide consensus of 0.1% Q/Q (due at 1000GMT today) appear balanced.
- Italy is holding a 5/10-year BTP / CCTeu auction this morning, with E9.5bln of bonds on offer in total (including E7.5bln of nominal BTPs).
- 10-year EGB spreads to Bunds are biased up to 1bp wider.
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FOREX: Gov Shutdown Still in Flux, AUD Rallies on Hesitant RBA
Sep-30 09:33
- The countdown to what will likely be the furthest reaching government shutdown in over 10 years continues, with betting markets looking toward a very high likelihood of a formal government shutdown starting from October 1st. Resultantly, haven currencies are bid and spot gold is key beneficiary, although the outlook for the USD is more complex.
- The USD Index remains pinned to the 50-dma of 98.043 - a level that's helped define price action since the beginning of August. The inability of the USD to build on last week's post-GDP rally will concern those looking for a firmer near-term bounce in the USD, with the Fed's views on a possible second rate cut in October a likely factor here.
- AUD trades well, with the cautious RBA decision overnight providing an additional Aussie tailwind. Governor Michele Bullock declined to say whether the RBA retains an easing bias after the Board held the cash rate at 3.6%, stressing that future moves will depend on incoming data, with the current level still viewed as slightly restrictive. Overall, the AUDUSD uptrend remains intact and recent weakness appears to have been a correction. Initial firm resistance to watch is 0.6628 (Sep 24 high). A stronger reversal higher would refocus attention on 0.6707, the Sep 17 and post-Fed high.
- Data due today includes preliminary German CPI data. Regional numbers out already today suggest an uptick in inflation for this month, inline with the consensus view for today's +0.2% M/M, +2.3% Y/Y expectation.
- Today's MNI Chicago PMI, consumer confidence and JOLTS data may represent some of the last US data releases of the week, with a possible government shutdown likely curtailing the release of nonfarm payrolls due this Friday, as well as the CPI print due on October 15th.
- Central bank speak is far busier relative to the data schedule, with ECB's Rehn, Cipollone, & Nagel, Fed's Jefferson, Collins & Goolsbee and BoE's Lombardelli, Mann & Breeden all set to speak.
EUROPEAN INFLATION: MNI Projects 2.4% Y/Y German National CPI, Core 2.8%
Sep-30 09:31
From state-level data that equates to 86.7% weighting of the national September flash German CPI print (due at 13:00 GMT / 14:00 CET), MNI estimates that national CPI (non-HICP print) rose by around 2.4% Y/Y (2.2% prior) and rose around 0.2-0.3% M/M. See the tables below for full calculations.
- Analyst consensus stands at 2.3% Y/Y and 0.2% M/M, risks to consensus appear to be skewed to the upside.
- Current tracking of Core CPI (ex-energy and food, based on 50% of the national index) implies around 2.8% Y/Y (2.7% prior).
- We will provide a follow-up bullet looking at underlying drivers in due course.
- Note: These estimates are in relation to the national CPI print, not the HICP print which feeds into the Eurozone HICP print that the ECB targets. The magnitude of surprises to consensus can sometimes be different due to the different methodologies and weights used in national CPI vs HICP - but the direction of the surprise is generally the same.
| Y/Y | September (Reported) | August (Reported) | Difference |
| North Rhine Westphalia | 2.3 | 2.0 | 0.3 |
| Hesse | 2.6 | 2.4 | 0.2 |
| Bavaria | 2.4 | 2.1 | 0.3 |
| Brandenburg | 2.6 | 2.5 | 0.1 |
| Baden Wuert. | 2.7 | 2.5 | 0.2 |
| Berlin | 2.5 | 2.4 | 0.1 |
| Saxony | 2.2 | 2.2 | 0.0 |
| Rhineland-Palatinate | 2.1 | 1.9 | 0.2 |
| Lower Saxony | 2.3 | 2.2 | 0.1 |
| Saarland | 2.5 | 2.4 | 0.1 |
| Weighted average: | 2.42% | for | 86.7% |
| M/M | September (Reported) | August (Reported) | Difference |
| North Rhine Westphalia | 0.2 | 0.1 | 0.1 |
| Hesse | 0.2 | 0.0 | 0.2 |
| Bavaria | 0.4 | 0.1 | 0.3 |
| Brandenburg | 0.1 | 0.0 | 0.1 |
| Baden Wuert. | 0.2 | -0.1 | 0.3 |
| Berlin | 0.4 | 0.0 | 0.4 |
| Saxony | 0.2 | 0.0 | 0.2 |
| Rhineland-Palatinate | 0.2 | 0.1 | 0.1 |
| Lower Saxony | 0.2 | 0.1 | 0.1 |
| Saarland | 0.1 | 0.2 | -0.1 |
| Weighted average: | 0.25% | for | 86.7% |
BUNDS: Block trade
Sep-30 09:28
Bund Block trade, suggest seller:
- RXZ5 2k at 128.60.
