UK FISCAL: VAT, "Other Tax" Receipts; Local Authorities Drive PSNB Higher (1/2)
Looking more into the tracking for today's PSNB versus the OBR forecasts: GBP5.5bln of the GBP11.4bln YTD overshoot is from the August data while the remaining GBP6.0bln was from the Apr-Jul period (which was previously see as tracking in line). It is also tracking GBP16.2bln above the same period last year. Central government (CG) borrowing accounts for GBP6.3bln of the overshoot, local authorities GBP2.8bln and public corporations GBP2.3bln.
- August's fiscal YTD central government net borrowing stands at GBP85.4bln (vs 79.1bln forecast). This had been tracking less than GBP1bln away from the OBR's forecasts in last month's published numbers. CG expenditure is still on aggregate tracking in line with the OBR's forecast (GBP0.2bln higher) but CG current receipts are now GBP6.1bln below the forecast YTD - of which E1.8bln was in August and the remainder is revisions from previous periods.
- Looking at CG receipts: More than half of the undershoot is from VAT. The OBR notes that "it is also possible that it could reflect the composition of spending if higher-than-expected food prices has led to more spending on zero-VAT rated items." VAT YTD receipts are now running GBP3.5bln below forecast, largely due to revisions.
- Income tax / NIC receipts combined are broadly tracking in line with the OBR's forecast while onshore corporation tax is GBP1.4bln higher YTD. The rest of the miss is from "other taxes and receipts". None of these alone are huge but combined there is a GBP4.1bln YTD undershoot (GBP1.2bln in August, GBP2.9bln in Apr-Jul revised from GBP2.2bln).
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SONIA: Calendar spreads are dominating the flows
Dominating flow in the Sonia strip, not too surprisingly has been in Flatenners following the touch higher UK Inflation.
Aside from the 11k SFIU5Z5 spread that has traded in 11.8k, pushing back Rate cut bets.
- SFIZ5/H6 has traded in 31k spread to the downside.
- SFIZ5/M6 in 22k also to the sell side.
- SFIZ5/Z6 has traded in 51.1k lots, mostly to the sell side.
The SFIZ5/H6, SFIZ5/M6 have seen their largest single moves since the US NFP, but for the SFIZ5/Z6, this the most notable single move since 8th May.
OUTLOOK: Price Signal Summary - GBPUSD Bull Cycle Still In Play
- In FX, a consolidation mode dominates for now in EURUSD. The trend set up however, remains bullish. A resumption of gains would expose key resistance and the bull trigger at 1.1829, the Jul 1 high. Clearance of this level would resume the uptrend. Support to watch lies at 1.1588, the 50-day EMA. Major support rests at 1.1392, the Aug 1 low.
- The latest pullback in GBPUSD for now, appears corrective and a bullish condition remains intact. Recent gains resulted in a breach of resistance at 1.3589, the Jul 24 high. This signals scope for a climb towards 1.3636, the 76.4% retracement of the bear leg between Jul 1 and Aug 1. Initial firm support to watch is 1.3449, the 50-day EMA. A clear break of it would signal a possible reversal.
- USDJPY remains in consolidation mode. A bearish threat is present as the pair trades closer to its recent lows. Sights are on support at 145.86, the Jul 24 low. Clearance of this level would highlight a stronger S/T reversal and strengthen the bearish engulfing signal on Aug 1. This would open 144.69, a trendline drawn from the Apr 22 low. Initial firm resistance to watch is 148.52, the Aug 12 high.
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Aug21 $1.1600(E1.3bln), $1.1700(E1.6bln), $1.1750(E2.0bln), $1.1800(E3.0bln); Aug25 $1.1640-55(E2.0bln)
- USD/JPY: Aug21 Y145.95-00($1.2bln), Y146.70-80($1.8bln); Aug22 Y147.90($1.4bln)
- AUD/USD: Aug21 $0.6590-00(A$1.8bln); Aug25 $0.6510-25(A$1.1bln)
