SCHATZ TECHS: (Z5) Key Support Remains Exposed

• RES 4: $74.79- 2.500 proj of the Apr 9 - 23 - May 5 price swing
• RES 3: $73.39 - High Jun 23 and a bull trigger
• RES 2: $66.42/68.43 - High Sep 26 and key resistance / High Jul 30
• RES 1: $61.93 - 50-day EMA    
• PRICE: $57.08 @ 07:19 BST Oct 20
• SUP 1: $56.60 - Low Oct 17 
• SUP 2: $54.89 - Low May 5
• SUP 3: $54.10 - Low Apr 9 and a key support
• SUP 4: $53.05 - 1.764 proj of the Jul 30 - Aug 13 - Sep 26 price swing   

A bearish theme in WTI futures remains intact and the move down last week reinforces current condition. Note that moving average studies are in a bear-mode position, highlighting a dominant downtrend. Sights are on $54.89 next, the May 5 low, where a break would open $54.10, the Apr 9 low and a key support. Initial firm resistance is seen at $61.93, the 50-day EMA. Key resistance has been defined at $66.42, the Sep 26 high.

Euribor futures are flat to -1.0 ticks through the blues, with global equity futures biased to the upside to start the week. Last Thursday’s sharp rally was fully unwound on Friday, after US President Trump watered down tariff threats against China. 

• ERZ6 reached a 3-month high of 98.160 on Friday, but has since eased back to 98.105 (-1.0 ticks).
• In a similar vein, recent bull flattening across the Euribor strip has unwound a little, with the ERH6H7 spread back at 0.000, after troughing at -0.040 on Friday (a one year low).
• ECB-dated OIS still lean comfortably in favour of one more 25bp cut this cycle, following last week’s net dovish repricing. There are 18.5bps of easing priced through September 2026.
• This week’s regional calendar is headlined by the October flash PMIs. Analysts expect relatively steady trends in the Eurozone-wide composite reading, which would be consistent with ECB signalling that growth risks are now "more balanced". That said, with Governing Council speakers keeping the door open to another rate cut if justified by the data, the very front-end of the EUR STIR curve may be sensitive to a downside surprise.
• Over the weekend, ECB President Lagarde said that we are “yet to feel the pain” from tariffs. She noted that eventually, tariff impositions will feed through to the (presumably US) consumer.
• ECB’s Schnabel, Nagel and Vujcic are scheduled to speak today. We consider Schnabel to be the most hawkish Governing Council member.

• The main fiscal headlines from the weekend have suggested that VAT may be removed from energy bills (which was in line with rhetoric last week from Reeves). This was "hinted" at by Energy Secretary Milliband when he refused to rule it out in an interview.
• This would cost somewhere in the region of around GBP1.75-2.0bln (although this is dependent upon wholesale prices).
• The energy "price cap" (the default tariff if people do not fix) is currently GBP1,755/year - so removing the 5% VAT would reduce this to GBP1,671 (roughly GBP84/year savings or a little under GBP7/month).
• In terms of an impact on CPI, "electricity, gas and misc energy" has a 3.2642% weighting. So removing VAT from energy bills would reduce CPI by about 0.16ppt.
• There is much more that the government could do on this if it really wanted to. Other policy costs (social and environmental schemes) add GBP217 to the average annual energy bill. As a rule of thumb about 70% of this is on electricity bills (which is cited by some as slowing the incentive to transition from gas to electricity).
• If all of the costs from electricity bills were also passed to general taxation that would cost somewhere in the region of GBP3.5bln (a bit north of GBP5bln if combined with VAT). We think this unlikely but it would reduce energy bills by GBP236/year (close to GBP20 per month for the average household).
• The CPI impact of this would be a little over 0.4ppt.
• However, we think it unlikely that all of these measures would be implemented - and it would probably be more likely either VAT was removed or the policy measures were removed from electricity bills - not both measures due to the high costs involved.