EUROPEAN FIXED UPDATE: Gilts gap higher as wage pressures ease, US CPI & 30yr sale due

Analysis details (10:40)

• EGBs began the morning on the front foot, in a continuation of APAC action despite poor 3- & 10-yr auctions from the US ahead of today’s 30yr, all early due to the FOMC. Newsflow was relatively light in APAC hours but has picked up significantly since then courtesy of numerous data prints.


• The main update stemmed from the UK where the October unemployment data saw a marked drop in wage components, though still at lofty absolute levels. A release which, when Gilts opened, prompted a marked gap-up to 98.79 from Monday’s 97.52 close and has sparked some additional dovishness in market pricing for the BoE. As it stands, over 85bp of easing is implied across 2024 i.e. three 25bp cuts are priced with a 40% chance of another. Pricing will likely be subject to push back from Threadneedle St. this week, via both the rate split (consensus looks for 6-3, hawkish dissent) and Governor Bailey himself.


• Back to Europe, a number of prints for Germany with limited reaction to November’s Wholesale Price Index given it continues to be heavily affected by base effects. Thereafter, December’s ZEW defied consensus and guidance from the institute last week for pressure in the headline Economic Sentiment metric. A figure which rose to 12.8 (exp. 8.8) from 9.8, despite the fresh budget crisis headwind; however, ZEW caveats that the upside was due to the share of respondents expecting ECB rate cuts in the medium-term doubling. Limited follow through to Bunds which reside around the 135.00 mark within 134.80-38 bounds and as such shy of Friday’s 135.46 best with 65 & 81 potential resistance points thereafter.


• Stateside, futures are firmer having shrugged off Monday’s particularly poor auctions ahead of a 30yr outing today, though for the time being participants are more keenly focused on the November US CPI release. Which is expected to see the headline Y/Y rate decline to 3.0% but core unchanged, on the release JP Morgan says that unless we see November CPI print above 4%, the Fed is done with its rate hike cycle, absent any exogenous shocks

12 Dec 2023 - 10:30- Research Sheet- Source: Newsquawk