EU-RUSSIA: 16th Sanctions Package Agreed As Divergence w/US Looms

Gilts little changed early today.

• Futures -12 at 91.55, trading in a 91.45-66 range.
• The structural trend condition in futures remains bearish, although the recent break above the 20-day EMA increases the threat to the overarching technical theme.
• Initial support and resistance at 90.68/91.96.
• Yields little changed to 1.5bp lower, front end outperforms.
• GBP STIRs still roughly in line with pre-gilt open levels, ~64bp of cuts priced through year-end.
• On the lookout for the syndicated tap of the 4.375% Jan-40 gilt. Bookrunners have indicated this will likely be tomorrow’s business, in line with our own expectation.
• Much of the weekend domestic headline flow centred on political posturing ahead of U.S. President Trump’s inauguration.
• That event dominates the macro calendar today.
• UK labour market data is due tomorrow, our full preview will be out later today, greater colour available in the pre-gilt open STIR bullet.

Goldman Sachs have recommended ERM5/Z5 flatteners, with an entry at -13.0, targeting a move to -30.0, with a stop set at -5.0.

• They think “the trimmed risk of 50bp cut odds is reasonable given the modest upside surprises to recent inflation data in Europe and expect terminal rate pricing in H225 to lead any further rally from here.”

Notable Large Block on Friday, the session also saw 2x the 20d average volumes in SX5E and SX7E:

• SX5E Feb 4725/4700ps traded in 83.5k.
• SX5E Feb 4900/4875ps traded ~28kx29k.
• SX5E Apr 4175/4125ps traded in 50k.

FTSE rolling puts:

• UKX Feb 6500p into Mar 6700p traded in 17kx15k.
• UKX Mar 7200p into Apr 7400p traded in 6.5kx7k.