CONSUMER CYCLICALS: Creative directors on the move

Commerzbank believe that “converging duration free-float of Bunds with that of U.S. Treasuries and gilts suggests that global ASW-curves will have to align further. We hence reiterate our structural shorts in (ultra-)long Bund-spreads, also vs. Schatz, and in 30y OATs vs. swaps.”

Supply-related pressure and a bid in European equities weighs on core global FI markets, biasing gilts lower at the open.

• Futures pierce yesterday’s base, printing as low as 92.83.
• First support at the 20-day EMA (91.63), with the short-term bullish cycle still intact but losing some momentum.
• Yields 1-2bp higher across the curve.
• 10-Year spread to Bunds 1bp tighter at ~207bp, sticking within the multi-week 203.8-213.3bp closing range.
• Local media outlets dominated by the latest fiscal warnings, with the NIESR noting that the UK’s fiscal headroom will have been fully eroded when the new OBR forecasts are released next month. This increases the risk of further tax hikes and spending cuts, although isn’t a new line of thought.
• Hawkish drift in GBP STIRs as gilts soften. BoE-dated OIS showing 58bp of cuts through December vs. ~60bp early today. SONIA futures flat to -2.5.
• Looking forwards, comments from BoE MPC member Greene are due later today (15:00 GMT).
• On the supply front the DMO will come to market with GBP1bln of 0.625% Mar-45 I/L supply.

Euribor futures are once again being dragged lower by core EGBs, amid another day of solid sovereign supply and buoyant European equities.

• Futures are are -1.5 to -3.0 ticks through the blues at typing, extending session lows. ERZ5 has closed last Monday’s tariff-induced gap higher, currently at 98.015.
• ECB-dated OIS price 80.5bps of easing through year-end, down from 83bps at yesterday’s close.
• A 25bp cut remains essentially fully priced through March (24bps of cuts priced), while OIS price a ~70% implied probability of 25bp cuts at each of the April and June decisions.
• Today’s regional data calendar is light, with only Italian IP due. ECB Executive Board member Elderson speaks at an MNI Webcast at 1000GMT on “Climate Change: Impact on Monetary Policy & Bank Supervision”.