Domestic Fiscal Matters & Wider Inputs Support

The combination of the wider overnight impulses flagged earlier (see our SONIA bullet for more) and softer-than-expected headline French CPI readings help gilt futures higher to start the day.

• Local fiscal matters will also be feeding in, after The Times reported that Chancellor Hunt has “warned the cabinet that tax cuts in the spring budget may be smaller than expected because of “major structural weaknesses” in the economy.” This could curtail expectations re: meaningful fiscal easing which had become more prominent post-Autumn Statement/in recent weeks.
• Gilt futures showed through yesterday’s best levels but couldn’t breach 99.60, backing off to trade +57 at 99.45 last (highs of 99.57 seen).
• Cash gilt yields are 4-5bp lower with a light flattening bias seen.
• SONIA futures and BoE-dated OIS are loosely in line with pre-gilt open levels (flagged in an earlier bullet), with the former running flat to +6.5 through the blues, while the latter is little changed to 3.5bp softer on the day through ’24 contracts.
• Lower tier local data has seen an uptick in the Lloyds Business Barometer and firmer-than-expected Nationwide House Price Index readings.
• The local docket is thin to empty for the remainder of the day, which will leave focus on pre-BoE adjustments and cross-market inputs.
• Clickfor our full BoE preview.