Futures Back Above 100.00, News Flow Points To Tough Budget

Gilt futures through yesterday’s high, back above 100.00, in a narrow 14-tick range.

• Technical backdrop remains bullish, initial resistance at the Aug 14 high (100.80), with initial support at the 20-day EMA (99.54).
• Yields ~1.5bp lower across the curve.
• A late NY/early Asia rally in U.S. Tsys provides light support.
• This morning’s higher-than-expected public borrowing figures continue to point to pressure on UK finances.
• Meanwhile, Guardian sources have suggested that Chancellor Reeves is “planning to raise taxes, cut spending and get tough on benefits in October’s budget”, which will strengthen existing expectations for a tough budget.
• Adding further to that theme, the FT has noted that the Chancellor plans to “raise social rents to boost affordable housebuilding.”
• Brightmine wage data showed pay growth easing to the lowest level seen since March, although the measure still runs comfortably above the BoE’s inflation target, sitting at +4.5%. This continues to complicate the return to 2% inflation.
• Little of note on the UK data calendar during the remainder of the session, which will leave focus on the wider macro picture and risk backdrop.
• On the supply front, the DMO will come to market with GBP3.75bln of the short 3-year 3.75% Mar-27 gilt.