GDP-Driven Bid Limited By Bund Moves & Round Number Resistance

Gilts initially draw support from softer than expected monthly domestic GDP data, although overnight price action in Bunds helps limit the move, as do technicals.

• Gilt futures test 95.00, but top out at the figure, last showing back at unchanged levels. A break above the round number would turn technical attention higher, with 95.79, the Sep 1 high and key resistance providing the initial point of note.
• Cash benchmarks are flat.
• SONIA futures are -0.5 to +1.5, off best levels alongside gilts.
• In terms of the domestic data, the services sector drove the miss.
• This data in some ways may have more impact on the upcoming MPC decisions than yesterday's labour market data that showed a further deterioration of the labour market but with wage growth still uncomfortably high.
• Next week's inflation data is still of great importance and we still see a September hike as the most likely outcome, but today's data increases the probability of a pause in future meetings.
• Local headline flow has seen the Pensions Secretary stress that the triple lock is “not sustainable” in the long term, but he did note that the government remains committed to the pledge at present.
• Elsewhere, lower mortgage rates continue to be rolled out, although they remain elevated vs. recent norms, given the sharp upturn over the last 2 years or so.
• The local docket is empty today.