Most Of Labour Market Data Rally Holds, STIRs Price Just Under 75bp Of '24 BoE Rate Cuts

Gilts rallied on the back of the UK labour market data.

• Bulls couldn’t break 100.00 in futures for a second straight day, leaving familiar technicals intact. Contract last +31 at 99.92 (early range 99.79-99.98).
• Cash gilt yields are 3-5bp lower on the day.
• The curve bull steepens, with 5s30s moving further away from last week’s multi-month flats.
• SONIA futures are unchanged to +5.5, off best levels alongside gilts.
• BoE-dated OIS shows ~73bp of ’24 cuts after briefly pricing 75bp of cuts shortly after the gilt open.
• As a reminder, the data pointed to a softer labour market backdrop, in line with recent surveys, but we don’t see it as a gamechanger for the BoE in isolation. Our full review of the release should be published later today.
• That leaves the August MPC decision as the most obvious starting point for the cutting cycle, in our view.
• This outcome is fully discounted in STIR markets.
• Morgan Stanley believe that chances of a Q2 rate cut are “severely underpriced.”
• This morning will see the DMO come to market with GBP3.75bln of the 4.625% Jan-34 gilt.
• Comments from BoE hawk Mann are due later today, but she already reiterated her well-known stance yesterday.
• Elsewhere, comments from BoE Governor Bailey are due, but the setting limits the potential for market moving comments.