Off Highs, Just Under 50bp Of ’24 BoE Cuts Priced

Gilts are off session highs.

• Futures +16 at 98.86, after breaching the recent high of 99.05.
• Bulls now target projections drawn off the May 29-June 4-June 10 price swing (99.25/62).
• Cash gilt yields are flat to 2bp lower, light bull flattening seen.
• Prior June yield lows were breached across the curve, turning focus to levels not printed since March.
• European PMIs drove an early rally.
• The reversal from highs then came as the UK flash PMIs showed “a quickening of input cost inflation,” which outweighed the impact of the softer-than-expected headline services PMI reading.
• While the data is having a small intraday impact, we believe that the BoE has become less data dependent, with a cut likely to come at the Bank’s August decision.
• This is reflected in BoE pricing, which sits around pre-UK PMI data levels.
• Just under 50bp of cuts are priced through year end. A 25bp cut come the end of the August MPC is ~60% priced.
• SONIA futures are 0.5-2.5 higher on the day, also off session highs after extending on yesterday’s BoE-driven rally.
• U.S. PMI data is now eyed ahead of the weekend, with nothing of note on the UK schedule.