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Parallel curve shift with yields around 3bp lower ahead of CPI tomorrow

GILTS
  • Gilts have taken their early cue from USTs and Bunds - with futures gapping up 25 ticks from yesterday's last trades, but remaining below yesterday's intraday highs of 95.43.
  • The curve has largely seen a parallel shift with yields down around 3bp across the curve.
  • Other than an auction of the 3.75% Oct-53 gilt there is little on the domestic agenda this morning with Canadian CPI and US retail sales/IP the highlights abroad.
  • However, markets will already have one eye on tomorrow's crucial UK inflation print. From the previews we have read so far, headline inflation is expected to have fallen from 8.7%Y/Y to 8.1-8.2%Y/Y with most analysts seeing core inflation either remaining at 7.1%Y/Y or falling a tenth (some do expect slightly larger moves). The key services inflation component is generally expected to soften marginally with a median of 7.25% from analyst previews we have read (down from 7.4%Y/Y). We will publish more on this later.
  • Tomorrow's inflation print will be the last key piece of information ahead of the August MPC meeting and new forecasts that will be used in the MPR. Markets currently price around 43bp for the meeting, and a high print could cement expectations closer to 50bp while a low print could see these expectations fall back closer to a 50/50 chance between a 25bp and 50bp hike.
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