Remit Adjustment & Services PMI Apply Pressure, Curve Bear Flattens On Day

Gilts trade lower on the back of the former-than-expected UK flash services PMI release, although the softer-than-expected manufacturing survey may be limiting the move, in a similar manner to what we saw in the wake of the European PMI releases.

• In terms of the policy takeaways, the labour market metrics were mixed but there were cost pressures related to the introduction of the higher national living wage. Elsewhere, services output price growth moderated (which could also be limiting the sell off), with services inflation dynamics set to provide a key input re: the timing of the first BoE cut.
• Gilt futures don’t test early session lows but are still ~30 ticks lower on the day, looking below 97.00 once again.
• The remit tweak flagged earlier continues to promote bear flattening on the gilt curve, with yields running 2-4bp higher on the day.
• SONIA futures are 0.5-4.5 lower, with the back of the reds under the most pressure.
• BoE-dated OIS sees a modest hawkish move, showing ~54bp of cuts through year end. The first 25bp cut remains fully priced through the end of the August MPC.
• A quick note re: BoE MPC member Haskel’s appearance, that was delayed to 09:45 London, which explains the lack of headlines seen thus far.