Risk-Aversion Creeps In, After UK CPI Stole The Early Headlines

Core global FI markets have recovered from session cheaps, with key support in TY futures only seeing an incremental breach and several key resistance levels holding in 10-Year EGB yields.

• Bomb scares surrounding French airports helped put a bid into core global FI markets.
• Block buying in TY futures (~$500K DV01 in total) provided subsequent flow support.
• Note that fresh FI selling has been seen in more recent trade.
• Early FI pressure stemmed from a slightly firmer than expected round of UK CPI data. While the data was a touch firmer than expected it wasn’t seen as a meaningful game changer for the BoE. The BoE-dated OIS strip has twist steepened since.
• Gilt yields are still higher across the curve, while Tsys have twist steepened.
• Oil prices extended on overnight gains after Iran’s Foreign Minister called for an oil embargo against Israel. Crude had already drawn support from stronger than expected Q3 GDP data and record processing rates out of China, as well as the latest escalation in the Israel-Hamas conflict.
• Gold has also benefitted from the same geopolitical worry, with spot probing the Sep 20 highs.
• Global equity futures are lower, with geopolitical worry dominating there.
• Firmer than expected Chinese GDP data did little for broader risk sentiment on a lasting basis, with property sector-related worry still prominent in China.
• The broader USD has recovered from session lows given the aforementioned (contained) risk aversion.