UK gilts nose-dive ahead of November employment report, Q4 GDP; replicate U.S. Treasuries

The UK gilts plummeted during early European session Monday as investors await the country’s employment report for the month of November, due to be released on January 24 by 09:30GMT and the fourth-quarter gross domestic product (GDP), due on January 26 by the same time.

In addition, bond investors mostly shrugged off the second day of a government shutdown in the United States on Sunday, with prices of U.S. Treasury debt futures easing as the market bet that the political impasse would be brief, Reuters reported.

The yield on the benchmark 10-year gilts, jumped 2 basis points to 1.35 percent, the super-long 30-year bond yields climbed 1-1/2 basis points to 1.86 percent and the yield on the short-term 2-year too traded nearly 1-1/2 basis points higher at 0.58 percent by 10:05GMT.

In a busy week for UK data releases, the main event will be the first estimate of Q4 GDP on Friday. On the basis of the evidence to date, including last Friday’s weak retail sales figures, we expect an expansion 0.4 percent q/q (1.4 percent y/y), a similar quarterly pace to Q3, which would leave full-year growth in 2017 in line with our estimate of 1.8 percent. This preliminary release will be short on detail, although it is likely to confirm that the service sector expanded by 0.4 percent in Q4, as it did in Q3.

Meanwhile, the latest labour market data on Wednesday may show that employment continued falling towards the end of the year, by 25k in the three months to November, less than the 56k reduction in October. And given additional evidence that activity in the labour market is losing momentum, the headline unemployment rate is set to have remained unchanged at 4.3 percent for a fourth consecutive month, having fallen by 0.4ppt over the first half of 2017. Average earnings growth is expected to have remained at 2.5 percent 3m/y, below the rate of CPI inflation, and thus implying that real incomes continued to contract.

Before then, Government borrowing figures due tomorrow are likely to show public net borrowing of around GBP5 billion in December, an improvement on November’s reading due to the monthly pattern of tax receipts, which would leave borrowing on track to undershoot the latest OBR’s forecasts. The same day will see the release of the CBI Industrial Trends Survey, which may register manufacturing orders softening slightly after recent strength. Initial clues on the state of the housing market in 2018 will come with the release of figures on mortgage approvals by banks in December from UK Finance, out on Thursday.

Meanwhile, the FTSE 100 traded 0.09 percent higher at 7,736.50 by 10:10 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 53.93 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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