EXECUTIVE SUMMARY
- MNI: Fed's Bostic Confident Inflation Will Keep Falling
- MNI: Fed's Waller Leans Toward Another Cut At December Meeting
- MNI SECURITY: NATO Chief Rutte Warns Trump Against Pushing Unfavourable Ukraine Deal
- MNI SECURITY: Israel-Hezbollah Ceasefire Holding "Despite Some Incidents", Pentagon
- MNI US DATA: ISM Mfg New Orders Seen First >50 Reading Since March
US
MNI: Fed's Bostic Confident Inflation Will Keep Falling
Federal Reserve Bank of Atlanta President Raphael Bostic said Monday he remains confident inflation is slowing but is uncertain how restrictive monetary policy needs to be. He voiced no opinion on whether the FOMC should cut interest rates again at the December meeting, though he said he supported the two cuts thus far that brought the Fed's benchmark rate 75 bps lower than its Covid-era peak. Futures traders are split between another 25 bp cut or no reduction this month.
- "I voted for both moves because I believe inflation remains on a path, albeit a bumpy one, toward the Committee's objective of 2%," he wrote in an essay posted on the Atlanta Fed website. "The risks to achieving the Committee's dual mandates of maximum employment and price stability have shifted such that they are roughly in balance, so we likewise should begin shifting monetary policy toward a stance that neither stimulates nor restrains economic activity."
MNI: Fed's Waller Leans Toward Another Cut At December Meeting
Federal Reserve Governor Chris Waller said Monday that slowing inflation and a moderating but still-solid economy has him leaning towards another interest-rate cut at this month's FOMC meeting, continuing the work of returning monetary policy to a more neutral setting.
- "Based on the economic data in hand today and forecasts that show that inflation will continue on its downward path to 2% over the medium term, at present I lean toward supporting a cut to the policy rate at our December meeting," he said in prepared remarks. "But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation."
NEWS
MNI US: House Republicans Eye Government Funding Deal This Week
House Republican leadership appears set on a mid-March end date for a Continuing Resolution to punt government funding beyond the FY24 deadline of December 20. The new deadline would give Congress a short sprint to legislate new funding before sequestration from the 2023 Fiscal Responsibility Act triggers tens of billions of dollars of cuts to defence and non-defence spending - an action that a bipartisan majority of lawmakers want to avoid.
MNI SECURITY: NATO Chief Rutte Warns Trump Against Pushing Unfavourable Ukraine Deal
NATO Secretary General Mark Rutte warned US President-elect Donald Trump that the US would face a “dire threat” from China, Iran and North Korea if Ukraine is pushed to sign a peace deal on terms that are favourable to Moscow, according to The Financial Times. Rutte told FT, in his first interview as head of NATO: “We cannot have a situation where we have [North Korean leader] Kim Jong Un and the Russian leader and Xi Jinping and Iran high-fiving because we came to a deal which is not good for Ukraine, because long-term that will be a dire security threat not only to Europe but also to the US,”
MNI ECB: Rehn – Better To Avoid Forward Guidance
Bank of Finland’s Rehn has given a speech that broadly echoed comments from his appearance at the Finnish parliament last week. That includes seeing a reason to continue rate cuts in December if data and new economic projections confirm the current outlook, and that the ECB will be moving towards a neutral level between Jan-June. “The pace and scale of future rate cuts will depend on the ECB Governing Council’s comprehensive assessment of three key factors: the headline inflation rate, the dynamics of underlying inflation, and the effectiveness of monetary policy transmission.”
MNI FRANCE: RN Leaders-'Party Will Vote Against PM Barnier'; Ensures Gov'ts Ouster
Jordan Bardella, leader of the far-right Rassemblement National (National Rally, RN), and its parliamentary leader Marine Le Pen have each confirmed that the party will vote against PM Michel Barnier and his gov't in any censure motion, essentially ensuring the ouster of the gov't. Le Pen says that the RN's demands on the budget were not met, that Barnier 'chose not to answer to our voters'. Le Pen confirms the RN will lodge its own censure motion, but that its deputies will vote for any censure motion no matter who tables it.
MNI SECURITY: Israel-Hezbollah Ceasefire Holding "Despite Some Incidents", Pentagon
Reuters carrying comments from a Pentagon spokesperson saying: "Despite some incidents, ceasefire between Israel and Hezbollah is holding," another significant test of the ceasefire agreement that was put in place last week. Comes as fighting around Aleppo threatens to reignite the Syrian civil war and draw regional powers - Iran, Turkey, and Russia - into a broader conflagration.
MNI US TSYS: Fed Gov Waller's Late Session Dec Rate Cut Comment Buoys Tsys
- Treasury curves twisted flatter Monday as bonds led a midmorning rebound off session lows, 2s10s re-inverting (-1.789) but off last week's low of -2.215. Futures bounced again late Monday after Fed Gov Waller still leans toward a rate cut at the December 18 FOMC policy announcement, citing recent "economic data in hand today and forecasts that show that inflation will continue on its downward path to 2 percent over the medium term."
- Earlier, Atlanta Fed President Bostic remains confident inflation is slowing but is uncertain how restrictive monetary policy needs to be.
- The ISM manufacturing survey was broadly stronger than expected (ISM mfg: 48.4 (cons 47.5, 56 estimates) after 46.5, its highest since June.) with some encouraging signs from new orders in November. The activity data are sequentially supported by the recent gains in the PMI. Prices paid falling back (Prices paid: 50.3 (cons 55.2, 6 estimates) after 54.8.) limited hawkish reaction to the data although the series has been particularly volatile recently.
- S&P Global US manufacturing PMI revised higher: 49.7 in final Nov (cons & flash 48.8) after 48.5 in Oct. It pushes the index to its highest since June.
- Focus remains on Wednesday's ADP private employment and ISM data ahead of Friday's employment report for November.
OVERNIGHT DATA
MNI US DATA: ISM Mfg New Orders Seen First ISM Mfg New Orders Seen First >50 Reading Since March The ISM manufacturing survey was broadly stronger than expected with some encouraging signs from new orders in November. The activity data are sequentially supported by the recent gains in the PMI. Prices paid falling back limited hawkish reaction to the data although the series has been particularly volatile recently.
- ISM mfg: 48.4 (cons 47.5, 56 estimates) after 46.5, its highest since June.
- New orders: 50.4 (cons 48.0, 3 estimates) after 47.1, its highest since March after the strongest monthly increase since June. It starts to follow what has been a strong improvement in services new orders in recent months.
- Employment: 48.1 (cons 47.0, 3 estimates) after 44.4, its highest since June and the strongest monthly increase since Aug 2022.
- Prices paid: 50.3 (cons 55.2, 6 estimates) after 54.8. It continues its run of large swings: the -4.5pts in Nov comes after +6.5pts in Oct and -5.7pts in Sep. For context, the latest number is down from 55.2 averaged in 1H24 and 52.1 in 2H24 to date, but is still above the 49.0 averaged in 2019 as well as 46.6 recently in 2023.
MNI US DATA: Mfg PMI Revised To Highest Since June, Mixed Price Details
S&P Global US manufacturing PMI revised higher: 49.7 in final Nov (cons & flash 48.8) after 48.5 in Oct. It pushes the index to its highest since June.
- Press release highlights (in full here): “The US manufacturing sector neared stabilization midway through the final quarter of the year. The rate of decline in new orders slowed sharply, while stronger confidence around the future encouraged firms to take on additional staff. Output continued to be scaled back, however.”
- “Meanwhile, the rate of input cost inflation weakened further and was the slowest for a year. In contrast, output prices were raised at a slightly faster pace.” Output price inflation is left “slightly above the pre-pandemic average” per the press release.
MNI US DATA: Atlanta Fed’s GDPNow Lifts To 2.5% For Q3
The Atlanta Fed’s GDPNow tracker for Q3 has been revised up to 2.5% from 2.1% in its Sep 4 update. The update takes into account of ISM Services, payrolls (which drove the bulk of the upward revision) and today’s wholesales report.
- It limits implied pullback from GDP growth of 2.8% in Q2, to still exceed the 2.1% averaged in 1H24 after a particularly strong 4.1% in 2H23 as the economy continues to not show signs of imminent recession.
- Latest contributions see consumer spending adding a strong 2.4pps in Q3 vs the 1.6pps in Q2 and average 1.3pps in 1H24 after the 2.15 in 2H23.
- The main outright drags are seen coming from residential investment (-0.35pps after the -0.1pp in Q2) and net exports (-0.4pps after -0.8pps).
- Changes in inventories will also offer a large drag in sequential terms, currently seen dragging -0.2pps after some volatile quarters with +0.8pp in Q2 and -0.4pp in Q1.
MNI CANADA DATA: Consumer Confidence Extends Decline Since US Election
- It’s a small survey of 1,000 households that warrants being treated with some caution, but the Bloomberg Nanos survey shows a continued decline in a swathe of consumer confidence metrics since the US presidential election.
- The main economic mood index fell 2pts to 52.1 last week, further below its recent highs of 56.7 seen in the two weeks prior to the US election.
- It’s the lowest since May whilst the 2pt drop is the largest weekly decline since April 2020.
- The share expecting the economy to look stronger in six months’ time fell further to 13.3% from 17.7%, down from a recent high of 26.2% in the week to Nov 1 for its lowest since May and before that Dec 2023.
- This appears to be feeding into some job security concerns even if our calculation of net job security is still reasonably solid on a historical basis: at 47.5%, it’s down from ~51.5% pre-election but not far from the 2019 average of 48.7%.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 97.89 points (-0.22%) at 44815.98
S&P E-Mini Future up 15 points (0.25%) at 6066.75
Nasdaq up 202.4 points (1.1%) at 19420.41
US 10-Yr yield is up 1.5 bps at 4.1839%
US Mar 10-Yr futures are steady at at 111-6 at 111-6
EURUSD down 0.0066 (-0.62%) at 1.051
USDJPY down 0.47 (-0.31%) at 149.3
WTI Crude Oil (front-month) up $0.02 (0.03%) at $68.02
Gold is down $0.29 (-0.01%) at $2642.81
European bourses closing levels:
EuroStoxx 50 up 42.33 points (0.88%) at 4846.73
FTSE 100 up 25.59 points (0.31%) at 8312.89
German DAX up 307.17 points (1.57%) at 19933.62
French CAC 40 up 1.78 points (0.02%) at 7236.89
US TREASURY FUTURES CLOSE
3M10Y +3.148, -29.868 (L: -33.355 / H: -26.392)
2Y10Y +0.115, 1.462 (L: -1.798 / H: 2.505)
2Y30Y -1.589, 18.69 (L: 14.884 / H: 20.736)
5Y30Y -3.152, 27.842 (L: 25.831 / H: 30.327)
Current futures levels:
Mar 2-Yr futures up 0.125/32 at 103-1.875 (L: 102-29.5 / H: 103-02.125)
Mar 5-Yr futures steady at 107-19.25 (L: 107-09.25 / H: 107-20)
Mar 10-Yr futures steady at 111-6 (L: 110-23 / H: 111-09)
Mar 30-Yr futures up 7/32 at 119-23 (L: 118-28 / H: 120-00)
Mar Ultra futures up 14/32 at 127-20 (L: 126-12 / H: 128-01)
MNI US 10YR FUTURE TECHS: (H5) Resistance Remains Exposed
- RES 4: 112-31 High Oct 16 and a key short-term resistance
- RES 3: 111-26 High Oct 22
- RES 2: 111-13+ 50-day EMA
- RES 1: 111-09 High Dec 02
- PRICE: 111-06+ @ 16:49 GMT Dec 2
- SUP 1: 110-01/109-20 Low Nov 25 / Low Nov 20/21
- SUP 2: 109-02+ Low Nov 15 and the bear trigger
- SUP 3: 108-28 1.236 proj of the Oct 1 - 14 - 16 price swing
- SUP 4: 108-12+ 1.382 proj of the Oct 1 - 14 - 16 price swing
Treasuries traded higher last week - a correction - and the contract is holding on to the bulk of its latest gains. Price has cleared the 20-day EMA and sights are on the 50-day EMA, at 111-13+. This EMA marks the next important resistance, a clear break of it would signal scope for a stronger recovery near-term. For bears, a reversal lower would highlight the end of the correction and open the bear trigger at 109-02+, the Nov 15 low.
SOFR FUTURES CLOSE
Dec 24 +0.025 at 95.598
Mar 25 +0.005 at 95.80
Jun 25 +0.010 at 95.985
Sep 25 +0.005 at 96.115
Red Pack (Dec 25-Sep 26) steady
Green Pack (Dec 26-Sep 27) steady to +0.005
Blue Pack (Dec 27-Sep 28) -0.005 to steady
Gold Pack (Dec 28-Sep 29) -0.01 to -0.005
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00696 to 4.52397 (-0.05757 total last wk)
- 3M -0.00148 to 4.46472 (-0.05474 total last wk)
- 6M -0.00819 to 4.37540 (-0.05357 total last wk)
- 12M -0.01959 to 4.23430 (-0.04569 total last wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.59% (+0.02), volume: $2.209T
- Broad General Collateral Rate (BGCR): 4.58% (+0.02), volume: $773B
- Tri-Party General Collateral Rate (TGCR): 4.58% (+0.02), volume: $750B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $95B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $254B
FED Reverse Repo Operation Falls to New Low
RRP usage falls to new multi year low of $135.858B this afternoon from $197.627B on Friday. Compares to prior low of $144.243B on Tuesday, November 5 - last seen on May 6, 2021. The number of counterparties drops to 56 from 67 prior.
MNI PIPELINE: Corporate Debt Issuance Update
- Date $MM Issuer (Priced *, Launch #)
- 12/02 $2.2B #Nigeria $700M 6.5Y 9.625%, $1.5B 10Y 10.375%
- 12/02 $1.8B #Cencora $500M 3Y +55, $600M 5Y +77, $700M 10Y +97
- 12/02 $1B *Santander UK 3Y SOFR+60
- 12/02 $700M #Jersey Central Power & Light 10Y +95
- 12/02 $650M #New York Life 5Y +52
- 12/02 $600M #Georgia Power +5Y +52
- 12/02 $500M #American Homes 4 Rent 10Y +112.5
- 12/02 $500M #Evergy 30.5NC5.25 6.65%
- 12/02 $Benchmark Blackstone 10Y +85
- 12/02 $Benchmark Ally Financial 6NC5 +145, 15NC10 +245
- 12/02 $Benchmark CVS investor calls
MNI BONDS: EGBs-GILTS CASH CLOSE: OAT Underperformance Continues
French political risk remained the dominant theme in EGBs Monday, with OAT underperformance continuing.
- The 10Y OAT/Bund spread rose over 7bp to 88bp, a fresh post-2012 closing high, with the government facing no confidence motions after PM Barnier said it will attempt to force through its social security bill without a vote.
- The spread closed 7bp above the session's lows which were reached in early trade, as it looked like a no confidence vote could be averted after government fiscal concessions to the far-right.
- Implied market pricing for a 50bp ECB cut next week pulled back by around 2bp (to 30bp), with Bunds gaining fairly steady throughout the session.
- Gilts traded without clear direction, closing with a decent rally (mirroring Treasuries, rather than any local developments) to avoid losses for the day but still leaving UK instruments underperforming German counterparts.
- The UK curve bull flattened, with the German belly outperforming on the curve. The French sell-off spilled over into periphery EGBs, though OATs were still the underperformer overall.
- Tuesday's calendar includes Spanish labour market data and ECB speakers (Cipollone, Panetta), with some attention on Swiss CPI.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 5.2bps at 1.899%, 5-Yr is down 5.8bps at 1.868%, 10-Yr is down 5.4bps at 2.034%, and 30-Yr is down 5.4bps at 2.271%.
- UK: The 2-Yr yield is down 2.6bps at 4.208%, 5-Yr is down 2.5bps at 4.069%, 10-Yr is down 3bps at 4.212%, and 30-Yr is down 1.8bps at 4.733%.
- Italian BTP spread up 4.4bps at 123.2bps / French OAT up 7.6bps at 88.2bps
MNI FOREX: EURJPY Sinks Below 158.00, USDCNH Approaches 7.30
- USD/CNH rose to a fresh four month high of 7.2956 on Monday, narrowing in on 7.30 and the 2024 highs at 7.3114. Broader USD gains are being supported by a higher US yield backdrop, while China yields continue to track lower, with the 10yr residing below 2.00% at fresh multi decade lows. In the process, the pair has risen above downtrend resistance drawn from the 2023 highs, which may have exacerbated the price action to start the week.
- Expectations for central bank policy rate convergence is particularly weighing on cross/JPY today, with the well-known French political risks adding to the lingering concerns in Germany, both fuelling outside expectations that the ECB could cut rates by more than 25bp on December 12.
- EURJPY is down 0.85% on the session as we approach the APAC crossover, which extends the post US election pullback to as much as 5.40%. We have broken below trendline support drawn from the 2022 lows, which could signal scope more a more protracted move lower. The Sep 16 low at 155.15 represents a key support and below here, a cluster of daily lows between 154.46 and 153.27 will be targets.
- For USDJPY, the pair broke lower in late trade on Monday, extending below the 149.50 lows to closely match support at 149.09, the Oct 21 low, before recovering around 70 pips.
- Elsewhere, most other G10 majors have strengthened in line with the broader USD index adjustment, with EURUSD looking set to close back below 1.0500. The medium-term trend direction is down. A stronger reversal lower would refocus attention on the bear trigger at 1.0335, the Nov 22 low.
- Swiss inflation data and US JOLTS job openings highlight the data calendar on Tuesday.
TUESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 03/12/2024 | 0700/0200 | * |  TR | Turkey CPI |
| 03/12/2024 | 0730/0830 | *** |  CH | CPI |
| 03/12/2024 | 0800/0900 |  EU | ECB's Cipollone at GeoEconomy Talk | |
| 03/12/2024 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 03/12/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 03/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS jobs opening level |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS quits Rate |
| 03/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 03/12/2024 | 1735/1235 | US | Fed Governor Adriana Kugler | |
| 03/12/2024 | 1830/1330 | US | Chicago Fed's Austan Goolsbee | |
| 03/12/2024 | 2045/1545 | US | Chicago Fed's Austan Goolsbee | |
| 04/12/2024 | 2200/0900 | * |  AU | S&P Global Final Australia Services PMI |
| 04/12/2024 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |
| 04/12/2024 | 0030/1130 | *** | AU | Quarterly GDP |
| 04/12/2024 | 0030/0930 | ** |  JP | S&P Global Final Japan Services PMI |
| 04/12/2024 | 0030/0930 | ** | JP | S&P Global Final Japan Composite PMI |
| 04/12/2024 | 0145/0945 | ** |  CN | S&P Global Final China Services PMI |
| 04/12/2024 | 0145/0945 | ** | CN | S&P Global Final China Composite PMI |