- HIGHLIGHTS
Treasuries look to finish weaker but well off early session lows after larger than expected ADP private job gains were reported.
Little reaction to Richmond Fed President Barkin comments on dialing back restraint as inflation and unemployment near normal levels, but cautioned not to declare a victory on inflation. - Treasury curves bear steepened, 2s10s tapped 16.691 high compared to Monday's 7.819 low, while projected rate cut pricing stabilizes around -70bp by December.
- Focus turns to Weekly Claims, Factory/Durable Goods Orders and ISM Services on Thursday, followed by Friday's headline Non-Farm Payrolls for September.
US TSYS
US TSYS: Late Session Sell Pressure
- Treasuries and SOFR futures come under renewed selling in the last few minutes, still well off midmorning lows, however. Dec'24 10Y futures trade 114-14 last (-8) vs 114-07 low -- which happens to be the initial technical support (Sep 26 low) followed by 114-00.5 (Sep 4 low).
- Curves remain steeper (2s10s +2.063 at 14.375) but scaling back support amid some chunky selling in SOFR 1- and 3M futures: appr -15,000 SERX4 at 95.41, and 23,000 SFRZ4 at 95.975.
- SOFR White pack (SFRZ4-SFRU5) currently -0.010-0.025, while projected rate cuts continue to back off this morning's levels (*): Nov'24 cumulative -33.8bp (-34.4bp), Dec'24 -69.9bp (-70.5bp), Jan'25 -100.4bp (-101.9bp).
- Focus turns to Weekly Claims, Factory/Durable Goods Orders and ISM Services on Thursday, followed by Friday's headline Non-Farm Payrolls for September.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00701 to 4.85655 (+0.01245/wk)
- 3M -0.01129 to 4.59824 (+0.00489/wk)
- 6M -0.00140 to 4.284262(+0.02077/wk)
- 12M -0.00333 to 3.81791 (+0.03483/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 5.05% (+0.09), volume: $2.395T
- Broad General Collateral Rate (BGCR): 4.92% (+0.04), volume: $801B
- Tri-Party General Collateral Rate (TGCR): 4.92% (+0.04), volume: $771B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $85B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $206B
FED Reverse Repo Operation
RRP usage inches back up to $383.398B this afternoon from $375.221B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties at 67 from 58 prior.
US SOFR/TREASURY OPTION SUMMARY
Option desks reported mixed SOFR/Treasury option flow leaned towards puts as underlying futures gapped lower after larger than expected ADP jobs gains were reported. Better overall volumes and varied trade in SOFR options noted below while Treasury highlight trade was a buyer of over 60,000 wk2 FV midcurve puts that expire on Oct 11. SOFR White pack (SFRZ4-SFRU5) currently -0.010-0.025, while projected rate cuts continue to back off this morning's levels (*): Nov'24 cumulative -33.8bp (-34.4bp), Dec'24 -69.9bp (-70.5bp), Jan'25 -100.4bp (-101.9bp).
SOFR Options:
- +4,000 2QZ4 96.37/96.62/96.87 put flys 4.5 ref 96.97
- +6,000 2QM5 96.75/97.00 put over risk reversals, 0.0 vs. 96.905 to -.91/0.38%
- +8,000 SFRM4 95.50/96.00 2x1 put spds w/ 95.62/96.25 2x1 put spd, 8.0 ref 96.775
- +5,000 SFRZ4 95.93/96.00/96.06/96.12 call condor, 1.0 vs. 95.975/0.05%
- +6,000 SFRV4 SFRZ4 96.25/96.50 call spds 2.25 ref 95.96
- +7,000 0QV4 97.00/97.12 call spds, 5.5 vs. 97.03/0.17%
- +3,000 SFRV4 96.12/96.25 call spds, 1.25 vs. 95.95/0.10%
- -2,000 SFRZ4 95.75/95.93 7x2 put spds, 1.0 net ref 95.95
- 5,000 SFRH5 96.12/96.25/96.37 put flys ref 96.505
- 2,000 SFRF5 96.00/96.18 3x2 put spds ref 96.505 to -.51
- Block, 5,000 SFRV4 95.93/96.00 call spds, 2.75 ref 95.98
- Block, 3,676 SFRV4/SFRX4 96.12/96.25 call strip, 4.0 ref 95.98
- 2,000 SFRZ4 95.50/95.62 put spds ref 95.98
- 8,000 SFRV4 96.31/96.43 call spds ref 95.975
- 3,000 SFRX4 96.06/96.18/96.31 call spds
- Treasury Options:
- 4,000 TYZ4 111 puts, 12 ref 114-09.5
- 3,500 TYX4 115.5/116.5 call spds, 9 ref 114-09.5
- More wk2 FV 109 puts ov screen, 61k total
- Block, 58,000 wk2 FV 109 puts, 5.5 ref 109-30.5 (exp 10/11)
- 12,000 FVZ4 110.75/111.75/112.75 call flys ref 110-03.25
- 2,000 FVX4 110.5/111.0/111.5 2x1x1 call trees ref 110-02.25
EGBS
BONDS: EGBs-GILTS CASH CLOSE: Geopolitical Risk Premium Reversal
Bunds and Gilts retreated Wednesday, conceding most of Tuesday's late gains.
- Yields rose fairly steadily throughout the session, in an apparent unwinding of Tuesday's Israel-Iran geopolitical risk premium. Solid US private payrolls data weighed on the space in the afternoon, with heightened sensitivity ahead of Friday's US nonfarm payrolls report.
- Data was limited; Eurozone unemployment was in-line with expectations, though Spain saw a smaller-than-expected rise in unemployment.
- Both the UK and German curves bear steepened, with Gilts underperforming - exacerbated by a relatively soft 5Y auction.
- OATs outperformed (10Y/Bund -1.1bp), as more details of French fiscal tightening plans emerged including on sizeable spending cuts added to "temporary" tax raises.
- Periphery EGB spreads were little changed after some widening earlier in the session.
- A speech by ECB's Schnabel will be watched after the cash close for potential signals for an October cut (currently 95% priced - we go through the latest analyst expectations for the ECB rate path in our Eurozone Inflation Insight released today).
- Thursday's calendar is highlighted by the UK DMP data which has become one of the most watched releases for BoE MPC members looking at firms’ expectations for hiring, wage growth and price growth. We also get final September services PMIs.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 2bps at 2.04%, 5-Yr is up 4.6bps at 1.921%, 10-Yr is up 5.6bps at 2.092%, and 30-Yr is up 5.5bps at 2.416%.
- UK: The 2-Yr yield is up 6.2bps at 4.017%, 5-Yr is up 7.8bps at 3.895%, 10-Yr is up 8.4bps at 4.025%, and 30-Yr is up 8.1bps at 4.594%.
Italian BTP spread down 0.3bps at 132.9bps / Spanish down 0.5bps at 79.3bps
EGB OPTIONS: Large Euribor Call Structure Buying (And Unwinding) Wednesday
Wednesday's Europe rates/bond options flow included:
- DUX4 107.00/107.30/107.70 broken c fly, sold at 5.5 in 2.5k
- DUZ4 108.00/108.40cs sold at 4 in 2.6k
- OEZ4 119.75/120.75^^, bought for 105.5 in 3.75k
- RXX4 137/138cs, bought for 15 in 1k.and 17 in 3k (4k total).
- ERZ4 97.12/97.25/97.37c fly, bought for 2.5 in 22k total
- ERZ4 97.00/97.125cs 1x1.5 sold at 4.75 and 4.5 in 40k
- 0RH5 98.50/98.75cs, sold at 5 in 27k (said to be an unwind)
- SFIZ4 95.55/95.65/95.75c fly, bought for 1.5 in 3k
- SFIZ4 95.60/95.80cs, bought for 3.5 in 4k.
FOREX
FX OPTIONS: Expiries for Oct03 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0900(E1.3bln), $1.1000(E1.2bln), $1.1050-60(E2.6bln), $1.1070-80(E2.2bln), $1.1100(E2.6bln), $1.1150(E652mln), $1.1195-05(E1.1bln)
- USD/JPY: Y144.25-40($3.0bln)
- GBP/USD: $1.3130-40(Gbp600mln)
- AUD/USD: $0.6890-00(A$963mln)
- NZD/USD: $0.6310(A$1.4bln)
- AUD/NZD: N$1.0950-65(A$524mln), N$1.1000(A$530mln)
- USD/CAD: C$1.3550-55($1.2bln)
EQUITIES
US STOCKS: Late Equities Roundup: IT and Energy Lead Gainers
- Stocks cling to mildly higher levels late Wednesday, off this morning's lows as post-data tactical shorts covered ahead of Friday's employment report. Currently, the Dow is up 68.4 points (0.16%) at 42224.62, S&P E-Minis up 6 points (0.1%) at 5766, Nasdaq up 44.8 points (0.3%) at 17954.25.
- Semiconductor stocks continued to lead gainers in the IT sector amid continued AI demand (not to mention several dealer upgrades for chip makers in general): KLA Corp +3.34%, Monolithic Power +3.20%, Teradyne +2.88% while Lam Research gained 2.57%.
- Even though crude prices were well off early highs (WTI at 70.45 vs. 72.40 this morning), the ongoing tensions in the Mideast continued to support oil and gas shares: Williams Cos +2.03%, Diamondback Energy +1.46%, Devon Energy +1.23%.
- Conversely, Consumer Staples and Consumer Discretionary sectors continued to underperform the late trade. Food and beverage companied weighed on the Staples sector: Conagra Brands -8.0% after missing earnings on "challenging environment", while McCormick trades -3.16%.
- Automakers weighed on the Consumer Discretionary sector: Tesla -3.34% while Ford -2.37%.
EQUITY TECHS: E-MINI S&P: (Z4) MA Studies Highlight A Dominant Uptrend
- RES 4: 5900.00 Round number resistance
- RES 3: 5871.77 2.0% Upper Bollinger Band
- RES 2: 5868.50 1.00 proj of the Apr 19 - Jul 16 - Aug 5 price swing
- RES 1: 5830.00 High Sep 26
- PRICE: 5744.75 @ 07:17 BST Oct 2
- SUP 1: 5723.22 20-day EMA
- SUP 2: 5652.72 50-day EMA
- SUP 3: 5500.00 Round number support
- SUP 4: 5451.25 Low Sep 6 and a bear trigger
A bull cycle in S&P E-Minis remains intact and the latest shallow pullback is considered corrective. Last week’s fresh cycle highs reinforce a bullish theme and note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5723.22, the 20-day EMA. Key support lies at 5652.72, the 50-day EMA.
COMMODITIES
Crude Gives Up Early Gains, Spot Gold Consolidates
- Rising tensions in the Middle East supported oil early on Wednesday, but the market is still unsure how to price a geopolitical risk premium with no physical oil flows impacted.
- Meanwhile, a build in this week’s EIA report added the downward sentiment required to cause crude to reverse these earlier gains, sparking a sell-off later in the session.
- WTI Nov 24 is up 0.3% at $70.1/bbl.
- For WTI futures, resistance at the 50-day EMA, at $71.62, has been pierced. A clear breach of this EMA is required to highlight a stronger reversal that would open $76.40, the Aug 26 high.
- For bears, a reversal lower would refocus attention on the key support and bear trigger at $64.61, the Sep 10 low.
- Spot gold has edged down by 0.4% to $2,653/oz, as the yellow metal consolidates near last month’s record high of $2,685.
- Gold bulls remain in the driver’s seat and moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment.
- Focus remains on $2,690.2 next, a Fibonacci projection, while firm support lies at $2,602.0, the 20-day EMA.
- Meanwhile, copper has risen by another 1.3% today, to $465/lb.
- Key near-term resistance is seen at $479.00, Monday’s intraday high. A break of this level would mark a resumption of the uptrend. Key support is seen at $432.78, the 50-day EMA.
THURSDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 03/10/2024 | 0830 | *** | 28-Sep | Continuing Claims | 1834 | -- | (k) |
| 03/10/2024 | 0830 | *** | 28-Sep | Initial Jobless Claims | 218 | -- | (k) |
| 03/10/2024 | 0830 | *** | 28-Sep | Prev Continuing Claims, Rev | -- | -- | (k) |
| 03/10/2024 | 0830 | *** | 28-Sep | Prev Initial Jobless Claims, Rev | -- | -- | (k) |
| 03/10/2024 | 0830 | ** | 26-Sep | Corn Net Sales | -- | -- | MT (k) |
| 03/10/2024 | 0830 | ** | 26-Sep | Corn Weekly Exports | -- | -- | MT (k) |
| 03/10/2024 | 0830 | ** | 26-Sep | Soy Net Sales | -- | -- | MT (k) |
| 03/10/2024 | 0830 | ** | 26-Sep | Soy Weekly Exports | -- | -- | MT (k) |
| 03/10/2024 | 0830 | ** | 26-Sep | Wheat Net Sales | -- | -- | MT (k) |
| 03/10/2024 | 0830 | ** | 26-Sep | Wheat Weekly Exports | -- | -- | MT (k) |
| 03/10/2024 | 1000 | *** | Sep | ISM Services Employment Index | 50.2 | -- | |
| 03/10/2024 | 1000 | *** | Sep | ISM Services Index | 51.5 | 51.5 | |
| 03/10/2024 | 1000 | *** | Sep | ISM Services New Orders | 53.0 | -- | |
| 03/10/2024 | 1000 | *** | Sep | ISM Services Prices Index | 57.3 | -- | |
| 03/10/2024 | 1000 | ** | Aug | Durable Goods Orders (Final) | 9.8 | -- | % |
| 03/10/2024 | 1000 | ** | Aug | Factory New Orders | 5.0 | 0.10% | % |
| 03/10/2024 | 1000 | ** | Aug | Factory Orders ex-transport | 0.4 | -- | % |
| 03/10/2024 | 1000 | ** | Aug | Non-Defense Capital Goods New Orders ex Aircraft | -0.1 | -- | % |
| 03/10/2024 | 1030 | ** | 27-Sep | Natural Gas Stocks w/w | -- | -- | Bcf |
| 03/10/2024 | 1130 | ** | 04-Oct | Bid to Cover Ratio | -- | -- | |
| 03/10/2024 | 1130 | * | 04-Oct | Bid to Cover Ratio | -- | -- |
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