US TSYS: Soft Start To The Week, Though Waller Caution Fails To Weigh
Treasury futures pulled back Monday in generally risk-on but holiday-thinned trade.
- Early trade saw a continuation of recent reflationary trends, with TY futures weakening as the S&P hit all-time highs (cash was closed for holidays).
- Details of Chinese fiscal stimulus helped fuel that trade further mid-morning, with Treasuries coming off lows on geopolitical headlines (sirens sounding across Israel).
- With no US data on the calendar, Fed speakers took center-stage: while Minneapolis's Kashkari added little new to previous comments, Fed Gov Waller triggered an initial hawkish reaction with his call for "more caution" on the pace of rate cuts in contrast to his relative dovishness last month.
- The reaction was short-lived, however: Tsy futures soon rebounded, though the catalyst for the reversal was unclear: he spoke of multiple scenarios that could play out which basically didn't preclude any potential paths forward, and overall he noted "Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year."
- Dec 10-Yr futures (TY) last down 8/32 at 112-0 (L: 111-23 / H: 112-04); Dec 2-Yr futures (TU) down 2.375/32 at 103-12.875 (L: 103-10.5 / H: 103-14.5)
- Fed speakers Tuesday include SF's Daly, Gov Kugler, and Atlanta's Bostic.
- Tuesday's data docket is thin, with Oct Empire Manufacturing and NY Fed inflation expectations.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
No rate fixes/reference rate releases due to holidays
US SOFR/TREASURY OPTION SUMMARY
Monday's US rates/bond options flow included:
- SFRX4 95.68/95.56/95.12p fly, bought for 1.25 in 5k
- SFRX4 95.68/95.62/95.56p fly vs SFRZ4 95.31/95.06ps, bought the the fly for half in 10k total
- SFRZ4 95.68/95.81/95.93c fly, bought for 2 in 2k.
- SFRH5 96.93c sold at 5.5 in ~6.7k
- SFRJ5 95.87/95.62/95.50 broken p fly, bought for 4 in 10k Total
EGBs-GILTS CASH CLOSE: Modest Core Weakness As UK Data, ECB Loom
Core European yields rose modestly Monday, ahead of UK data and the ECB decision later in the week.
- In a session with limited drivers (and a US cash bond holiday), the afternoon saw opposing forces buffeting core FI in the form of China stimulus details (negative Gilts/Bunds) and Israel conflict flare-up (positive).
- Markets continue to price in well over 90% probability of a 25bp cut from the ECB this week - however, as our preview out today points out, communicating the motivation for such a move will not be straightforward (PDF here).
- On the day, the German curve bear flattened while the UK's bear steepened - both in relatively modest fashion versus the large swings in recent weeks.
- While French yields were little changed after Fitch lowered its rating to Negative from Stable after Friday's close, allowing for 1+bp spread narrowing to Bunds, Belgium underperformed on Moody's revision likewise to Negative (OLOs closed flat to Bund).
- EGB periphery spreads tightened, with BTPs and PGBs outperforming.
- The highlight early Tuesday will be UK labour market data (MNI preview here, including our outlook for Wednesday's CPI release which also looms large).
Closing Yields / 10-Yr Periphery EGB Spreads To Germany:
- Germany: The 2-Yr yield is up 2.2bps at 2.257%, 5-Yr is up 1.8bps at 2.137%, 10-Yr is up 1bps at 2.275%, and 30-Yr is up 0.2bps at 2.561%.
- UK: The 2-Yr yield is up 0.8bps at 4.179%, 5-Yr is up 1.2bps at 4.084%, 10-Yr is up 3.1bps at 4.238%, and 30-Yr is up 2.9bps at 4.778%.
- Italian BTP spread down 2.4bps at 127.1bps / Portuguese down 1.8bps at 49.3bps
EGB OPTIONS: Limited Trade In Rates Ahead Of UK Data, ECB Decision
Monday's Europe rates/bond options flow included:
- ERM5 97.87/98.12 call spread bought for 8.75 in 6k
- 2RZ4 9787/9762/9737 1x2x0.5 put fly + 9787/9812/9837 1x2x0.5 call fly strip, bought for 8.75 for 1k strips
- SFIX4 95.35/95.45/95.55c fly,. Bought for 3.25 in 2k
FOREX: USD Index Extends Recovery, Reaches Fresh 2-Month High
- Amid holiday thinned trade, the greenback has remained on the front-foot Monday, evidenced by the USD index rising 0.35% to fresh two-month highs, where we have been consolidating as we approach the APAC crossover.
- Latest CFTC data, indicative of currency positioning, has shown a reduction in dollar shorts and the DXY continues to be supported by less aggressive pricing for the terminal point of the Fed’s easing cycle. Dollar strength has been broad based, and most notable against the Swiss Franc and Japanese Yen.
- USDJPY broke above 149.50 mid session and has been steadily grinding towards 150.00. Recent gains resulted in a break of the 50-day EMA, a bullish development that undermines a recent bearish theme and highlights a stronger reversal. Sights are on 150.76, the 50% retracement of the Jul 3 - Sep 16 bear leg.
- While AUDUSD (-0.47%) has also been on the back foot, near-term momentum in positioning has actually bucked the trend and improved and weakness in xxx/AUD crosses could shield the pair from further sharp losses. EUR/AUD will print a death cross at today's close (50-dma < 200-dma), signalling S/T downside momentum in the price, assisted by the ongoing strength for major equity benchmarks.
- EURUSD has slipped below 1.0900 in late session trade, keeping the pairs bearish momentum intact, albeit at a slow pace. Further weakness below initial support at 1.0881 could signal scope for a deeper retracement towards 1.0778, the Aug 1 low and a key support.
- GBP (-0.11%) has proved more resilient ahead of key labour market data tomorrow and CPI figures Wednesday. Canada will also report their inflation data for September on Tuesday.
FX OPTIONS: Expiries for Oct15 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0850(E600mln), $1.0875(E504mln), $1.1000(E1.8bln)
- USD/JPY: Y149.70-90($1.4bln)
- AUD/USD: $0.6675(A$1.2bln), $0.6775(A$1.7bln), $0.6800(A$1.8bln)
- USD/CAD: C$1.3450($1.6bln), C$1.3590-10($1.3bln)
S&P TECHS: (Z4) Northbound
- RES 4: 6000.00 Psychological handle
- RES 3: 5961.00 1.00 proj of the Sep 6 - 17 - 18
- RES 2: 5900.00 Round number resistance
- RES 1: 5878.25 Intraday high
- PRICE: 5874.50 @ 14:31 BST Oct 14
- SUP 1: 5768.92/5724.00 20-day EMA / Low Oct 2
- SUP 2: 5693.38 50-day EMA
- SUP 3: 5675.25 Low Sep 18
- SUP 4: 5658.00 Low Sep 13
A bull cycle in S&P E-Minis remains intact and last week’s gains reinforce this condition. Price has traded to fresh all-time highs, once again, confirming a resumption of the primary uptrend. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend and positive market sentiment. Sights are on the 5900.00. Initial support to watch is 5768.92, the 20-day EMA. It has been pierced. Key support lies at 5693.38 the 50-day EMA.
COMMODITIES: Crude Loses Ground, Henry Hub Falls, Copper Pulls Back
- WTI is losing ground today following Saturday’s disappointing China Finance Ministry fiscal announcement, OPEC+’s further downward revision for global demand, and with escalation in the Middle East yet to impact supply.
- WTI Nov 24 is down 2.2% at $73.9/bbl.
- OPEC has cut its global oil demand growth forecast for a third straight month by a further 0.1m b/d to 1.93m b/d.
- For WTI futures, short-term weakness is considered corrective for now, and recent gains suggest potential for a continuation higher near-term. Attention is on $77.40, the 76.4% retracement of the Jul 5 - Sep 10 bear leg.
- On the downside, initial firm support to watch is $72.50, the 20-day EMA.
- Henry Hub front month futures are continuing the pull back ongoing since Oct 4 with power disruption in Florida due to Hurricane Milton last week adding to a warm weather forecast for late Oct.
- US Natgas Nov 24 is down 5.4% at $2.49/mmbtu.
- Meanwhile, copper has fallen by 2.1% to $440/lb amid disappointment over the lack of details on Chinese fiscal stimulus.
- Copper futures remain in a short-term retracement mode, which for now is considered corrective. Key support is seen at $436.91, the 50-day EMA. A break would signal scope for a deeper retracement.
| Date | GMT/Local | Impact | Country | Event |
| 14/10/2024 | 2100/1700 |  US | Minneapolis Fed's Neel Kashkari | |
| 15/10/2024 | 0430/1330 | ** |  JP | Industrial Production |
| 15/10/2024 | 0600/0800 | *** |  SE | Inflation Report |
| 15/10/2024 | 0600/0700 | *** |  GB | Labour Market Survey |
| 15/10/2024 | 0645/0845 | *** |  FR | HICP (f) |
| 15/10/2024 | 0700/0900 | *** |  ES | HICP (f) |
| 15/10/2024 | 0800/1000 | ** |  EU | ECB Bank Lending Survey |
| 15/10/2024 | 0900/1100 | *** |  DE | ZEW Current Conditions Index |
| 15/10/2024 | 0900/1100 | *** | DE | ZEW Current Expectations Index |
| 15/10/2024 | 0900/1100 | ** | EU | Industrial Production |
| 15/10/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 15/10/2024 | 1230/0830 | *** |  CA | CPI |
| 15/10/2024 | 1230/0830 | ** | CA | Wholesale Trade |
| 15/10/2024 | 1230/0830 | ** | US | Empire State Manufacturing Survey |
| 15/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 15/10/2024 | 1300/0900 | * | CA | CREA Existing Home Sales |
| 15/10/2024 | 1500/1100 | ** | US | NY Fed Survey of Consumer Expectations |
| 15/10/2024 | 1530/1130 | US | San Francisco Fed's Mary Daly | |
| 15/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 15/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 15/10/2024 | 1700/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 15/10/2024 | 1700/1300 | US | Fed Governor Adriana Kugler | |
| 16/10/2024 | 2145/1045 | *** |  NZ | CPI inflation quarterly |
| 15/10/2024 | 2300/1900 | US | Atlanta Fed's Raphael Bostic | |
| 16/10/2024 | 2350/0850 | * | JP | Machinery orders |
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