HIGHLIGHTS
- Treasuries look to finish mixed Tuesday, short end recovering slightly after heavy selling since last Friday's larger than expected September jobs gain and dip in unemployment rate, curves steeper but well off last week's highs.
- Focus now turns to Wednesday's FOMC minutes for September, CPI and PPI inflation measures on Thursday and Friday respectively.
- The slide in projected rate cuts into year end has stalled with levels approximating a 25bp cut in November and December.
MNI US TSYS: Curves Twist Steeper Ahead September FOMC Minutes, Inflation Data
- Treasuries are trading mixed after the bell, curves steeper with short end rates outperforming after much better selling since Friday's larger than expected September jobs gain and dip in the unemployment rate. The 2s10s curve is currently +2.810 at 5.639 - compared to just above 20.0 last week after briefly inverting early Monday.
- Post-jobs consolidation has stalled as markets await tomorrow's September FOMC minutes followed by CPI and PPI on Thursday and Friday respectively.
- While the vast majority of participants have since commented that they supported the half-point cut, the meeting decision brought the first dissent from a Fed governor (Bowman) since 2005, and it will be interesting to get a gauge of how many non-voting members also opposed the outsized rate reduction.
- Consensus sees core CPI at 0.2% M/M in September, although there is sizeable skew toward a higher outcome and our survey of unrounded estimates sees an average 0.26% M/M. That’s only slightly softer than the surprisingly solid 0.28% M/M in August, but the drivers should differ.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00512 to 4.82354 (-0.02204/wk)
- 3M +0.03927 to 4.67595 (+0.09197/ wk)
- 6M +0.07636 to 4.46820 (+0.18721/wk)
- 12M +0.11187 to 4.15975 (+0.29393/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.83% (+0.00), volume: $2.350T
- Broad General Collateral Rate (BGCR): 4.82% (+0.00), volume: $811B
- Tri-Party General Collateral Rate (TGCR): 4.82% (+0.00), volume: $773B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $86B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $222B
FED Reverse Repo Operation
RRP usage inches up to $325.355B this afternoon from $322.948B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties rises to 65 from 54.
US SOFR/TREASURY OPTION SUMMARY
Option desks continued to report better SOFR put trade on net, particularly on November expirys that cover the next FOMC policy announcement. Modest October positioning ahead Friday's expiration. Current Oct put/call ratios: SFRV4: 1.24, 0QV4: 2.0, 2QV4: 1.89, 3QV4: 1.04. Modest Tsy option volumes leaning towards 10Y calls. Underlying futures continue to trade mixed, short end firmer as curves recover slightly from post-NFP flattening. As a result, projected rate cuts gain slightly vs. late Monday (*): Nov'24 cumulative -22.7bp (-22bp), Dec'24 -50.5bp (-48.5bp), Jan'25 -70.4bp (-68.4bp).
SOFR Options:
+25,000 0QF4 95.87/96.12 put spds 3.75-4.00 ref 96.67
+7,500 SFRX4 95.50/95.62/95.75 put fly 2.75 ref 97.505
Block, +5,000 SFRZ4 95.75/95.87 put spds .25 over SFRX4 95.75/95.87 put spds
Block, Update 26,500 0QH5/3QH5 96.00 put spds, 0.5 net flattener
10,000 2QX4 96.37/96.62/97.50/97.75 put condors ref 96.66
4,000 0QH5 95.12/95.25/95.50 broken put flys
4,000 0QV4 96.50 puts ref 96.61
1,500 SFRV4 95.68/95.75 put spds vs. SFRX4 95.37/95.50 put spds
2,000 2QZ4 96.38/96.50/96.75 broken put flys ref 96.67
over 6,100 SFRZ4 95.81 calls ref 95.715
6,000 SFRX4 96.00/96.12 call spds ref 95.72
5,000 SFRX4 95.62/95.68/95.75 put flys, ref 95.73
6,000 SFRX4 95.06/95.50/95.68/95.75 broken put condor
1,280 SFRV4/SFRX4 95.25/95.50 put spd spd
Treasury Options:
2,000 FVX4 108.75/FVZ4 108.75 call spds 0.5 ref 108-18.75
5,000 wk3 FV 108/109 strangles 16.5 ref 108-18.75
10,000 TYX4 112 puts, 25 ref 112-14.5
+15,000 TYZ4 104.5 puts ref 112-13.5 to -11.5
1,400 TYX4 110.5/111.75 put spds vs. TYX4 113.25/114/115.75 broken call trees
2,000 TYX4 115.75 calls ref 112-16
10,200 Wednesday wkly 10Y 113 calls, 4 ref 112-22.5 to -21.5
EGBS
MNI BONDS: EGBs-GILTS CASH CLOSE: Tentative Stabilisation As ECB Cut Nears
European FI stabilized Tuesday after two consecutive weak sessions, with Gilts modestly outperforming Bunds.
- Short-ends/bellies outperformed on regional curves in steepening moves (Germany's lightly twist steepening, the UK's bull steepening), as equities sold off overnight on China economic stimulus disappointment.
- The early rally faded, though no single factor was evident. In data, German industrial production growth surprised to the upside, a development we had flagged was possible yesterday.
- Bundesbank President Nagel said he was “open” to an October cut, with the noted hawk's comment serving to confirm market pricing for next week's decision (still over 90% implied of a 25bp cut).
- Periphery EGBs started on the back foot in line with the initial risk-off cross-asset move, but spreads tightened as equities recovered from session lows.
- Wednesday's docket includes German trade data, and ECB commentary from Villeroy and Elderson.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.9bps at 2.228%, 5-Yr is down 2bps at 2.103%, 10-Yr is down 1.3bps at 2.243%, and 30-Yr is up 0.2bps at 2.538%.
- UK: The 2-Yr yield is down 2.9bps at 4.194%, 5-Yr is down 3bps at 4.072%, 10-Yr is down 2.4bps at 4.184%, and 30-Yr is down 1.4bps at 4.716%.
- Italian BTP spread down 1.5bps at 130.1bps / Spanish down 1.7bps at 74.9bps
MNI EGB OPTIONS: Rolls, Close-Outs, And Large Put Spreads Tuesday
Tuesday's Europe rates/bonds options flow included:
- RXZ4 135c vs RXX4 136c, bought the Dec for 60 in 7k (ref 133.64)
- OEX4 120.75c, sold at 5 and 4.5 in 5k
- OEX4 119.75/119.25ps, bought for 33.5 in 2.5k vs RXX4 134.5/132ps, sold at 110.5 in 1k.
- ERV4 97.25c, bought for 0.25 in 27k
- ERV4 97.12/97.25cs, sold at 0.75 in 12k
- ERM5 97.875/97.375ps 1x1.25, bought for 19 in 20k (ref 97.765, 27del)
- 0RX4 97.875/97.75 put spread paper pays 4.25 on 8K vs. ERZ5 97.955
- 0NZ4 96.50/96.70 call spread vs. 95.70 puts (vs. 96.23) paper paid 0.25 for the call spread on 4K
EQUITIES
MNI US STOCKS: Late Equities Roundup: Firmer Ahead FOMC Minutes
- Stocks are trading firmer, at or near late session highs as shorts covered ahead of Wednesday's FOMC minutes release for the September meeting, the CPI and PPI on Thursday and Friday respectively, and finally the start of the next equity earnings cycle that kicks off Friday with Bank of NY Mellon, Wells Fargo, JP Morgan and Blackrock.
- Currently, the Dow is trading up 112.97 points (0.27%) at 42067.92, S&P E-Minis up 49 points (0.85%) at 5793.5, Nasdaq up 223.9 points (1.2%) at 18147.9.
- Information Technology and Consumer Discretionary sectors continued to outperform in late trade, semiconductor stocks supporting the IT sector: Nvidia +3.79%, Intel +3.22% Broadcom +2.69%. Cruise lines actually led the Discretionary sector: Carnival Cruise +3.66%, Norwegian Cruise +2.69%, Royal Caribbean +2.39%.
- On the flipside, Energy and Materials sectors remained weaker in the second half with a sharp decline in crude prices (WTI -3.30 at 73.84) weighed on oil and gas shares: Marathon Oil -7.48%, Valero -4.79%, Phillips66 -3.88%. Meanwhile, weaker Gold (-28.19 at 2614.40) metals and mining shares traded weaker, Freeport-McMoRan -4.73%, Nucor -2.93%, Steel Dynamics -2.44%.
MNI US EARNINGS SCHEDULE - Banks Take Early Focus
Highlights:
- Earnings season informally begins this week with Pepsi's midweek report, before BlackRock, Wells Fargo and JP Morgan on Friday.
- Unfortunately for net interest margins, the Fed's first rate cut since the pandemic will have come too late in the quarter to provide any material relief for banks - leaving initial focus on FICC revenues and general cost reduction.
- Just over half of the S&P 500 by market cap will have reported by the end of October – although significant releases still cross through November, with NVIDIA scheduled for 21st November.
Full schedule for the quarter including timings, EPS & revenue expectations here: MNIUSEARNINGS081024.pdf
MNI EQUITY TECHS: E-MINI S&P: (Z4) Trend Needle Points North
- 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: 5788.00 @ 1401ET Oct 8
- SUP 1: 5736.55/5724.00 20-day EMA / Low Oct 2
- SUP 2: 5669.25 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 still appears to be a correction. Moving average studies are in a bull-mode setup, highlighting a dominant uptrend and positive market sentiment. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. Initial support to watch is 5736.55, the 20-day EMA. It has been pierced. Key support lies at 5669.25 the 50-day EMA.
MNI COMMODITIES: Crude, Precious Metals Slide As Geopolitical Tensions Ease
- Crude markets have lost ground today after media outlets reported that Hezbollah Deputy Secretary General endorsed a truce with Israel not explicitly tied to a ceasefire in Gaza.
- However, media reports suggest that Israel may not have completely ruled out targeting Iranian energy facilities.
- WTI Nov 24 is down by 4.5% at $73.7/bbl.
- For WTI futures, initial firm support to watch is at $71.41, the 20-day EMA.
- Spot gold has also fallen by 1.0% to $2,616/oz, a fifth consecutive loss, bringing the yellow metal to its lowest level since Sept 20.
- Analysts at Saxo Bank said the move mostly reflected an unravelling of geopolitical risk premium following the lack of an escalation in middle east tensions so far this week.
- Today’s move in gold has seen it pierce support at $2615.0, the 20-day EMA. A clear break of this would open $2,584.9, Sep 20 low.
- Silver has also fallen by 3.8% to $30.5/oz, narrowing the gap to firm support at $30.144, the 50-day EMA.
- Meanwhile, copper has fallen by 2.4% to $446/lb, amidst disappointment on Chinese stimulus prospects.
- For copper, key support is seen at $435.84, the 50-day EMA.
WEDNESDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 09/10/2024 | 0700 | ** | 04-Oct | MBA Mortgage Applications w/w | -1.3 | -- | % |
| 09/10/2024 | 1000 | ** | Aug | Wholesale Inventories m/m | 0.2 | 0.2 | % |
| 09/10/2024 | 1000 | ** | Aug | Wholesale Sales m/m | 1.1 | -- | % |
| 09/10/2024 | 1030 | ** | 04-Oct | Crude Oil Stocks ex. SPR w/w | -- | -- | bbl (m) |
| 09/10/2024 | 1030 | ** | 04-Oct | Distillate Stocks w/w change | -- | -- | bbl (m) |
| 09/10/2024 | 1030 | ** | 04-Oct | Gasoline Stocks w/w change | -- | -- | bbl (m) |
| 09/10/2024 | 1300 | ** | Oct | Bid to Cover Ratio | -- | -- |