MNI ASIA MARKETS ANALYSIS: Discounting Dovish ECB Tones

HIGHLIGHTS

• Treasuries continued to drift lower as global projected rate cuts cooled despite continued dovish tones from ECB speakers.
• The Bank of Canada cut interest rates by 50bp to 3.75%, the fourth consecutive cut widely expected.
• The Federal Reserve's Beige Book showed little change in economic activity, "inflation continued to moderate with selling prices reportedly increasing at a slight or modest pace in most districts."

MNI US TSYS: Tsy Ylds Resume Climb; Fed Beige Book: Little Change Economic Activity

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
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SOFR Benchmark Settlements:

• 1M -0.00574 to 4.73759 (-0.02147/wk)
• 3M -0.00889 to 4.62587 (-0.00576/wk)
• 6M -0.00294 to 4.45486 (+0.01115/wk)
• 12M +0.00919 to 4.16561 (+0.03330/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.83% (+0.01), volume: $2.226T
• Broad General Collateral Rate (BGCR): 4.82% (+0.01), volume: $811B
• Tri-Party General Collateral Rate (TGCR): 4.82% (+0.01), volume: $780B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $98B
• Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $250B

FED Reverse Repo Operation

RRP usage rebounds to $270.839 after falling to new multi-year low (early May 2021) of $237.760B yesterday. Number of counterparties surges to 84 from 60 prior.

US SOFR/TREASURY OPTION SUMMARY

Option desks reported mixed SOFR & Treasury flows Wednesday, some larger put spread unwinds and upside call buying fading the continued curve flattening retreat in underlying futures. Current projected rate cuts have retreated from this morning's levels (*): Nov'24 cumulative -22.3bp (-23.0bp), Dec'24 -41.0bp (-41.4bp), Jan'25 -57.1bp (-57.6bp). Highlight trade includes:

SOFR Options:
+40,000 SFRM5 97.75/98.75 call spds 4.0 ref 96.21
Block, 6,500 0QZ4 96.50/96.62/96.75 1x3x2 put flys, 0.0 net ref 96.46
-5,000 SFRH5 95.37/96.62 strangles 11.25 ref 95.96
+30,000 SFRZ4 94.75/95.25 strangles, 37.0 vs. 95.61/0.96-100.0% (unwind of sale at 69.0 to 63.5)
Block, -5,250 0QM5/3QM5 96.00 put spds, 3.0
Block, +5,500 SFRM5 96.50/97.00 call spds 2.5 over 2QM5 97.00/97.50 call spds
-8,000 SFRZ4 95.62 calls cvrd vs SFRH5 96.25 calls cvrd, 6.0
-10,000 SFRZ5 95.56/95.68/95.75/96.81 put condors, 1.0 ref 95.605
2,520 3QH5 97.25/97.50 call spds ref 96.38
1,500 SFRF5 95.62/95.75 put spds ref 95.96
2,000 SFRZ4 95.25/95.37/95.50/95.62 call condors ref 95.60

Treasury Options: Reminder, November options expire Friday
20,000 TYZ4 114.5/118 2x1 call spds, 16 net ref 111-04
2,500 TYF5 109/110 put spds ref 111-11.5
-10,000 wk1 TY 109.75/110.25/110.75 put flys, 3
4,000 Wednesday wkly TY 110.75 puts, 17 ref 111-00
2,500 TUZ4 102.5/103.87 strangles 
+5,000 TYX4/wk1 TY 110.5 put spds 17, ref 111-02.5, midcurve over
18,800 Wednesday wkly 30Y 115.5/122.5 strangles ref 117-30 expire today
4,500 USZ4 116 puts, 120 ref 118-06 to -05
4,300 TYX4 109 puts ref 111-05.5
+5,600 Wednesday wkly 10Y 111/111.5 strangles, 34 expire Oct 30
-4,500 TYX4 111.5 calls vs. 2,250 TYX4 110.5/110.75 put strip, 8 net package ref 111-07/0.97%
-2,500 TYF5 109/110 put spds 17 ref 111-11.5
+5,000 USZ4 112/128 strangles 30 ref 118-08 to -07
1,500 USZ4 108/114 2x1 put spds ref 118-04
 
EGBS

MNI BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform Gilts On Easier ECB Outlook
EGB curves bull steepened sharply Wednesday in anticipation of increasingly aggressive ECB easing.

• Pricing for a 50bp ECB cut in December neared 50/50 implied probability (~45%), vs 20% Tuesday morning, though this faded to around 38% at the time of the bond cash close. The profile through March implied 9bp of additional cumulative cuts, to 91bp including 65bp through January.
• The additional pricing-in of cuts came following a Reuters sources story suggesting policymakers have begun to debate if weak economic growth warrants rates being cut below neutral levels.
• Bunds easily outperformed Gilts on the day, with yields higher across the UK curve, focused in the belly.
• EGB periphery spreads tightened on the lower ECB rate outlook, with BTPs outperforming.
• Thursday's European data highlight is the October flash PMI round, after September's soft readings.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 7.4bps at 2.103%, 5-Yr is down 3.1bps at 2.113%, 10-Yr is down 1.4bps at 2.304%, and 30-Yr is down 0.3bps at 2.625%.
• UK: The 2-Yr yield is up 2.3bps at 4.094%, 5-Yr is up 4.3bps at 4.039%, 10-Yr is up 3.4bps at 4.2%, and 30-Yr is up 2.3bps at 4.731%.
• Italian BTP spread down 2.8bps at 121.6bps / Spanish down 1.9bps at 69.9bps

MNI OPTIONS: Heavy Euribor Options Flow Targets Lower ECB Rates

Wednesday's Europe rates/bond options flow included:

• DUX4 107.1/107.2/107.3c fly, bought for 1.5 in 2.5k.
• ERX4 97.25/97.12/97.00p fly sold at 4.25 in 10.5k.
• ERZ4 97.37/97.50cs, bought for 1.25 in 10.5k total.
• ERZ4 97.12/97.25/97.37c fly, sold at 1.75 in 4k.
• ERZ4 97.25/97.50/97.75c fly, bought for 5.75 in 5k.
• ERZ4 97.37/97.50cs, bought for 1.25 and up to 2 in 5k.
• ERF5 98.12/98.25cs, bought for 1 in 10k.
• ERF5 98.12/98.25 call spread paper paid 1.25 on 6K
• ERF5 97.87/98.00cs, bought for 3.5 in 11.5k.
• ERH5 97.87/98.12/98.37c fly, bought for 4 and 4.25 in 25.5k.
• ERH5 98.00/98.25cs, bought for 4.5 and 4.75 in 10k Total.
• ERH5 98.25/98.50/98.75c fly, bought for 1 in 1k.
• ERH5 97.37/97.75/98.12c fly, trades for 13.5 in 2k.
• ERH5 97.87/98.25/98.62c fly, bought for 5.5 in 5k.
• 0RZ4 98.50/99.00cs, bought for 2.75 in 10k.

MNI FOREX: USDJPY Surges Above 153.00 as Yields Continue to Climb

• USDJPY has rallied substantially on Thursday, advancing 1.15% to trade just below the 153.00 mark as we approach the APAC crossover. Fresh cycle highs of 153.19 have been printed, and price action further affirms the resumption of the uptrend that started Sep 16, underpinned by rising core yields.
• Initial resistance is at 153.40, the 61.8% retracement of the downleg posted off the July 3rd high. Above here, the most notable level is 155.22, the Jul 30 high.
• The Bank of Canada lowered its policy rate 50bps for the first time since the pandemic slump and said further reductions are likely needed without committing to any particular pace. USDCAD spiked very briefly to 1.3863 as the press conference began, however we have since faded back to pre-announcement levels at 1.3840.
• Both the trend outlook and positioning indicators remain bullish for USDCAD, and it is noteworthy that spot has recently traded through 1.3822, 76.4% retracement of the Aug 5 - Sep 25 bear leg. Above here, markets will focus on 1.3946, the Aug 5 high and the next key resistance. Initial firm support to watch lies at 1.3702, the 20-day EMA. A pullback would be considered corrective and allow an overbought condition to unwind.
• EURUSD has continued to trade with a downward bias, sinking further below 1.0800 in the process. The latest sell-off reinforces the bearish theme for EURUSD and sights are now on 1.0746, a Fibonacci retracement point and 1.0710, the Jul 2 low.
• Eurozone flash PMIs will highlight the European session on Thursday, providing the latest barometer for the strength of the Eurozone economy. US initial jobless claims, flash PMI and new home sales will be the focus on the US docket.

MNI OPTIONS: Expiries for Oct24 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0750-55(E2.3bln), $1.0775-85(E2.7bln), $1.0800-15(E1.8bln), $1.0850-69(E1.4bln), $1.0900(E1.7bln)
• USD/JPY: Y152.45-50($627mln)
• GBP/USD: $1.2900-05(Gbp613mln)
• EUR/GBP: Gbp0.8340(E580mln)
• AUD/USD: $0.6605(A$1.6bln), $0.6640-50(A$975mln)
• USD/CAD: C$1.3810($1.0bln), C$1.3925($586mln)
• NZD/USD: $0.6075-90(N$1.6bln)
• USD/CNY: Cny7.2000($1.1bln)

MNI US STOCKS: Trimming Losses Ahead Fresh Round of Corporate Earnings

• Stocks remain weaker late Wednesday, off second half lows as accounts pare shorts ahead a fresh round of corporate earnings after the close.
• A sampling of companies expected to announce after today's close include: Western Union, T-Mobile, Whirlpool Corp, O'Reilly Automotive, IBM, Lam Research Corp, Newmont, Tesla, United Rentals, Teradyne, Las Vegas Sands and Raymond James.
• Currently, the DJIA trades down 434.05 points (-1.01%) at 42489.79, S&P E-Minis down 61.5 points (-1.04%) at 5831.25, Nasdaq down 331 points (-1.8%) at 18242.23.
• Information Technology and Consumer Discretionary sectors continued to underperform after a wave of early earnings announcements from Hilton, Boston Scientific, AT&T, Evercore, Coca-Cola, General Dynamics, and Boeing to name a few.
• Headline laggers included Enphase -15.83% after reporting "challenging conditions in European markets" Tuesday, Seagate -8.19%, CoStar Group -6.93%, Old Dominion -5.96%. Of note, McDonalds trades -4.75% after an E.coli outbreak tied to the fast food purveyor's Quarter Pounder burger.
• Real Estate, Utility and Financial sector shares continued to lead gainers in the second half: Northern Trust +7.39%, Packaging Corp of America +5.46%, Smurfit WestRock +4.76% while AT&T gained 4.51%. 

MNI EQUITY TECHS: E-MINI S&P: (Z4) Trend Needle Points North

• RES 4: 6012.75 1.00 projection of the Aug 5 - Sep 3 - 6 price swing
• RES 3: 6000.00 Psychological handle
• RES 2: 5961.00 1.00 projection of the Sep 6 - 17 - 18 price swing
• RES 1: 5927.25 High Oct 17
• PRICE: 5832.75 @ 1535 ET Oct 23
• SUP 1: 5830.91/5742.01  20-and 50-day EMA values
• SUP 2: 5724.00 Low Oct 2
• SUP 3: 5675.25 Low Sep 18
• SUP 4: 5658.00 Low Sep 13

S&P E-Minis trend conditions are unchanged and signals remain bullish. The latest move lower is considered corrective. Recent fresh cycle highs confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Sights are on 5961.00, a Fibonacci projection. Initial support to watch is 5830.91, the 20-day EMA.

MNI COMMODITIES: Gold Pulls Back From Record High, WTI Falls Amid Stock Build
Spot gold has fallen by 1.3% to $2,714/oz on Wednesday, as the yellow metal has pulled back from the fresh record high of $2,758.5 it reached earlier in the session. Despite today’s profit taking, following the recent run-up in prices, analysts at Standard Chartered expect further gains in the coming weeks, with price averaging $2,800 in Q4, and $2,900 in Q1 2025.

• In terms of the technicals, the recent extension in gold reinforces the bullish theme. Sights are on $2,767.1 next, a Fibonacci projection point, ahead of the $2,800.0 handle.
• Firm support is at $2,666.4, the 20-day EMA.
• Silver has also pulled back from its highest level in 12 years today, with the precious metal falling by 3.7% to $33.6/oz.
• Bullish conditions in silver remain intact, with eyes on $35.167 next, a Fibonacci projection. Initial firm support lies at $32.112, the 20-day EMA.
• Meanwhile, WTI is headed for the close trading lower, with additional pressure during the day coming from EIA data showing a 5.47mn barrel build in US crude inventories.
• WTI Dec 24 is down by 1.2% at $70.9/bbl.
• For WTI futures, a bearish theme remains intact, with attention on $65.99, the Oct 1 low, and $64.16, the Sep 10 low and a key support. On the upside, key short-term resistance at $77.70, the Oct 8 high.

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