US TSYS: Curve Resolves Bear Steeper As Implications Of Strong Data Digested
The Treasury curve bear steepened for the first time early October, as economic data continued to portray an economy that is stronger than expected.
- The curve initially leaned bear flattened with the belly underperforming as September retail sales came were stronger than expected, with the 0.7% control group reading (vs 0.3% survey) resulting in an Atlanta Fed GDPNow upgrade to 3.4% for Q3 growth vs 3.2% prior.
- Meanwhile Initial jobless claims (241k) were elevated by 2024 standards but below the 259k expected and allayed some concerns over the prior week's spike.
- Futures volumes spiked (188k TY traded, most on a data release since initial jobless claims a week ago).
- While the ECB's decision to cut rates as expected, rising pricing for an outsized cut in December buoyed the Euro short-end, helping keep its US counterpart relatively anchored in the face of the strong US data.
- The result was that the curve closed bear steeper for the first time since Oct 3: 2Y yields rose 3bp from the point of the data release to the close, having been up 5bp, while 10Y yields rose 6bp.
- Dec 10-Yr futures (TY) are last down 14/32 at 112-03 (L: 112-0 / H: 112-18). In cash, the 2-Yr yield is up 3.6bps at 3.974%, 5-Yr is up 5.5bps at 3.8988%, 10-Yr is up 7.6bps at 4.0886%, and 30-Yr is up 9.3bps at 4.3885%.
- Friday's data schedule is a little less eventful, with housing starts/building permits featuring. We get plenty of Fed speakers though, including Bostic, Kashkari, Waller, and Bostic.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
Repo/EFFR Rate Run: SOFR Set To Tick Up After Lull Last Week
Repo and effective Fed funds rates were little changed Friday (no data released Monday due to holiday). For Tuesday, SOFR is set to pick up 2bp to 4.83% due to "the settlement of the Treasury’s mid-month coupon auctions along with the regular Tuesday bill issues", per Wrightson ICAP - though on Wednesday they should subside again.
- Wrightson ICAP also believe that due to Treasury coupon settlements (3-/10-30Y Tsy auctions), demand for overnight financing will ramp up today, meaning ON RRP takeup will fall below $300B today (was $331.7B prior), which would mark the first time that's happened since Sept 17.
REPO REFERENCE RATES (rate, change from prev. day, volume - for Oct 11)
- Secured Overnight Financing Rate (SOFR): 4.81%, -0.01%, $2058B
- Broad General Collateral Rate (BGCR): 4.81%, no change, $805B
- Tri-Party General Collateral Rate (TGCR): 4.81%, no change, $772B
New York Fed EFFR for prior session (rate for Oct 11, chg from prev day):
- Daily Effective Fed Funds Rate: 4.83%, no change, volume: $94B
- Daily Overnight Bank Funding Rate: 4.83%, no change, volume: $246B
ON RRP Takeup Declines Again, Could Stabilize On GSEs
Takeup of the NY Fed's overnight reverse repo facility fell for a 3rd consecutive session to $262.2B, That compares to $331.7B at the end of last week, and the quarter/month-end peak of $465.6B on September 30.
The decline this month in ON RRP takeup is expected to slow and potentially reverse in coming sessions: one key factor is the expected regular influx of cash in the next week from the Government Sponsored Enterprises (Fannie and Freddie).
US: SOFR FIX - 17/10/24 - Source BBG/CME
- 1M 4.75915 -0.02174
- 3M 4.61740 -0.01495
- 6M 4.41536 -0.01646
- 12M 4.08911 -0.02099
US SOFR/TREASURY OPTION SUMMARY
Thursday's US rates/bond options flow included:
- SFRX4 95.56/95.43ps, bought for 2.75 in 2.5k.
- SFRZ4 95.62/95.50ps bought for 4.75 in 6k.
- SFRM597.50c, bought for 8 in 5k
- SFRZ4 95.68/95.81/95.93c fly bought for 1.75 in 1k.
- SFRG5 96.00/95.87/95.62p condor, bought for 2.75 in 2.5k.
- SFRZ5 97.00/96.50/96.00p ladder sold at 2.5 in 2k.
- SFRF5 95.81/95.68/95.43p fly 2x3x1, bought for 4 in 5k.
- SFRF5 95.37/96.32^^ sold at 11 in 5k.
- SFRH5 96.62/97.15 vs 2QH5 97.37/97.87cs, bought the front for 0.25 in 2k.
- SFRM5 97.50/98.00cs sold at 3.5 in 6.5k.
- SFRM5 96.25/96.50cs vs 2QM5 97.00/97.25cs, bought the front for 3.75 in 8k total
- USZ4 116p, bought for '35 in 2.5k
BONDS: EGBs-GILTS CASH CLOSE: Curves Steepen As ECB 50bp Cut Seen In Play
European curves steepened Thursday as the ECB cut rates as expected but strong US economic data put pressure on the long end of the curve.
- The ECB decision (25bp cut) and press conference itself brought few surprises, with Lagarde noncommittal on future decisions. The usual post-meeting Bloomberg and Reuters sources stories pointed to another cut in December as likely.
- For markets, judging from implied rates, the debate is over whether it will be 25bp or 50bp (the latter now ~16% priced vs zero pre-meeting).
- That kept the short-end underpinned, even as much-stronger-than-expected US retail sales (and improved initial jobless claims) applied pressure on long-end Treasuries which spilled over globally.
- On the day, the German curve twist steepened, with the UK's bear steepening.
- Periphery EGB spreads tightened on the increasingly dovish implied ECB rate outlook.
- Unscheduled ECB Governing Council member comments will be awaited over the next day - otherwise, on the schedule, UK retail sales data features Friday.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.4bps at 2.146%, 5-Yr is up 0.8bps at 2.05%, 10-Yr is up 2.4bps at 2.208%, and 30-Yr is up 4.4bps at 2.523%.
- UK: The 2-Yr yield is up 1.2bps at 4.031%, 5-Yr is up 2bps at 3.946%, 10-Yr is up 2.5bps at 4.089%, and 30-Yr is up 2.3bps at 4.615%.
- Italian BTP spread down 2.1bps at 120.5bps / Spanish down 1.3bps at 70.7bps
EUROPE OPTIONS: Heavy Trade Across Sonia And Euribor On ECB Day
Thursday's Europe rates/bond options flow included:
- DUZ4 107.00/107.30cs 1x2, sold at flat in 10k
- RXZ4 140/143cs, bought for 3 in 2k.
- ERX4 97.00/96.87ps, bought for 1.25 in 4k.
- ERX4 97.25/97.37/97.50c fly, bought for 0.75 in 6k.
- ERZ4 97.25c, bought for 3 in 5k.
- ERF5 97.62/97.50ps, bought for 4.75 in 10k.
- ERF5 97.50/97.62/97.75c fly, bought for 2.75 in 1.5k. That's 7.5k total for 2.50 and 2.75.
- ERM5 98.00/98.25cs vs 97.75/97.62ps, bought the cs for 3.25 in 2k.
- ERU5 97.75/97.875/98.375/98.50c condor vs 97.125p, bought the Condor for flat in 3k.
- SFIX4 95.40/95.50/95.65/95.75c condor sold at 6.5 in ~5.7k
- SFIF5 96.00/96.20/96.30c fly, bought for 4.5 in 5k
FOREX: USD Index Extends October Rally to 3%, USDJPY Back Above 150.00
- The dollar index has firmed again today, extending its impressive rally across October to 3%. The greenback was underpinned by firmer-than-expected US retail sales data and below consensus initial jobless claims which has notably boosted USDJPY back above the 150.00 handle, to highs of 150.30.
- The recent break of the 50-day EMA, marks a bullish development that undermines a bearish theme and highlights a stronger reversal. Sights are on 150.76, the 50% retracement of the Jul 3 - Sep 16 bear leg.
- Elsewhere, the ECB rate cut and press conference closely matched expectations which has allowed the Euro’s bearish momentum to continue during today’s session. EURUSD fell as low as 1.0811, extending the move below initial support and narrowing the gap to both the 1.0800 mark and 1.0778, the Aug 1 low, and next key support.
- Euro weakness was broad based, with EURGBP breaching the week’s low to reach a low of 0.8319, just 8 pips above key support at 0.8311, the lowest level for the cross since April 2022.
- EURAUD (-0.75%) is a standout underperformer on the session following the stronger-than-expected Australian employment data. The cross has now slipped below 1.6200 and markets will remain focused on the key medium-term inflection point at 1.6000.
- In emerging markets, USDMXN briefly rose above 20.00 and looks set to an impressive 4 day winning streak, which has seen the week’s range stretch to over 4%. Price action highlights a dominant uptrend and a continuation higher would expose key resistance and the bull trigger at 20.2181, the Aug 5 high.
- Friday’s focus will be on China activity data before UK retail sales figures for September and US building permits.
FX OPTIONS: Expiries for Oct18 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0770-75(E2.0bln), $1.0800(E1.1bln), $1.0850(E1.8bln), $1.0885(E825mln), $1.0935-50(E1.6bln), $1.0970-80(E1.6bln)
- USD/JPY: Y149.50($540mln), Y150.65($1.3bln), Y151.00($599mln)
- AUD/USD: $0.6800(A$730mln)
- USD/CAD: C$1.3595-10($1.3bln), C$1.3645-60($1.4bln), C$1.3715-20($1.1bln)
- USD/CNY: Cny7.2215($550mln)
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
- RES 1: 5927.25 Intraday high
- PRICE: 5903.00 @ 14:40 BST Oct 18
- SUP 1: 5799.11/5724.00 20-day EMA / Low Oct 2
- SUP 2: 5715.30 50-day EMA
- SUP 3: 5675.25 Low Sep 18
- SUP 4: 5658.00 Low Sep 13
S&P E-Minis trend conditions are unchanged and the outlook remains bullish. Recent gains 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 5799.11, the 20-day EMA.
COMMODITIES: Gold Rises To All-Time High, Iron Ore Slips On China Concerns
- Spot gold rose to a fresh all-time of $2,696.8 on Thursday as geopolitical tensions remained elevated amid news that Hamas leader Sinwar had been killed in Gaza.
- The yellow metal is currently up by 0.6% on the day at $2,690/oz, around resistance at $2,690.2, a Fibonacci projection.
- Above here, next resistance is seen at $2,720.5.
- Meanwhile, iron ore fell by 2.4% to a three-week low, a sign that investors doubt whether China’s latest moves to shore up the property market will do enough to boost construction activity and steel demand.
- Copper also declined by 0.9% to $433/lb, unwinding yesterday’s modest gain and bringing the red metal down to its lowest level since Sep 23.
- Copper futures remain in a short-term retracement mode, dipping back below the 50-day EMA at $436.66 today.
- A clear breach of this average would signal scope for a deeper retracement and open $415.93, a Fibonacci retracement point.
- Oil prices have gained moderately late in the session, with WTI Nov 24 currently up by 0.4% at $70.7/bbl.
- For WTI futures, a bearish extension would threaten the recent bullish theme and expose support at $66.33, the Oct 1 low.
| Date | GMT/Local | Impact | Country | Event |
| 18/10/2024 | 2330/0830 | *** |  JP | CPI |
| 18/10/2024 | 0200/1000 | *** |  CN | GDP |
| 18/10/2024 | 0200/1000 | *** | CN | Fixed-Asset Investment |
| 18/10/2024 | 0200/1000 | *** | CN | Retail Sales |
| 18/10/2024 | 0200/1000 | *** | CN | Industrial Output |
| 18/10/2024 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |
| 18/10/2024 | 0600/0800 | ** |  SE | Unemployment |
| 18/10/2024 | 0600/0700 | *** |  GB | Retail Sales |
| 18/10/2024 | 0800/1000 | ** |  EU | EZ Current Account |
| 18/10/2024 | 0900/1100 | ** | EU | Construction Production |
| 18/10/2024 | 1230/0830 | ** |  US | WASDE Weekly Import/Export |
| 18/10/2024 | 1230/0830 | *** | US | Housing Starts |
| 18/10/2024 | 1330/0930 | US | Atlanta Fed's Raphael Bostic | |
| 18/10/2024 | 1400/1000 | US | Minneapolis Fed's Neel Kashkari | |
| 18/10/2024 | 1610/1210 | US | Fed Governor Christopher Waller | |
| 18/10/2024 | 1630/1230 | US | Atlanta Fed's Raphael Bostic | |
| 18/10/2024 | 1800/1400 | ** | US | Treasury Budget |
| 21/10/2024 | 0600/0800 | ** |  DE | PPI |
| 21/10/2024 | - | EU | ECB's Lagarde and Cipollone participate in IMF/World Bank Meetings | |
| 21/10/2024 | 1255/0855 | US | Dallas Fed's Lorie Logan | |
| 21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 21/10/2024 | 1700/1300 | US | Minneapolis Fed's Neel Kashkari | |
| 21/10/2024 | 2105/1705 | US | Kansas City Fed's Jeff Schmid |