MNI ASIA MARKETS ANALYSIS: ECB Rate Cut Hopes Buoy Bonds

HIGHLIGHTS

• Treasuries see-sawed off lows Tuesday amid market speculation of path of futures ECB rate cuts. 
• ECB governing council member Centeno buoyed rates briefly this morning before markets discounted dovish comments.
• Short end bid returned in second half after ECB governing council member Villeroy also endorsed rate cuts, citing risk of undershooting 2% target.

MNI US TSYS: Short End Off Lows Amid ECB Rate Cut Hopes
Treasuries are running weaker but off midday lows after the bell amid ongoing speculation over forward ECB rate cut speculation. Rates traded weaker overnight after ECB officials saw market pricing of appr six consecutive cuts as overly aggressive.

• Bonds bounced briefly after Bank of Portugal Governor Centeno suggested a 50bp ECB cut was possible at upcoming meetings.
• Treasuries rebounded with Euribor after Bank of France Governor Francoise Villeroy said Tuesday that ECB rates should not be restrictive next year if the growth outlook remains sluggish and inflation is sustainably at the bank's target of 2%.
• "On our terminal rate, it’s obviously too early to tell. However if we are next year sustainably at 2% inflation, and with still a sluggish growth outlook in Europe, there won’t be any reasons for our monetary policy to remain restrictive, and for our rates to be above the neutral rate of interest", he said in New York.
• The Richmond Fed Manufacturing Survey composite manufacturing index rose to -14 in October, still indicating "slow" activity (per the survey) albeit up from -21 in September and a little stronger than the -14 expected, with shipments, new orders and employment all improving on the month.
• Current projected cuts recede vs. late Monday levels (*): Nov'24 cumulative -23.0bp (-22.0bp), Dec'24 -41.4bp (-40.5bp), Jan'25 -58.6bp (-58.1bp).

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
​​​​​​​
SOFR Benchmark Settlements:

• 1M -0.00128 to 4.74333 (-0.01573/wk)
• 3M +0.00850 to 4.63476 (+0.00313/wk)
• 6M +0.02024 to 4.45780 (+0.01409/wk)
• 12M +0.03617 to 4.15642 (+0.02411/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.82% (-0.02), volume: $2.322T
• Broad General Collateral Rate (BGCR): 4.81% (-0.01), volume: $818B
• Tri-Party General Collateral Rate (TGCR): 4.81% (-0.01), volume: $783B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $96B
• Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $258B

FED Reverse Repo Operation

RRP usage fell to new multi-year low (early May 2021) of $237.760B this afternoon from $261.044B prior. Compares to prior low of $239.386B on Monday September 16 2024. Number of counterparties at 60 from 59 prior.

US SOFR/TREASURY OPTION SUMMARY

Option desks reported better SOFR and Treasury put volumes on net Tuesday as underlying futures see-sawed off midday lows amid on/off ECB rate cut speculation. Current projected cuts recede vs. late Monday levels (*): Nov'24 cumulative -23.0bp (-22.0bp), Dec'24 -41.4bp (-40.5bp), Jan'25 -58.6bp (-58.1bp). Highlight trade includes:

SOFR Options:
+5,000 SFRJ5 95.62/95.87 put spds 6.25 ref 96.26
+10,000 SFRM5 95.87/96.00/96.12 put flys 1.0 ref 96.26
+5,000 0QZ4 95.37/95.50 put spds 0.375 ref 96.53
+8,000 SFRM5 97.12/97.50 call spds 4.5 ref 96.285
+30,000 SFRX4 95.06/95.31 put spds 0.5 ref 95.61
+15,000 SFRX4 96.00/96.25 call spds 0.5 95.605
Block, 15,000 SFRX4 96.12 calls, .75 ref 95.605
Block, 8,000 SFRM5 97.12/97.50 call spds 4.5 ref 96.275
+20,000 SFRZ4 95.62/95.68/95.87 call trees 0.25 ref 95.605
+35,000 SFRZ4 95.12 puts 0.5 ref 95.61
2,000 0QZ4 96.25/96.75 put spds ref 96.51
4,700 SFRZ5 94.62/95.62 put spds ref 96.51

Treasury Options: (Reminder, November options expire Friday)
2,000 TYZ4 115/115.5 call spds, 3 ref 111-18.5
2,000 TYX4 109.75/110.75 4x1 put spds
4,750 USZ4 110/114 put spds, 25
+13,000 TYF5 116 calls, 13
2,000 TYF5 112/114 1x2 call spds ref 111-22.5
5,100 TYX4 111 put vs. Wednesday weekly 111 put
1,500 FVZ4 109.25/110.25 put spds ref 107-29.75
Block/screen, 10,000 TYZ4 110.5/111 1x2 put spds (wrong way) 105
Block, 15,000 TYZ4 110.5/111.5 put spds 27
Block/screen, over 38,000 TYZ4 109.5/110.5/111.5 put flys, 8-9 
over 6,400 TYX4 112 puts, 46 ref 111-10
2,500 FVZ4 105/106 put spds ref 107-30.5
3,000 USZ4 109/112/115 put flys ref 118-05

MNI EGBS: Bund and Gilt Futures Scale Away From Highs

Bund and Gilt futures have pulled away from intraday highs, pressured by a renewed uptick in crude oil futures and the continued recovery in European/UK equities from lows.

• Bund futures are -33 ticks at 132.83. Highs of 133.14 were reached when Bank of Portugal Governor Centeno suggested a 50bp ECB cut was possible at upcoming meetings.
• However, the bid lacked follow-through, with the comments aligning with Centeno’s traditionally dovish leanings.
• ECB President Lagarde largely stuck to the October press conference script, and did not speculate on what it would take to cut by 50bps.
• The BTP/Bund spread is a little wider today at 123.5bps. Today’s 7/30-year syndication has priced, seeing strong demand across both lines.
• Gilt futures are -37 at 96.85. BoE Governor Bailey did not comment on monetary policy in his speech, while Greene’s rhetoric was in line with previous comments.
• The 10-year Gilt/Bund spread is little changed today at 185bps.
• Tomorrow’s EU and UK data calendar is light, leaving focus on Central Bank speakers once again.

MNI FOREX: USD Index Consolidates at Elevated Levels, EURUSD Testing 1.0800

• While the USD index operated within a relatively contained range on Tuesday, the consolidation at lofty levels is keeping the renewed greenback optimism a prominent dynamic across the fx space.
• There were mixed performances across the G10 currencies, and notably both the AUD (+0.38%) and NZD (+0.28%) have outperformed. An overnight bid for the antipodeans has been consolidated by a late bounce for major equity benchmarks.
• However, this has not been the case for either the Euro or the Japanese Yen, which have once again underperformed. The consolidation of greenback strength continues to pressure EURUSD, which is currently testing its most recent lows around the 1.08 handle.
• Yesterday, the pair failed in its attempt to retake the 200-dma resistance, which held well at 1.0872 in not just Asia-Pac trade - but also on intraday rallies across Thursday and Friday last week. The move down exposes 1.0778, the Aug 1 low and the next key support. Clearance of this level would strengthen a bearish theme and open 1.0746 (Fibonacci retracement) and 1.0710, the Jul 2 low.
• USDJPY maintains a bullish technical tone having extended the rally above the 50-day EMA to reach as high as 151.20 today. Price action highlights a stronger reversal and sights are now on 151.94, the Jul 25 low. The move higher also sets the scene for an extension towards 153.40, the 61.8% retracement point of the downleg posted off the July 3rd high. Initial firm support to watch moves up to 147.42, the 50-day EMA.
• The Bank of Canada rate decision and press conference highlights the Wednesday calendar, while US Existing Home Sales will also cross. Speeches from the annual IMF meetings will also continue to be monitored.

FX OPTIONS: Expiries for Oct23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0780-85(E564mln), $1.0850(E1.9bln), $1.0895-05(E1.5bln)
• AUD/USD: $0.6655-75(A$2.1bln), $0.6740-50(A$599mln)
• USD/CAD: C$1.3755-60($848mln)
• USD/CNY: Cny7.1500($647mln)

MNI US STOCKS: Earnings Giveth and Takes Away
Stocks are trading mildly higher for the most part late Tuesday, bouncing off early session lows after some sharp moves in individual stocks following earning's announcements. Currently, the Dow trades up 38.14 points (0.09%) at 42970.33, S&P E-Minis down 1.75 points (-0.03%) at 5895, Nasdaq up 37.2 points (0.2%) at 18576.68.

• Industrials and Materials sectors underperformed in the first half, capital goods weighing on the former while construction related shares weighed on the Materials sector.
• Laggers of note included: Genuine Parts -19.55% after missing earnings expectations citing weaker European and industrial sales; GE -8.8% after beating earnings slightly, but missing revenue; Nucor -5.5% tied to impairment charges on steel & materials sectors; Pulte Group -6.2%, beat estimates but gross margins narrowed.
• On the flipside, Consumer Staples and Energy sectors outperformed in the first half - food and tobacco shares supporting the former while equipment and services shares tempered Energy sector gains as rising crude prices (WTI +1.34 at 71.90) buoyed petrochemical stocks: paring Monday gains, Schlumberger -0.80%, while Baker Hughes trades -0.41%.
• Highlight gainers included Philip Morris +9.82% after reporting better than expected earnings as smokeless products accelerate sales, General Motors +10.38 after strong earnings and raised guidance, Quest Diagnostics +7.85%, Charter Communications +4.04%.
  
  
  MNI COMMODITIES: Safe Haven Demand Drives Gold To Fresh Record High, WTI Rallies
• Spot gold has extended its gains, with the yellow metal rising by another 1.0% to a fresh record high of $2,748/oz, as the approaching US election and ongoing geopolitical tensions continue to drive safe haven demand.
• Technicals for gold remain bullish, with sights on $2,767.1 and $2,785.3 next, Fibonacci projection points.
• Haven demand has also underpinned a 2.9% rally in silver today, to $34.8/oz, its highest level since October 2012.
• With bullish conditions remaining intact, the rally signals scope for an extension towards $35.167, a Fibonacci projection.
• Meanwhile, WTI crude has also rallied today, although it has eased back from the intraday high of $72.66/bbl.
• As the market remains on edge surrounding Israel’s retaliation on Iran, media reports suggest that Israel will not strike energy facilities.
• Al-Monitor is reporting that the US and Israel have come to a 'quiet understanding' that Israel will refrain from striking Iran's oil industry and nuclear facilities in return for Washington accelerating arms shipments.
• WTI Nov 24 is up 2.3% at $72.2/bbl.
• WTI futures have pierced initial resistance is at $72.07, the 50-day EMA, refocus attention on the key short-term resistance at $78.46, the Oct 8 high. Clearance of this level would resume to the recent uptrend.

WEDNESDAY DATA CALENDAR