HIGHLIGHTS
- Treasuries looked to finish near late session highs, gaining initial support after this morning's lower than expected ADP and ISM Services data.
- Fed Chairman Powell noted the current strength in the US economy, it is far from fiscal dominance and reiterated the Fed can be patient in finding neutral.
- Little reaction to the National Assembly's vote of no-confidence in the French government (with 331 votes versus the 288 required).
MNI US TSYS: Tsys Up on Lower Than Expected ADP Jobs, ISM Services, Powell Patient
- A flurry of early Wednesday data helped set the stage for renewed support in Treasuries: lower than expected ADP jobs gains and ISM Services data underpinned rates in the first half.
- Federal Reserve Chair Jerome Powell said the Fed is on a path to bring interest rates back down to a more neutral level over time but because the economy appears stronger than previously thought it can move more cautiously in Q&A at a New York Times DealBook Summit.
- Nevertheless, projected rate cuts into early 2025 continued to gain, current levels vs. this morning's (*) as follows: Dec'24 cumulative -18.9bp (-18.5bp), Jan'25 -25.3bp (-24.4bp), Mar'25 -41.3bp (-39.0bp), May'25 -51.5bp (-47.8bp).
November's ISM Services index saw its biggest drop since June, falling unexpectedly to a 3-month low 52.1 from 56.0 (a more modest dip to 55.7 had been expected). - ADP employment was broadly as expected in November at 146k (cons 150k). It followed a solid downward revision to 184k from what was 233k, attributed by ADP to the latest QECEW data. “Our annual benchmarking of the full data series will occur with the January 2025 NER release.”
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01799 to 4.50740 (-0.02495/wk)
- 3M -0.02761 to 4.44417 (-0.02908/wk)
- 6M -0.04053 to 4.35291 (-0.03068/wk)
- 12M -0.05473 to 4.20612 (-0.04777/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.64% (+0.00), volume: $2.329T
- Broad General Collateral Rate (BGCR): 4.60% (+0.00), volume: $832B
- Tri-Party General Collateral Rate (TGCR): 4.60% (+0.00), volume: $798B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $94B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $248B
FED Reverse Repo Operation
RRP usage inches up to $162.8866B from $161.752B Tuesday, compares to Monday's multi-year low of $135.858B (early May 2021 lows). The number of counterparties steady at 65.
US SOFR/TREASURY OPTION SUMMARY
SOFR and Treasury options flow included decent two-way positioning in calls and puts Wednesday as underlying futures continued to climb higher after this morning's lower than expected ISM services data. Projected rate cuts into early 2025 continued to gain, current levels vs. this morning's (*) as follows: Dec'24 cumulative -18.9bp (-18.5bp), Jan'25 -25.3bp (-24.4bp), Mar'25 -41.3bp (-39.0bp), May'25 -51.5bp (-47.8bp).
SOFR Options:
+10,000 SFRH5 95.50/95.75/95.87/96.00 put condors 1.25 ref 95.86
11,600 0QZ4 97.00 calls ref 96.27
Block/pit total -40,000 SFRH5 95.75/96.00/96.25 put flys, 4.75 ref 95.83
+5,000 SFRZ4 95.50/95.56 2x1 put spds 0.25
Block, 5,000 SFRM5 95.75/96.00/96.25 put flys, 4.0 net ref 96.00
+15,000 SFRM5 96.00/96.25 call spds vs 0QM5 97.25 calls 0.25 net/cvrd
-5,000 SFRZ4 95.56/95.62/95.68 call flys, 2.25 ref 95.585
+1,000 SFRH5 95.81/0QH5 96.25 straddle strip, 80.25
-2,000 SFRM5 96.00 straddles, 51.5 ref 9598.5
-4,000 SFRM5 95.50/96.00 3x1 put spds ref 9599
Block, -9,000 SFRH5/M5/U5 97.50/98.50 1x2 call spd strip, 3.5 net package
10,000 SFRH5 95.56 puts vs. 95.87/96.00 call spds ref 95.82
+6,000 SFRM5 96.06/96.18 call spds vs. 2QM596.75/96.87 call spd spd, 1.0 net steepener
-5,000 SFRF5 95.87/96.0625/96.25 put flys, 2.0 ref 95.825
Treasury Options:
7,800 TYF5 111.5 calls, 33 ref 111-04.5
5,000 FVF5 108/109 1x2 call spds ref 107-14.5 to -14.75
4,000 wk1 TY 109.5/109.75 put spds, 2 ref 110-24.5, expire Friday
+4,400 weekly Mon US 120/121 call spds, 9 ref 118-23, expire 12/9
2,000 TYF5 112.75/113.25 call spds ref 110-31
MNI BONDS: EGBs-GILTS CASH CLOSE: Peripheries Outperform
Cash Gilts and Bunds recovered from an early decline to close slightly weaker Wednesday, as periphery/semi-core spreads tightened.
- Core FI softened early aid stronger equities and oil prices. Italian and Spanish Nov PMIs were slightly on the weak side, while Eurozone PMI was in line.
- A downside miss in the US Services ISM saw a nascent afternoon bounce extend into the cash close, with yields finishing near the lows.
- Yields across both the UK and German curves finished 0.5 to 1.7bps higher, with bellies slightly underperforming overall.
- There were no surprises from ECB President Lagarde in her appearance before the EU Parliament - rate cut pricing receded slightly ahead of next week's decision, with a 25bp reduction still fully priced (50bp implied probability down to 8% from 12% prior). BoE implied traded in a wide range (cumulative cuts through 2025 between 79-88bp).
- Dovish extremes in BoE pricing came after slightly misleading newswire headlines referencing an FT interview with Gov Bailey ("four UK interest rate cuts next year" was not his view but referred instead to market pricing, so nothing new).
- Periphery and semi-core EGB spreads closed tighter alongside a rally in global equities, with 10Y BTP/Bund hitting the tightest levels since 2021. OATs also managed to tighten ahead of the result of the no-confidence vote in the government.
- Thursday brings Eurozone manufacturing/industrial data (Germany, France, Spain); in the UK we get the DMP survey and an appearance by BoE's Greene.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1bps at 1.951%, 5-Yr is up 1.4bps at 1.917%, 10-Yr is up 0.7bps at 2.061%, and 30-Yr is up 1bps at 2.287%.
- UK: The 2-Yr yield is up 1.1bps at 4.236%, 5-Yr is up 1.7bps at 4.112%, 10-Yr is up 0.6bps at 4.249%, and 30-Yr is up 0.7bps at 4.775%.
- Italian BTP spread down 3.5bps at 115.5bps / French OAT down 2.1bps at 83bps
MNI EGB OPTIONS: Primarily Rate Upside Via Call Structures
Wednesday's Europe rates/bond options flow included:
- ERG5 97.62/97.50ps 1x2 bought for 0.5 and 0.75 in 10k.
- ERG5 97.62/97.75/97.87c fly, bought for 2 in 4k.
- ERG5/F5 98.12/98.25cs spread, bought for half in 8k.
- ERH5 97.75/97.87/98.00c fly, sold 1.75 in 2.5k.
- SFIH5 95.55/95.65/95.75c fly, bought for 2.75 in 2k.
MNI FOREX: Softer US Data Weighs on Greenback, AUD Remains Weaker Following GDP
- November's US ISM Services index saw its biggest drop since June, falling unexpectedly to a 3-month low 52.1 from 56.0. In sympathy, the USD index (-0.15%) immediately pared its prior advance and fell into negative territory on the session.
- Despite the US dollar turnaround, the Australian dollar remains the notable underperformer, following the softer-than-expected GDP data overnight and associated dovish repricing for the RBA.
- The trend condition in AUDUSD (-0.75%) remains bearish and today’s fresh cycle low reinforces current conditions. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for a move towards 0.6350 (Aug 5 low) and 0.6339 (Nov 10 2023 low), a key area of support. Strength for the Euro has also seen EURAUD (+1.05%) extend higher towards 1.64, after firmly rejecting the brief slide below 1.6000 two weeks ago.
- JPY volatility continues to be the key feature of currency markets, with reports initially weighing on Wednesday. The potential political reaction to rate hikes is making senior Bank of Japan officials tend towards normalising policy more slowly, and this narrative assisted USDJPY to an impressive 1.75% recovery from the Tuesday lows (151.23 high print).
- However, the softer US data took the wind out of the pair’s sails and USDJPY spot is trading closer to 150.00 as we approach the APAC crossover.
- The drift higher in European equities alongside broader dollar weakness has supported the risk-sensitive Swedish krona today. USDSEK is down 1.00% ahead of tomorrow’s release of flash November CPI in Sweden. Elsewhere, US jobless claims will provide a warm-up to Friday’s NFP release.
MNI OPTIONS: Expiries for Dec05 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0450(E1.5bln), $1.0475-85(E1.1bln), $1.0495-05(E1.8bln), $1.0525(E915mln), $1.0550-65(E2.6bln), $1.0580-00(E1.8bln)
- USD/JPY: Y150.00($731mln)
- GBP/USD: $1.2600(Gbp594mln)
- AUD/USD: $0.6590-00(A$1.7bln)
- USD/CAD: C$1.4215($644mln)
- USD/CNY: Cny7.1900($1.3bln), Cny7.2000($1.5bln), Cny7.2500($1.8bln)
MNI US STOCKS: Late Equities Roundup: Eminis & Nasdaq Making New Record Highs
- Stocks remain bid after a brief pull-back in the lead up to this afternoon's moderated discussion with Fed Chairman Powell. Stocks continued to make record highs in late trade: SPX Eminis tapped 6092.0, Nasdaq at 19,700.63, while the DJIA remains off late November high around 45,067.28 but still making decent gains on the day.
- At the moment, the DJIA trades up 244.56 points (0.55%) at 44949.85, S&P E-Minis up 28.25 points (0.47%) at 6091.75, Nasdaq up 219.4 points (1.1%) at 19700.63.
- Information Technology and Consumer Discretionary sectors continued to lead gainers in late trade, software and services shares outperforming chip stocks for a change: Salesforce Inc trades 8.81% higher after several several upgrades following late Tuesday's positive earnings call; ServiceNow +6.0% while Crowdstrike Holdings gained 4.31%.
- Broadline retailers led the Consumer Discretionary sector with Amazon +1.97%, Best Buy +1.44%, AutoZone +0.96%.
- Conversely, Energy and Materials sectors continued to underperformed in late trade, oil and gas shares weighing on the former as crude prices sold off in the second half (WTI -1.11 at 68.82): Texas Pacific Land -13.66%, Marathon Petroleum -3.67%, Devon Energy -3.75%.
- Meanwhile, metals and mining shares weighed on the Materials sector: Albemarle Corp -5.98%, LyondellBasell Industries -3.48%, Nucor -3.75%.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Bulls Remain In The Driver’s Seat
- RES 4: 6145.26 1.236 proj of the Aug 5 - Sep 3 - 6 price swing
- RES 3: 6103.88 1.500 proj of the Sep 6 - 17 - 18 price swing
- RES 2: 6100.00 Round number resistance
- RES 1: 6094.75 Intraday high
- PRICE: 6093.00 @ 1435 ET Dec 4
- SUP 1: 5970.46 20-day EMA
- SUP 2: 5883.29 50-day EMA
- SUP 3: 5814.75 Low Nov 6
- SUP 4: 5724.25 Low Nov 4 and a key support
The S&P E-Minis contract maintains a bullish tone and has again traded to a fresh cycle high, today. This confirms a resumption of the uptrend and signals scope for a continuation near-term. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on the 6100.00 handle next. Initial support to watch lies at 5979.30, the 20-day EMA.
MNI COMMODITIES: Crude Sinks, Spot Gold Continues To Consolidate
- Crude prices have dipped further today, erasing most of yesterday’s gains. While there were no clear headline drivers during US hours, the market awaits the outcome from OPEC+’s meeting on Dec 5. The fall comes despite a larger than expected US crude stock draw.
- WTI Jan 25 is down by 1.7% at $68.7/bbl.
- OPEC+ is progressing on discussion for a possible three-month delay to its oil production hike according to Bloomberg sources.
- A bearish threat in WTI futures remains present, with eyes on $65.74, the Oct 1 low.
- Meanwhile, spot gold has edged up by another 0.3% today to $2,652/oz, keeping the yellow metal in the tight range it has traded in since the sharp pull-back on Nov 25.
- The long-term trend condition remains bullish and the Oct 31 - Nov 14 bear leg appears to have been a correction. Analysts at BofA still believe that gold will reach $3,000/oz at some point next year.
- Our technical analyst says that resistance to watch is $2,721.4, the Nov 25 high. Clearance of this level would highlight a bullish short-term development.
- Silver is outperforming again today, with the precious metal up by 0.8% at $31.3/oz. The move brings the gold-silver ratio down to 84.7, its lowest since Nov 20.
- Silver has pierced initial firm resistance at $31.157, the 50-day EMA. A clear break of this EMA would highlight a possible reversal, opening $33.125 next, the Nov 1 high.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 05/12/2024 | 0645/0745 | ** |  CH | Unemployment |
| 05/12/2024 | 0700/0800 | ** |  DE | Manufacturing Orders |
| 05/12/2024 | 0700/0800 |  SE | Flash CPI | |
| 05/12/2024 | 0745/0845 | * |  FR | Industrial Production |
| 05/12/2024 | 0800/0900 | ** |  ES | Industrial Production |
| 05/12/2024 | 0830/0930 | ** |  EU | S&P Global Final Eurozone Construction PMI |
| 05/12/2024 | 0930/0930 | ** |  GB | S&P Global/CIPS Construction PMI |
| 05/12/2024 | 0930/0930 | GB | DMP Data | |
| 05/12/2024 | 1000/1100 | ** | EU | Retail Sales |
| 05/12/2024 | 1330/0830 | *** |  US | Jobless Claims |
| 05/12/2024 | 1330/0830 | ** | US | Trade Balance |
| 05/12/2024 | 1330/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 05/12/2024 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 05/12/2024 | 1500/1000 | * | CA | Ivey PMI |
| 05/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 05/12/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 05/12/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 05/12/2024 | 1700/1700 | GB | BOE's Greene panellist at the FT Boardroom "global economics: what is the path to sustained growth?" | |
| 05/12/2024 | 1715/1215 | US | Richmond Fed's Tom Barkin | |
| 06/12/2024 | 2330/0830 | ** |  JP | average wages (p) |
| 06/12/2024 | 2330/0830 | ** | JP | Household spending |