HIGHLIGHTS
- Treasuries gapped higher after S Korean President Yoon Suk Yeol made a surprise emergency martial law declaration early Tuesday, accusing the "country’s opposition of controlling the parliament, sympathizing with North Korea and paralyzing the government with anti-state activities" (APW)
- Treasuries reversed course after Yeol rescinded the order in late trade, curves twisting steeper as focus turned to Fed policy.
- A December interest rate cut is "absolutely not" off the table despite recent bumpy progress in bringing inflation back to 2% SF Fed Daly Said.
- Focus turns to Wednesday's ADP private employment data while Fed Chairman Powell speaks at a moderated policy discussion at 1340ET.
MNI US TSYS: Curves Twist Steeper As Geopol Risk Eases, Focus on ADP, Chair Powell
- Treasuries look to finish mostly lower Tuesday, at/near late session lows, curves steeper with the short end bucking the move - well bid on the back of additional dovish Fed speak.
- Currently, Mar'25 2Y futures are +1.5 at 103-01.62, 10s -5.5 at 110-30 -- well off this morning's gap bid in response to South Korea President Yoon Suk Yeol surprise emergency martial law declaration, "accusing the country’s opposition of controlling the parliament, sympathizing with North Korea and paralyzing the government with anti-state activities" (APW).
- Dec'24 10Y futures tap 111-11 high (+8), through initial resistance at 111-09 (yesterday's high) focus on 111-13 (50-day EMA) followed by 111-26 (High Oct 22).
- Curves finishing steeper near highs as intermediate to long end underperforms, 2s10s +10.960 at 1.558 vs. 3.330 high, after the SK President rescinded the martial law order.
- Treasury futures pare support after broadly higher than expected JOLTS job gains data: Job openings were higher than expected in October at 7.744m (cons 7.52m) after a modestly downward revised 7.37m (initial 7.44m) in September, leaving them back closer to the 7.86m in August. Quits rate: 2.09% after 1.95 (initial 1.93) in July. 2019 av 2.33, 2017-18 av 2.20.
- While markets keep an eye on South Korea overnight, US focus turns to ADP private employment and ISM data Wednesday while Fed Chairman Powell will speak at a moderated policy discussion at 1340ET.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00142 to 4.52539 (-0.00696/wk)
- 3M +0.00706 to 4.47178 (-0.00148/wk)
- 6M +0.01804 to 4.39344 (+0.00985/wk)
- 12M +0.02655 to 4.26085 (+0.00696/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.64% (+0.05), volume: $2.440T
- Broad General Collateral Rate (BGCR): 4.60% (+0.02), volume: $841B
- Tri-Party General Collateral Rate (TGCR): 4.60% (+0.02), volume: $791B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $92B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $256B
FED Reverse Repo Operation Falls to New Low
RRP usage rebounds to $161.752B this afternoon from Monday's multi year low of $135.858B (early May 2021 lows). The number of counterparties climbs to 65 from 56 prior.
US SOFR/TREASURY OPTION SUMMARY
Call trade turns two way as the this morning's South Korean geopol risk takes a step back, short end rate support continues as the narrative swings back to whether the Fed will cut rates at the December 18 FOMC or not. Projected rate cuts into early 2025 look mixed after surging late Monday following Fed Gov Waller's comments, current levels vs. late Monday (*) as follows: Dec'24 cumulative -18.0bp (-20.0bp), Jan'25 -24.4bp (-24.3bp), Mar'25 -39.9bp (-37.5bp), May'25 -48.3bp (-45.5bp). Additional first half trade:
SOFR Options
-5,000 0QZ4 96.50 calls, 1.5 vs. 96.17/0.14%
-40,000 SFRZ4 95.56/95.68 call spds, 5.0 vs. 95.58/0.44%
+4,000 0QF5 96.50/97.00 call spds, 5.0 96.295/0.15%
+30,000 0QZ4 96.43/96.62 call spds, 2.25-2.5 vs. 96.22
-7,000 SFRF5 95.62/95.75/95.87/96.00 put condor, 5.0 ref 95.80/0.06%
11,500 SFRF5 95.56/95.68 put spds, 2.5
+20,000 0QZ4 96.31/97.43 call spds, 3.0 ref 96.205
1,500 SFRJ5 95.75/96.00/96.25 put flys vs. SFRM5 95.50/95.75/96.00/96.25 put condor
2,000 SFRZ4 95.62 straddles ref 95.585
2,000 0QH5 95.75/96.00 put spds vs. 96.50/96.75 call spds, 0.0
+14,000 SFRZ4 95.68/95.75 call spds, 0.5 ref 95.605/0.06%
2,600 SFRH5 95.50/95.62 put spds vs. 95.75/95.87 call spds
2,000 SFRF5 96.00/96.25/96.50 2x3x1 call flys ref 95.795
Block, 3,000 SFRG5 95.62/95.75/95.87 put flys, 2.25
2,000 SFRG5 95.56/95.75/95.87 broken put flys ref 95.785
Treasury Options
2,300 TYF5 114 calls, 3 ref 110-30.5
3,800 FVG5 108.75/109.75 call spds ref 107-18.5
3,000 TYF5 115 calls, 1 ref 110-31.5
over 3,200 TYF5 112 calls, mostly 21
over 11,000 TYF5 109/110 3x1 put spds, 1.5 net ref 111-00
MNI BONDS: EGBs-GILTS CASH CLOSE: Mid-Session Core FI Gains Fade
Periphery/semi-core EGB spreads tightened with Bund and Gilt yields rising Tuesday.
- The declaration of martial law in South Korea spurred a risk-off rally in global safe-haven instruments, seeing Bund and Gilt yields touch session lows.
- The move fully reversed by the cash close however as the South Korean assembly voted to lift martial law, while US job openings data proved a little more positive than expected.
- 10Y Gilts hit a post-Oct 23 low (4.19%) before closing higher; Bunds likewise, after hitting a post-Oct 1 low (2.029%). The German curve bear flattened with the UK's bear steepening, with Gilts underperforming overall.
- Periphery/semi-core EGBs outperformed core counterparts throughout, as equities strengthened.
- OATs in particular were early outperformers, ahead of Wednesday's no-confidence vote - after the cash close, French President Macron expressed confidence that the government can survive the vote.
- Apart from the French vote Wednesday, attention will be on final Nov Services PMIs (first and final for Italy and Spain), Eurozone PPI, and appearances by ECB's Lagarde and BOE's Bailey.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 4.2bps at 1.941%, 5-Yr is up 3.5bps at 1.903%, 10-Yr is up 2bps at 2.054%, and 30-Yr is up 0.6bps at 2.277%.
- UK: The 2-Yr yield is up 1.7bps at 4.225%, 5-Yr is up 2.6bps at 4.095%, 10-Yr is up 3.1bps at 4.243%, and 30-Yr is up 3.5bps at 4.768%.
- Italian BTP spread down 4.2bps at 119bps / French OAT down 2.9bps at 85.1bps
MNI EGB OPTIONS: Large Outright Sonia Calls Feature
Tuesday's Europe rates/bond options flow included:
- ERG5 97.50/97.25ps sold at 0.75 in 5k
- ERJ5 98.12/98.37/98.62c fly, bought for 6.5 in 5k.
- ERJ5 98.25/98.50/98.75c fly, sold at 4 in 5k
- ERZ5 99.00c vs 0RH5 98.75/99.25cs, bought the call for 5.25 in 4k
- SFIZ4 95.40c, sold at 1.25 in 17.5k total
- SFIM5 96.50c, bought for 5.5 in 5k
MNI FOREX: USDKRW Soars on Martial Law Headlines, USDJPY Briefly Slides Below 149.00
- The main talking point for global currency markets on Tuesday was centred around the declaration of Martial Law in South Korea by the President, and the resulting KRW weakness. USD/KRW spot and NDF outrights are off the highest levels, but remain around 1.75% higher on the session following the news.
- USD/KRW spot's intraday high at 1,444.65 intersects well with the mid'22 high, suggesting strong resistance at this level - a rally through here could accelerate today's price action.
- The government statement provided reassurances that "unlimited" liquidity is to be provided to markets if needed and further meetings between the finance ministry and the central bank are scheduled in the coming hours.
- In G10, the USD index traded moderately lower on Tuesday, declining around 0.20% ahead of the APAC crossover. Most major pairs have had limited daily adjustments, although USDJPY volatility has remained in focus, with the pair briefly sliding to a new 7-week low of 148.65.
- Stronger than expected US Jolts job openings halted the USDJPY decline and assisted the recovery to current spot levels around 149.25. The quits rate data were notable in the release, lifting from 1.95% to 2.09% for the highest since May and its first monthly increase on a rounded basis since May 2023.
- With divergent monetary policy paths clearly weighing on USDJPY in recent weeks, Friday’s US employment report remains the next focus, as well as wage data from Japan. On the downside, 148.17 support is next, the 50% retracement of the Sep 16/Nov 15 rally.
- Australian GDP headlines the overnight calendar on Wednesday, before the focus turns to US ADP and ISM Services PMI data.
MNI OPTIONS: Expiries for Dec04 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0400(E1.7bln), $1.0450(E830mln), $1.0525(E1.3bln), $1.0575-85(E $1.0700(E1.0bln)
- USD/JPY: Y143.50($2.2bln), Y147.00($540mln), Y151.15-25($935mln)
- GBP/USD: $1.2500(Gbp550mln)
- AUD/USD: $0.6640-50(A$580mln), $0.6500(A$1.3bln)
- USD/CNY: Cny7.2000($2.1bln), Cny7.3000($768mln)
MNI US STOCKS: Late Equities Roundup: Off Early Lows, Hold Steady to Mildly Mixed
- Stocks have recovered from this morning's South Korea-tied sell-off as South Korea President Yoon Suk Yeol said he would lift the imposition of martial law ordered earlier in the session. Notably Eurex Daily KOSPI is up 0.8% in late trade and 4.2% from session lows (effectively erasing session losses). USDKRW NDFs strengthening modestly as well.
- Currently, the DJIA trades down 53.9 points (-0.12%) at 44728.07, S&P E-Minis up 2.75 points (0.05%) at 6064.25, Nasdaq up 51.5 points (0.3%) at 19455.16.
- Communication Services and Information Technology sectors outperformed in late trade: ATT +3.57%, Meta +2.67%, News Corp +1.40%. Leading tech stocks included Palantir Technologies +6.84%, Teradyne and Micron both +1.80% while Crowdstrike gained 1.13%.
- There were some notable underperforming chip stocks, however: Microchip Technology -5.77%, Intel -5.60%, Seagate -4.75%, ON Semiconductor -5.14%.
- Industrials and Financial sectors underperformed, transportation related shares weighing on the former with FedEx -3.89%, UPS -3.11%, JB Hunt -2.18%. Meanwhile, bank and financial services share traded weaker: Aflac -3.71%, KeyCorp -1.54%, PayPal Holdings -1.42%.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Northbound
- 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: 6070.16 1.382 proj of the Sep 6 - 17 - 18 price swing
- RES 1: 6068.50 High Dec 2
- PRICE: 6060.00 @ 15:07 GMT Dec 3
- 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
On Friday, S&P E-Minis pierced key resistance and the bull trigger at 6053.25, the Nov 11 high. This confirms a resumption of the uptrend and the contract is holding on to its latest gains. Note that moving average studies remain in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 6070.16, a Fibonacci projection point. Initial support to watch lies at 5970.46, the 20-day EMA.
MNI COMMODITIES: Crude Gains Amid Prospect Of OPEC+ Output Cut Extension
- Crude has climbed to its highest since Nov 25, amid support from further expectations of an OPEC+ rollover to cuts, coupled with Middle East ceasefire instability.
- Four Reuters sources said that OPEC+ is likely to extend its latest round of output cuts until the end of Q1.
- WTI Jan 25 is up by 2.7% at $69.9/bbl, narrowing the gap to initial firm resistance at $72.41, the Nov 7 high.
- Meanwhile, copper is up by 1.6% at $420/lb, albeit off from a high of $426 reached earlier in the session.
- The move followed the broader bid for precious metals and weakening of the US dollar. Price action was exacerbated by a break of the late November highs earlier in the session and was underpinned by prospects of upcoming China's fiscal stimulus.
- A bearish trend condition in copper futures remains intact, however, with eyes on $401.35, the Aug 7 low.
- Spot gold has continued to consolidate after the sharp pull-back on Nov 25, with the yellow metal edging up by 0.1% to $2,642/oz.
- Resistance to watch remains at $2,721.4, the Nov 25 high.
- Silver is outperforming and has risen by 1.6% to $31.0/oz, bringing the gold-silver ratio down to its lowest since Nov 21.
- Initial firm resistance to watch is $31.148, the 50-day EMA. A clear break of this EMA would highlight a possible reversal.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 04/12/2024 | 0815/0915 | ** |  ES | S&P Global Services PMI (f) |
| 04/12/2024 | 0815/0915 | ** | ES | S&P Global Composite PMI (final) |
| 04/12/2024 | 0845/0945 | ** |  IT | S&P Global Services PMI (f) |
| 04/12/2024 | 0845/0945 | ** | IT | S&P Global Composite PMI (final) |
| 04/12/2024 | 0850/0950 | ** |  FR | S&P Global Services PMI (f) |
| 04/12/2024 | 0850/0950 | ** | FR | S&P Global Composite PMI (final) |
| 04/12/2024 | 0855/0955 | ** |  DE | S&P Global Services PMI (f) |
| 04/12/2024 | 0855/0955 | ** | DE | S&P Global Composite PMI (final) |
| 04/12/2024 | 0900/1000 | ** |  EU | S&P Global Services PMI (f) |
| 04/12/2024 | 0900/1000 | ** | EU | S&P Global Composite PMI (final) |
| 04/12/2024 | 0900/1000 | EU | ECB's Cipollone speech on behavioural financial regulations | |
| 04/12/2024 | 0900/0900 |  GB | BOE's Bailey keynote interview at the FT Boardroom | |
| 04/12/2024 | 0930/0930 | ** | GB | S&P Global Services PMI (Final) |
| 04/12/2024 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 04/12/2024 | 1000/1100 | ** | EU | PPI |
| 04/12/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 04/12/2024 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 04/12/2024 | 1315/0815 | *** | US | ADP Employment Report |
| 04/12/2024 | 1330/1430 | EU | ECB's Lagarde statement at ECON hearing | |
| 04/12/2024 | 1345/0845 | US | St. Louis Fed's Alberto Musalem | |
| 04/12/2024 | 1400/0900 | US | Richmond Fed's Tom Barkin | |
| 04/12/2024 | 1445/0945 | *** | US | S&P Global Services Index (final) |
| 04/12/2024 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 04/12/2024 | 1500/1000 | *** | US | ISM Non-Manufacturing Index |
| 04/12/2024 | 1500/1000 | ** | US | Factory New Orders |
| 04/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 04/12/2024 | 1845/1345 | US | Fed Chair Jerome Powell | |
| 04/12/2024 | 1900/1400 | US | Fed Beige Book | |
| 05/12/2024 | 0030/1130 | ** |  AU | Trade Balance |