HIGHLIGHTS
- Treasury curves twisted flatter Wednesday after a surge in October private ADP jobs gains weighed on rates.
- Comments from former Fed VC Brainard that Friday’s employment data will likely be lower due to “disruptive hurricanes, strike activity” were quickly discounted as short end rates led the second half sell-off.
- Current projected rate cuts into early 2025 have cooled vs. earlier levels (*): Nov'24 cumulative at -23.5bp ( -24.1bp), Dec'24 -42.8bp (-44.8bp), Jan'25 -58.1bp (-61.6bp), Mar'25 -76.0bp (-80.2bp).
MNI US TSYS: October ADP Jobs Gain Surprise Saps Short End Support
- Treasuries look to finish mostly lower Wednesday, curves flatter with Bonds outperforming after a volatile first half.
- Treasuries opened higher on the back of strong overnight support in Gilts ahead this morning’s eagerly awaited UK Budget statement. Rates gapped lower following a much better than expected ADP jobs gain for October at 233k (cons 111k) for its strongest monthly print since Jul’23, followed by an upward revised prior to 159k (initial 143k).
- Treasury futures bounced off post-ADP lows, mirroring a bounce in Bunds and Gilts as markets digested the UK Budget statement. Mixed US data dropped at the same time with stronger than expected Core PCE inflation and Real GDP growth in the Q3 advance report technically below expected at 2.8% annualized. Comments from former Fed VC Brainard that Friday’s employment data will likely be lower due to “disruptive hurricanes, strike activity” contributed to the bounce in intermediate to long end Tsys.
- The midmorning drive to session highs was short lived, however, support evaporated as details regarding a huge increase in gilt issuance over 5 years spurred heavy selling in EGBs. Meanwhile, pending home sales stronger than expected the best single monthly increase since June 2020 while the Quarterly Refunding Announcement came out in line with estimates at $125B: $58B 3Y notes, $42B 10Y notes and $25B 30Y Bonds.
- After the bell, the Dec'24 10Y contract is trading -6 at 110-18 vs. 110-17 low, 10Y yield at 4.2823 (+.0282). Curves are flatter: 2s10s -4.377 at 10.998 (-9.646 low), 5s30s -7.240 at 34.296.
- Focus turns to Thursday’s weekly claims, personal income/spending and MNI’s Chicago PMI data, not to mention Friday's October employment data and next Tuesday's Presidential Election.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01081 to 4.69649 (-0.01081/ wk)
- 3M -0.01547 to 4.58917 (-0.01547/wk)
- 6M -0.01802 to 4.41270 (-0.01802/wk)
- 12M -0.00823 to 4.14467 (-0.00823/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.82% (+0.00), volume: $2.116T
- Broad General Collateral Rate (BGCR): 4.81% (+0.00), volume: $794B
- Tri-Party General Collateral Rate (TGCR): 4.81% (+0.00), volume: $763B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $100B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $264B
FED Reverse Repo Operation:
RRP usage recedes to $228.946B from $244.841B prior, compares to new multi year low of $202.798B from Thursday, October 24, '24. Number of counterparties slips to 54 from 58 prior.
US SOFR/TREASURY OPTION SUMMARY
Option desks reported two-way mixed trade on net. Treasury options included better upside calls on net while SOFR option trade turned bearish as underlying futures see-sawed off midmorning highs to at/near session lows after the bell. Current projected rate cuts into early 2025 have cooled vs. earlier levels (*): Nov'24 cumulative at -23.5bp ( -24.1bp), Dec'24 -42.8bp (-44.8bp), Jan'25 -58.1bp (-61.6bp), Mar'25 -76.0bp (-80.2bp).
SOFR Options:
-7,500 2QZ4 96.87 calls 4.0 vs. 96.365/0.14%
-5,000 SFRZ4 95.25/95.50/96.50/96.75 call condor 20.75 ref 95.62
+4,000 SFRJ5 95.62/96.12 2x1 put spds 10.0 ref 96.185
+5,000 SFRZ4 95.37 puts 1.75 ref 95.605
+5,000 SFRZ4 96.25/97.25 call spds, 1.0 vs. 95.64/0.05%
10,000 0QZ4 96.56/96.81/97.00 2x2x3 broken call trees
3,400 0QZ4 97.12/97.62 call spds ref 96.39
2,000 2QX4 96.56/96.87 1x2 call spds ref 96.445
-1,500 2QX4 96.50/96.75 2x3 call spds, 12.0
4,000 SFRZ4 95.43/95.50/95.62/95.68 put condors ref 95.645
2,000 SFRZ4 95.75/95.93/96.00/96.25 call condors ref 95.64
4,800 SFRZ4 94.75/95.12 put spds
-2,900 SFRZ4 95.50/95.62 put spds, 4.5 ref 95.635
Treasury Options:
3,000 TYZ4 112/113.5/115 call flys, 17 ref 110-23.5
5,200 TYZ4 112/114 call spds ref 110-26 to -24
2,000 TYF5 109/111 put spds ref 111-07
3,000 USZ4 125/128 call spds 11 ref 118-27 to -26
Update, over +30,000 TYZ4 112.5/113.5 call spds, 12 ref 110-28.5/0.10%
-5,000 TYZ4 110/111.5 call over risk reversals, 12 vs. 111-00.5/0.76%
over 5,000 FVZ4 107 puts, 28 last
Block/screen +20,000 TYZ4 113.5/115.5 call spds, 10-11 ref 111-00 to -00.5
over +32,000 TYZ4 113 calls, 19-20 ref 110-29.5
6,000 TYZ4 109.5 puts, 27 last
-10,000 Wednesday wkly 10Y 111/111.5 put spds, 25 ref 110-30 to -31
3,650 wk1 TY 110.25/110.75 put spds vs. 111.5 calls ref 110-29.5
2,000 TUZ4 103.5/104 call spds ref 103-04.25
MNI BONDS: EGBs-GILTS CASH CLOSE: Bear Flattening On Inflation Data And UK Budget
Multiple hawkish developments Wednesday saw European bonds weaken sharply, with Gilts selling off on fiscal concerns but Bunds ultimately closing even weaker.
- The key driver of weakness and intraday volatility was the much-anticipated UK Budget announcement, from which the implications of near-term inflation and longer-term issuance saw Gilts sell off across the curve.
- The UK curve initially bear steepened as supply implications were digested, but closed bear flatter with yields trading in wide ranges. BoE cut probabilities were pared, with 32bp in cumulative 2024 cuts now seen, vs 39bp pre-budget.
- Even prior to the UK budget, bond-negative data (among which: above-expected German CPI/Eurozone Q3 GDP/US private payrolls) applied broader pressure.
- EGBs were dragged by movements in Gilts, with the German curve bear flattening, and periphery EGB spreads mostly widening.
- The strong inflation data helped push back December ECB cut pricing, with 50bp implied down to 20% probability vs 40% Tuesday. Even as the short-end sold off, German 10Y yields posted their highest close since July; UK yields would close off the highs.
- Thursday's focus will be the Italian and French October flash inflation readings, with the Eurozone reading later in the morning.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 11.8bps at 2.26%, 5-Yr is up 10bps at 2.259%, 10-Yr is up 5.1bps at 2.388%, and 30-Yr is down 1.1bps at 2.619%.
- UK: The 2-Yr yield is up 6bps at 4.319%, 5-Yr is up 3.6bps at 4.226%, 10-Yr is up 3.7bps at 4.352%, and 30-Yr is up 4.1bps at 4.832%.
- Italian BTP spread up 2.4bps at 125bps / Spanish up 1bps at 70.9bps
MNI EGB OPTIONS: Upside Pared As Rates Sell Off Wednesday
Wednesday's Europe rates/bond options flow included:
- DUZ4 106.80/107.00/107.20/107.40c condor, bought for 5.25 in 3.75k.
- RXZ4 136.50/138.50cs sold at 9 in 3.5k.
- RXZ4 135c was sold at 26 and 25 in 5.6k.
- 0RZ4 98.25/98.50cs, sold at 4.25 in 5.5k.
MNI FOREX: USD Index Slips, EURGBP Notable Outperformer Following Budget
- Despite the firmer-than-expected ADP jobs report and confirmation of solid GDP growth data in the US, the dollar index sits 0.25% in the red on Wednesday as we approach the APAC crossover.
- EURUSD strength mainly stemmed from higher-than-expected GDP & inflation data in Germany, boosting the pair to trade back above 1.0850 and extend the bounce to near 1% from Tuesday’s 1.0769 lows.
- Despite yesterday’s brief test below 0.8300, EURGBP (+0.73%) has reversed higher today and is a notable outperformer on Wednesday. Note that price action today and activity on Oct 18 continue to highlight a possible early reversal signal and if correct, a key short-term base.
- The moves have been underpinned by the firmer-than-expected German figures, and come despite the upward pressure on UK gilt yields following the UK budget. A close at current levels would provide the first close above the 20-day EMA (intersecting at 0.8348) since early October. Key trend resistance for the cross is unchanged at 0.8434, the Oct 3 high.
- Elsewhere, G10 currencies have remained relatively stable as we approach more significant risk events to finish the week, namely the BOJ meeting, Eurozone inflation data and the US employment report.
- Higher core yields have weighed on the emerging market basket with the likes of the Hungarian Forint and Latin American currencies underperforming. Notably, USDMXN rose to a fresh year-to-date high of 20.2278 as markets continue to consider the implications of the US election and domestic reform uncertainties.
MNI OPTIONS: Expiries for Oct31 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0710-15(E1.5bln), $1.0720-25(E684mln), $1.0775-80(E1.0bln), $1.0800-05(E2.3bln), $1.0820-40(E1.7bln), $1.0850(E680mln), $1.0870-80(E1.0bln), $1.0900(E1.5bln), $1.0925(E1.5bln), $1.1000(E1.2bln)
- USD/JPY: Y153.50($1.2bln)
- GBP/USD: $1.2950-70(Gbp678mln), $1.2995-00(Gbp520mln)
- EUR/GBP: Gbp0.8300(E1.0bln), Gbp0.8325-35(E863mln), Gbp0.8400-10(E711mln)
- AUD/USD: $0.6730-50(A$1.3bln)
- AUD/NZD: N$1.1100(A$823mln)
- NZD/USD: $0.6020(N$695mln)
- USD/CAD: C$1.3765($687mln)
- USD/CNY: Cny7.2000($1.4bln), Cny7.2500($2.1bln)
MNI US STOCKS: Late Equities Roundup: Inside Narrow Ranges
- Upcoming data and event risk continues to keep market participants at or near the sidelines in late Wednesday trade, stock indexes holding mildly mixed levels inside narrow ranges. Data and event risk includes but is not limited to ongoing heavy corporate earnings docket, Friday's October employment report and next Tuesday's Presidential election. Currently, the DJIA is up 15.26 points (0.04%) at 42247.08, S&P E-Minis down 11.5 points (-0.2%) at 5859.75, Nasdaq down 42.3 points (-0.2%) at 18670.37.
- Communication Services and Financial sectors continued to lead gainers in the second half, interactive media and entertainment shares supported Communication Services for the second day running: Google +4.25%, Warner Brothers +3.38%, Electronic Arts +2.67%. Banks and servicer stocks buoyed the Financial sector: Global Payments +4.10%, Visa +3.51%, Discover Financial Services +3.42%.
- Meanwhile, Information Technology and Health Care sectors continued to underperform in late trade, semiconductor makers weighing on IT: Super Micro Computer tanked 32.51% after reports it's independent auditor Ernst & Young resigned over "governance and transparency concerns". Despite beating earnings estimates, Qorvo fell -26.13% after issuing weak forward guidance (not to mention several downgrades), Advanced Micro Devices -10.06%, Skyworks -7.93 while Qualcomm trades -4.29%. The Health Care sector was weighed down by pharmaceutical companies: Eli Lilly -8.02% after it's revenue outlook missed expectations, Moderna -0.92%, Charles River -0.77%.
- Headline companies reporting after the close include: Allstate, Robinhood Markets, Meta, Carvana, MetLife, Coinbase Global, Cognizant Technology, DoorDash, MGM Resorts, eBay, GoDaddy, Microsoft, Etsy, Starbucks, Roku, Monolithic Power and Amgen.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Trend Signals Remain Bullish
- 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 and the bull trigger
- PRICE: 5859.00 @ 1505 ET Oct 29
- SUP 1: 5801.00/5757.80 Low Oct 23 / 50-day EMA
- 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 continue to trade below their recent highs. Short-term weakness is considered corrective and the uptrend remains intact. Price has recently traded through support at the 20-day EMA, at 5837.02, but is - for now - trading above this average once again. A clear bearish break of the EMA would open 5757.80, the 50-day EMA. For bulls, a stronger resumption of gains would refocus attention on 5961.00, a Fibonacci projection.
THURSDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 31/10/2024 | 0830 | *** | 26-Oct | Continuing Claims | 1897 | 1880 | (k) |
| 31/10/2024 | 0830 | *** | 26-Oct | Initial Jobless Claims | 227 | 230 | (k) |
| 31/10/2024 | 0830 | *** | 26-Oct | Prev Continuing Claims, Rev | -- | -- | (k) |
| 31/10/2024 | 0830 | *** | 26-Oct | Prev Initial Jobless Claims, Rev | -- | -- | (k) |
| 31/10/2024 | 0830 | *** | Sep | Core PCE Price Index m/m | 0.1 | 0.3 | % |
| 31/10/2024 | 0830 | *** | Sep | Core PCE Price Index m/m (3 dp) | -- | -- | % |
| 31/10/2024 | 0830 | *** | Sep | Core PCE Price Index, y/y | 2.7 | 2.6 | % |
| 31/10/2024 | 0830 | *** | Sep | Current Dollar PCE | 0.2 | 0.4 | % |
| 31/10/2024 | 0830 | *** | Sep | Personal Income m/m | 0.2 | 0.4 | % |
| 31/10/2024 | 0830 | *** | Sep | Total PCE Price Index m/m | 0.1 | 0.2 | % |
| 31/10/2024 | 0830 | *** | Sep | Total PCE Price Index m/m (3 dp) | -- | -- | % |
| 31/10/2024 | 0830 | *** | Sep | Total PCE Price Index, y/y | 2.2 | 2.1 | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI | 0.9 | 0.9 | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Cur Q seas. adj. % change benefits from prev Q | 1.0 | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Cur Q unadj y/y % change | 4.1 | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Cur Q unadj y/y % change benefits cost | 3.8 | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev Q seas. adj. % change benefits | -- | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev Q unadj y/y % change | -- | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev Q unadj y/y % change benefits cost | -- | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev quarter | -- | -- | % |
| 31/10/2024 | 0830 | ** | 24-Oct | Corn Net Sales | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Corn Weekly Exports | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Soy Net Sales | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Soy Weekly Exports | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Wheat Net Sales | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Wheat Weekly Exports | -- | -- | MT (k) |
| 31/10/2024 | 0945 | *** | Oct | MNI Chicago PMI | 46.6 | 47.0 | |
| 31/10/2024 | 1030 | ** | 25-Oct | Natural Gas Stocks w/w | -- | -- | Bcf |
| 31/10/2024 | 1130 | * | 01-Nov | Bid to Cover Ratio | -- | -- | |
| 31/10/2024 | 1130 | ** | 01-Nov | Bid to Cover Ratio | -- | -- |