MNI ASIA MARKETS ANALYSIS: Treasuries Surge On Bessent And Oil
MNI (LONDON) - HIGHLIGHTS:
- Treasury yields have tumbled following Bessent's pick as Treasury Sec and WTI falling on ceasefire prospects.
- The strongest 2Y auction since July paved the way for a continuation of the Bessent play.
- The USD index consolidates weakness seen with the open but relatively resilient considering large intraday declines in yields.
- Equities have mostly gained but with some concentrated heavy losses weighing.
- Tomorrow sees the FOMC minutes a day earlier than usual plus further supply with the 5Y Treasury auction.
US TSYS: A Strong Rally On Bessent Pick And Tumbling WTI
- Treasuries have seen strong gains today over three steps. They opened higher in response to Bessent’s pick as Treasury Secretary at the weekend, WTI futures tumbled on Israel-Hezbollah ceasefire prospects and then the strong 2Y auction firmly passed a test of front-end demand to remove a barrier against further Bessent-linked plays.
- Cash yields are 10-14bp lower on the day, with declines led by 30s.
- Declines have been seen in both real yields and inflation breakevens (10Y -8bps real, -5.8bps breakeven). 10Y yields of 4.263% sit almost 24bp below recent highs of 4.501% from mid-Nov.
- 2s10s is at 0.1bps (-2.8bp from Fri) having fluctuated within +/-2ps around zero since the Asia open. It has seen its first inversion since Oct 7.
- TYZ4 trades at 110-15+ (+ 27), holding close to an earlier high of 110-18. It made light work of resistance at 110-04+ (20-day EMA) and opens 111-09 (50-day EMA) as it tests what had been a bearish technical trend.
- Fed Funds implied rates are little changed for the near-term but the broader rally increasingly weighs further out into 2025 (the Dec rate is -0.5bp since Fri vs -4.5bp for the Jun’25). It leaves 13bp of cuts for Dec before a cumulative 19bp for Jan and 52bp for June.
- Tomorrow sees FOMC minutes after a string of hawkish Fedspeak (MNI Preview here) and 5Y supply. It’s followed by GDP/PCE data and 7Y supply on Wed before Thanksgiving closures.
FOREX: Greenback Consolidates Intra-Day Weakness, FOMC Minutes Tuesday
- Currency markets saw the most recent dollar strength moderate to begin the week, with the appointment of Scott Bessent as Treasury Secretary under Trump providing some pushback to the short-term trend. His nomination has pinned back concerns that a tariff regime will go too far, too fast, with his views on gradualism likely meaning a more forceful approach on trade will come step-by-step, rather than an abrupt shift.
- The USD pullback has helped spur short-covering across EUR, which outperforms all others in G10. EURUSD (+0.65%) reached as high as 1.0530, marking a ~200 pip recovery off last week's lows, although spot has slipped back below 1.0500 ahead of the APAC crossover.
- German IFO data painted a poor picture of the German economy, The print mirrored last week's flash PMI release in that the services sector saw a clear decline - however, in the IFO, also manufacturing showed weaker again.
- USDCHF was a notable mover on the session, declining 0.75% as SNB sight deposits data indicated the SNB may not have intervened last week. In contrast, higher beta currencies were unable to take advantage of the softer dollar, with the likes of EURAUD, EURCAD and EURNZD all rising comfortably over 0.5% to start the week and partially revising the steep declines seen late last week.
- The minutes to the November FOMC meeting (released Tuesday at 1400ET) will be viewed in light of the hawkish tilt in Fed officials’ commentary in the 3 weeks since they decided to cut rates by 25bp. Accordingly, MNI’s Hawk-Dove Spectrum has been moved upward (in a more “hawkish” direction”) across the board.
OPTIONS: Interest Builds in Wednesday Option Expiry
As noted earlier today, the FX options pipeline is very much front-loaded this week, with the Thanksgiving holidays muting interest from Thursday onwards. EUR/USD is the firm focus of tomorrow's NY cut - with today's bounce in spot narrowing the gap with E1.5bln set to roll-off at $1.0500. Price is also lodged between E1.1bln at $1.0475 and E723mln at $1.0545-50.
- It's the Wednesday expiry that's understandably the focus this week - with interest building across G10 FX. The most sizeable of which is $2.6bln at Y153.00 in USD/JPY, another E2.4bln at $1.0500 in EUR/USD, A$1.2bln at $0.6645-50 in AUD/USD and N$1.0bln at $0.5750 in NZD/USD.
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Nov27 $1.0410(E2.6bln), $1.0475-90(E1.8bln), $1.0500(E2.4bln), $1.0600-10(E3.7bln); Nov29 $1.0470-75(E1.7bln), $1.0485(E1.8bln), $1.0500(E1.0bln), $1.0600(E1.4bln)
- USD/JPY: Nov27 Y153.00($2.6bln), Y155.95-00($1.2bln)
- EUR/JPY: Nov27 Y167.30(E1.1bln)
- AUD/USD: Nov27 $0.6645-60(A$1.2bln)
- NZD/USD: Nov27 $0.5750(N$1.0bln)
- USD/CNY: Nov27 Cny7.2000($1.4bln), Cny7.2480-00($1.1bln), Cny7.3000($1.1bln)
US STOCKS: Broad Gains But With Some Outsized Losses
- The S&P 500 e-mini at 6000 (+0.2%) is holding a 15-20 point bounce off session lows of 5982.75 after an earlier high of 6040.00. It's set for a third daily increase and for a 1.7% cumulative gain since Nov 15.
- The earlier climb didn’t test the bull trigger at 6053.25 (Nov 11 high) although the trend signal nevertheless remains bullish. Next support meanwhile is seen at 5927.19 (20-day EMA).
- Nvidia weighs heavily (-3.6%) after reports a company executive had met with China’s vice commerce minister in Beijing, whilst more broadly energy names are the main losers on the day (-1.7%) owing to the slide in WTI futures on Israel-Hezbollah ceasefire prospects.
- Most sectors still in the green though, led by consumer discretionary (+1.4%), real estate (+1.1%) and materials (+1.0%) where tumbling Treasury yields following Bessent’s pick as Treasury Secretary have added a tailwind.
- Against this backdrop, Nasdaq 100 underperforms (-0.05%) whilst the Russell 2000 (+1.9%) and Dow Jones (+0.9%) outperform.
COMMODITIES: Crude, Precious Metals Fall As Geopolitical Risks Ease
- Oil prices have slid sharply today following reports of a coming Israel-Hezbollah ceasefire within the next 36 hours.
- WTI Jan 25 is down by 3.3% at $68.9/bbl.
- Meanwhile, the market awaits signs of OPEC’s output plans for 2025 after previous attempts to try and bring barrels back to the market during Q4 were delayed.
- For WTI futures, a bearish theme remains intact and attention is on $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support.
- Spot gold has fallen by 3.5% today to $2,622/oz as some of the geopolitical risk premium surrounding the Israel-Lebanon conflict has been removed.
- Gold had already slipped on the back President-elect Trump nominating Scott Bessent for Treasury Secretary, with his policy preferences deemed less inflationary than some of the alternatives.
- In terms of the prevailing technicals, the trend remains bullish for now. However, today’s move has brought gold through initial support at the 50-day EMA at $2,638.9, increasing the bearish threat, with next support at $2,610.5, the Nov 19 low.
- Similarly, silver has declined by 3.3% to $30.3/oz.
- Medium-term bullish conditions in silver remain intact and the bear cycle that started on Oct 23 still appears to be a correction.
- However, price has recently breached the 20- and 50-day EMAs exposing $28.446, a Fibonacci retracement. Initial firm resistance to watch is $31.315, the 20-day EMA.
SESSION FIXES AND PRIOR SESSION REFERENCE RATES
SOFR FIX - Source BBG/CME | ||
1M | 5.34513 | 0.00394 |
3M | 5.28201 | 0.00254 |
6M | 5.13575 | 0.00494 |
12M | 4.80556 | 0.00581 |
US TSYS/OVERNIGHT REPO: SOFR Steady
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.57%, no change, $2188B
- Broad General Collateral Rate (BGCR): 4.56%, no change, $802B
- Tri-Party General Collateral Rate (TGCR): 4.56%, no change, $773B
SOFR on Friday held onto Thursday’s increase (an increase that was largely attributable to unusually large bill settlements), with secured rates roughly expected to remain around current levels or slightly higher through most of the rest of the month.
STIR: Effective Fed Funds Rate Unchanged
New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 4.58%, no change, volume: $100B
- Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $281B
- Take-up of the Fed's overnight reverse repo facility unwound Friday’s modest lift, falling $18bn to $187bn.
- Recent lows remain $144bn from Nov 5.
- The 57 counterparties remains within recent ranges.
- ON RRP take-up is expected to pick up at end-month.
ECB: Weekly ECB Speak Wrap (Nov 18 – Nov 25)
Continued weakness in the Eurozone growth outlook, most recently highlighted by Friday’s November flash PMIs, has led to increased speculation around a more aggressive pace of ECB easing and possible guidance changes at the upcoming December meeting.
- Following the PMIs, the implied probability of a 50bp December cut reached a dovish extreme of almost 60%, though this has pared back to 35-40% as of Monday morning. Policymaker reactions to the PMIs have so far been quite limited, but there doesn’t yet seem to be evidence of a shift towards a 50bp cut, keeping 25bps as the base case for now.
- Instead, we think the PMIs open up a larger possibility of a guidance tweak in December, in particular around the ECB’s pledge to keep policy restrictive. In an interview with the MNI Policy Team, the hawkish Holzmann said such a change is already being debated amongst policymakers, though he unsurprisingly prefers to keep the pledge in for now.
- In the following PDF, we provide a summary of ECB-speak from November 18 to November 25 and summarise commentary since the October meeting by speaker and topic.
FULL PUBLICATION HERE: 241125 - Weekly ECB Speak Wrap.pdf
CFTC: AUD Positioning Remarkably Resilient
- AUD positioning remains remarkably resilient, despite the near-term vol in spot. The AUD net position held at a net long of 17.4% of open interest, within range of the 52w high, pressing the Z-score to +1.87 and the higehst among all currencies surveyed.
- Conversely, EUR positioning swung to a small net short, reflecting the pullback in spot over the survey period - although spot losses were greater in both the week prior, and the four sessions following, Friday's update. The outright net futures position of -42,557 is close to the post-COVID largest net short levels and, while not yet at extreme levels, may expose markets to a spur of short-covering and a near-term bounce.
- Meanwhile markets trimmed the net long GBP and MZN , built shorts in EUR, NZD and CHF, while covering shorts in JPY. Full update here:
US DATA: Dallas Fed Mfg Future Optimism Hits New Three-Year High
- The penultimate of the five regional Fed manufacturing surveys for November, the Dallas Fed survey was mildly lower than expected at -2.7 (cons -1.8) to leave it near unchanged from -3.0 [Dallas in green lines in charts below].
- That 0.3pt nudge higher sees it technically at is highest since Apr 2022 having started 2024 at a heavy -27.4.
- The little change on the month belied a sharper deterioration in new orders (from -3.7 to -11.9, lowest since July), in part offset by a strong improvement in employment (+10pts to 4.9).
- Manufacturing firms remain far more optimistic looking ahead, with the index for production six months ahead rising further from 42.4 to 44.0, a sixth consecutive monthly increase for its highest since Nov 2021.
- This growing optimism is a trend broadly seen in Empire and Philly surveys.
DATA/EVENTS CALENDAR:
Date | GMT/Local | Impact | Country | Event |
26/11/2024 | 0001/0001 | * | GB | BRC Monthly Shop Price Index |
26/11/2024 | 0700/0800 | ** | SE | PPI |
26/11/2024 | 1100/1100 | ** | GB | CBI Distributive Trades |
26/11/2024 | 1305/0805 | CA | BOC Deputy Mendes speech in PEI. | |
26/11/2024 | 1330/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
26/11/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
26/11/2024 | 1400/0900 | ** | US | S&P Case-Shiller Home Price Index |
26/11/2024 | 1400/0900 | ** | US | FHFA Home Price Index |
26/11/2024 | 1400/0900 | ** | US | FHFA Home Price Index |
26/11/2024 | 1400/0900 | ** | US | FHFA Quarterly Price Index |
26/11/2024 | 1400/0900 | ** | US | FHFA Quarterly Price Index |
26/11/2024 | 1500/1000 | *** | US | New Home Sales |
26/11/2024 | 1500/1000 | *** | US | Conference Board Consumer Confidence |
26/11/2024 | 1500/1000 | ** | US | Richmond Fed Survey |
26/11/2024 | 1500/1500 | GB | BOE's Pill at Economic Affairs Committee | |
26/11/2024 | 1530/1030 | ** | US | Dallas Fed Services Survey |
26/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
26/11/2024 | 1630/1130 | ** | US | US Treasury Auction Result for 52 Week Bill |
26/11/2024 | 1800/1300 | * | US | US Treasury Auction Result for 5 Year Note |
26/11/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
26/11/2024 | 1900/1400 | *** | US | FOMC Minutes |