HIGHLIGHTS:
- MNI UN: Biden To Hold Bilats With Netanyahu And Lula At UN General Assembly
- MNI SECURITY: US Says Iran Remains Adversary But Doesn't Rule Out Nuclear Diplomacy
- MNI US: Yellen: US Watching Oil Prices Very Closely
Key Links: MNI INTERVIEW: Resilience Calls For More Fed Tightening -Tracy / MNI: Fed Dot Plot To Show 1 More Hike, GDP Boost- Ex-Officials / MNI Fed Preview - Sep 2023: Analyst Outlook
US TSYS Curves Extend Inversion Ahead Wed' FOMC Policy Annc
- Following this morning's whippy trade, intermediate to long end rates are trading near mid-session highs (TYZ3 steady at 109-16.5 vs. 109-19 high, USZ3 +7 at 118-26 vs. 118-28 high), curves flatter (3M10Y -1.769 at -115.395; 2Y10Y -4.558 at -74.996).
- No obvious headline or Block/flow driver for early moves as volumes remain exceptionally light by the close (TYZ3 <790k), more likely just repositioning ahead this Wednesday's FOMC policy announcement.
- Traders expect the Fed to keep rates on hold at this Wed's annc but with a tightener bias ahead. Rate hike projections through year end largely static: Sep 20 FOMC is .8% w/ implied rate change of +0.02bp to 5.333%. November cumulative of +7.9p at 5.410, December cumulative of 11.5bp at 5.446%. Fed terminal at 5.445% in Jan'24.
- Look ahead: Tuesday's data includes Building Permits and Housing Starts at 0830ET, US Treasury $13B 20Y Reopen Sale at 1300ET.
SHORT TERM RATES
SOFR Benchmark Settlements:
- 1M -0.00224 to 5.32484 (-0.00238 total last wk)
- 3M -0.00383 to 5.39785 (-0.00879 total last wk)
- 6M +0.00022 to 5.46606 (-0.00613 total last wk)
- 12M +0.02150 to 5.44294 (-0.00248 total last wk)
- Daily Effective Fed Funds Rate: 5.33% volume: $96B
- Daily Overnight Bank Funding Rate: 5.32% volume: $263B
- Secured Overnight Financing Rate (SOFR): 5.31%, $1.586T
- Broad General Collateral Rate (BGCR): 5.30%, $584B
- Tri-Party General Collateral Rate (TGCR): 5.30%, $570B
- (rate, volume levels reflect prior session)
FED REVERSE REPO OPERATION
NY Federal Reserve/MNI
Repo operation bounces to: 1,452.942B w/96 counterparties, compared to $1,401.403B (lowest level since November 15, 2021) in the prior session. The high for 2023 stands at $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.
SOFR/TREASURY OPTION SUMMARY
SOFR and Treasury option rotated around better low delta puts and put spreads Monday, Nov and Dec expirations - covering the next two FOMC policy annc's. Traders expect the Fed to keep rates on hold at this Wed's annc but with a tightener bias ahead. Rate hike projections through year end cooling slightly: Sep 20 FOMC is .8% w/ implied rate change of +0.02bp to 5.333%. November cumulative of +7.9p at 5.410, December cumulative of 11.7bp at 5.448%. Fed terminal at 5.45% in Jan'24.
- SOFR Options:
- +6,000 SFRM4 96.00/97.00 call spds 7.5 vs. 94.855/0.10%
- +20,000 SFRH4 93.87/94.12/94.37 put trees, 3.0
- 1,500 0QV3 95.06/95.31 3x2 put spds
- update, 17,700 SFRZ3 93.75/94.00 put spds ref 94.535 to .45
- 2,000 0QX3 95.75/96.00/96.12 broken call flys ref 95.485
- 2.500 0QV3 95.00/95.25/95.38/95.62 put condors
- 1,250 0QZ3 95.00/95.50 put spds vs. 2QZ3 95.50/96.00 put spds
- 3,000 0QZ3 95.00/95.38/95.62 broken put flys ref 95.49
- 1,500 0QZ3 95.38 puts ref 95.485
- 1,000 SFRX3 94.56/94.62/94.68 call flys vs. SFRX3 94.50/94.56 put spds
- 2,500 SFRZ3 94.37/94.43 put spds ref 94.54
- 2,000 0QZ3 95.25/95.50 put spds vs. 2QZ3 95.87/96.12 put spds
- 1,000 SFRV3 94.62/94.87 call spds ref 94.545
- Treasury Options:
- 1,650 FVV3 105/106 put spds, ref 105-30.75
- 2,300 TYV/TYV 110 call spds. 32 ref 109-11
- 2,000 USV3 116/116.5 put spds, 2 ref 118-08
- +5,000 FVV3 104.75 puts, 1.5
- +4,000 FVV3 104.5/104.75/105.25/105.5 put condors
- +11,000 TUV3 101.38 puts, 5.5-6
- -2,000 USX 112/116 put spds, 42
- 2,500 USV3 116 puts, 6 ref 118-10
- 2,000 FVZ3 106.75/108.25 call spds ref 105-27.25
- 1,000 FVV3 105.5/105.75 put spds ref 105-29.75
EGBs-GILTS CASH CLOSE: Yields Tick Higher, Periphery Spreads Widen
European yields rose modestly Monday, with the German curve bear flattening and the UK's bear steepening. Periphery EGB spreads widened slightly.
- ECB / BoE terminal rate expectations picked up about 2bp apiece.
- Weekend comments from various ECB Governing Council members pushed back against the idea of near-dated rate cuts.
- Greece undeperformed on the periphery, with Moody's two-notch rating upgrade to one step below IG (in line with Fitch & S&P) offset by some disappointment it was accompanied only by a 'stable' outlook.
- Final eurozone CPI is released Tuesday morning, with UK and Finnish supply eyed as well. The BoE decision looms on Thursday (and UK CPI, and the Federal Reserve decision, before that on Wednesday).
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 4bps at 3.255%, 5-Yr is up 4.3bps at 2.735%, 10-Yr is up 3.3bps at 2.708%, and 30-Yr is up 2.7bps at 2.844%.
- UK: The 2-Yr yield is up 1.2bps at 5.033%, 5-Yr is up 4.2bps at 4.575%, 10-Yr is up 3.3bps at 4.391%, and 30-Yr is up 3.1bps at 4.731%.
- Italian BTP spread up 1.9bps at 180.4bps / Greek up 2.3bps at 144.6bps
EGB Options: Rates Trade Continues Post-ECB, But Limited
Monday's Europe rates/bond options flow included:
- 0RZ3 97.25 call vs 2RZ3 97.625 call, bought the mid for up to flat in 4k
- ERH4 96.00^ bought for 31.75 in ~2k
- ERU4 96.37/96.25/96.12p fly sold at 0.75 in 9.5k
FOREX USD Index Moderately Lower In Subdued Trade
- The US dollar has moderately edged lower on Monday with the USD index registering a 0.15% decline as we approach the APAC crossover. Losses very briefly extended through the European close and the DXY printed below Friday’s lowest levels, coinciding with a small bounce for equities and the upward bias for crude futures on Monday.
- We noted last week that the DXY extended its impressive streak of consecutive weekly advances to nine with slightly higher US inflation data and firmer-than-expected activity figures underpinning the greenback strength. Given the proximity to the FOMC decision on Wednesday, greenback profit taking dynamics may be in play.
- Price action saw EURUSD briefly climb to a session best of 1.0699, and still outperforms in the G10 space, rising 0.25%. It is worth noting that moving average studies remain in a bear mode position, highlighting the market's current sentiment and sights are on 1.0611, a Fibonacci retracement. Initial firm resistance is not seen until 1.0786, the 20-day exponential moving average.
- With Canadian CPI on Tuesday, it is worth noting that USDCAD (-0.25%) has cleared a key support at 1.3490 (Sep 1 high) but has struggled to push beyond the 50-day EMA at 1.3474. Resumed progress to the downside could ultimately open 1.3352 (Aug 7 low).
- Additionally, both UK CPI and the Bank of England are scheduled this week, attention will be on GBPUSD where the trend needle continues to point south, maintaining the bearish price sequence of lower lows and lower highs. The focus is 1.2369 next, the Jun 5 low, which was tested earlier today. Below here is 1.2308, the May 25 low and a key support.
- The RBA minutes will highlight the APAC docket on Tuesday.
Late Equity Roundup
- Stocks are holding mildly higher in late trade, scaling off midday, generally quiet in the lead-up to Wednesday's policy announcement from the FOMC. Currently, S&P E-Mini futures are up 0.75 points (0.02%) at 4498.5, Nasdaq down 14.4 points (-0.1%) at 13692.67, DJIA up 11.59 points (0.03%) at 34629.44.
- Leaders: Energy, Information Technology and Industrials continued to outperform, the former buoyed as crude prices climbed to new highs (WTI at 91.42, +.65): Marathon +1.65%, Valero +1.5%, Schlumberger +1.3%.
- Hardware and equipment makers led the IT sector: Tyler Ind +3.4%, Apple +2.25% amid surge in new iPhone demand in China, Motorola +1.9%. Electrical equipment makers buoyed Industrials: Rockwell Automation +1.90%, Eaton Corp +1.5%, Ametek Inc +1.1%.
- Laggers: Consumer Discretionary, Real Estate and Materials sectors underperformed with auto makers weighing on the former: Tesla -3.05%, Ford -2.25%, GM -1.5% (UAW strike continues). Office and residential REITS weighed on the Real Estate sector while chemical makers weighed on Materials: FMC -1.9%, Int Flavors & Fragrances -1.7%.
- Technicals: Despite the modest bounce, a bear cycle in the E-mini S&P contract remains in play. Friday’s strong sell-off reinforces this theme and suggests the recent shallow correction higher, is over. Key short-term support has been defined at 4483.25, the Sep 7 low. Clearance of this level would be seen as a bearish development and open 4397.75, the Aug 18 low and a bear trigger. For bulls, a resumption of gains would instead open 4597.50, the Sep 1 high.
E-MINI S&P TECHS: (Z3) Bear Threat Remains Present
- RES 4: 4685.25 High Jul 27 and key resistance
- RES 3: 4673.50 High Aug 1
- RES 2: 4617.40 76.4% retracement of the Jul 27 - Aug 18 sell-off
- RES 1: 4566.00/4597.50 High Sep 15 / 1 and a near-term bull trigger
- PRICE: 4500.00 @ 1500 ET Sep 18
- SUP 1: 4483.25 Low Sep 7 and a key near-term support
- SUP 2: 4444.89 76.4% retracement of the Aug 18 - Sep 1 bull leg
- SUP 3: 4412.25 Low Aug 25
- SUP 4: 4397.75 Low Aug 18 and a bear trigger
A bear cycle in the E-mini S&P contract remains in play. Friday’s strong sell-off reinforces this theme and suggests the recent shallow correction higher, is over. Key short-term support has been defined at 4483.25, the Sep 7 low. Clearance of this level would be seen as a bearish development and open 4397.75, the Aug 18 low and a bear trigger. For bulls, a resumption of gains would instead open 4597.50, the Sep 1 high.
COMMODITIES WTI Starts To Recover Prior Gains North Of $92/bbl Post Settle
- WTI is recovering after an intraday push lower into the settle that had been somewhat attributed to Saudi Arabia comments with Energy Minister Prince Abdulaziz bin Salman saying the “jury is still out” on China oil consumption and Saudi Aramco lowering its estimate for 2030 demand.
- Crude markets remain up on Friday’s close, and settled at fresh year to date highs, supported by tight supply and falling inventories amid OPEC+ cuts until the end of the year.
- Further from Prince Abdulaziz bin Salman speaking in Calgary: OPEC+ is a benign body which acts, "no different from central bank actions." He said OPEC is "not targeting prices," rather, "targeting less volatility" and says the group wants to be, "proactive, pre-emptive, precautious."
- Crude oil prices are likely rising to $100/bbl soon amid tightening supplies and record-level demand, Chevron’s CEO Mike Wirth said.
- The US Strategic Petroleum Reserve received an inflow of oil for the seventh straight week of 600k barrels of sour crude according to data from the Department of Energy.
- WTI is +0.8% at $91.21, with its high of $92.33 fleetingly testing resistance at $92.17 (Nov 8, 2022 high cont) before pulling back. A stronger move higher could open $94.66 (2.236 proj of Jun 28 – Jul 13 – Jul 17 price swing).
- Brent is +0.3% at $94.48 off its high of $94.95 which briefly cleared $94.79 (Nov 16 high) top open $96.95 (Nov 14, 2022 high cont).
- Gold is +0.4% at $1931.82, gaining as USD slipped later in the session. It pushes closer towards resistance at $1939.0 (Sep 5 high).
TUESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Flag | Country | Event |
| 19/09/2023 | 0800/1000 | ** |  | EU | EZ Current Account |
| 19/09/2023 | 0900/1100 | *** | | EU | HICP (f) |
| 19/09/2023 | 0900/1000 | ** |  | UK | Gilt Outright Auction Result |
| 19/09/2023 | 1230/0830 | *** |  | CA | CPI |
| 19/09/2023 | 1230/0830 | *** |  | US | Housing Starts |
| 19/09/2023 | 1230/1430 | | EU | ECB's Elderson Speaks at Banking Union Conference | |
| 19/09/2023 | 1255/0855 | ** | | US | Redbook Retail Sales Index |
| 19/09/2023 | 1530/1130 | * | | US | US Treasury Auction Result for Cash Management Bill |
| 19/09/2023 | 1700/1300 | ** | | US | US Treasury Auction Result for 20 Year Bond |
| 19/09/2023 | 1745/1345 | | CA | BOC Deputy Kozicki speech in Regina SK. |
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