HIGHLIGHTS
- Treasury curves twisted flatter as bonds led a bounce off Monday's midmorning lows, projected rate cuts into early 2025 cooling.
- ISM Mfg survey data was broadly stronger than expected with some encouraging signs from new orders in November.
- Atlanta Fed President Bostic remains confident inflation is slowing but is uncertain how restrictive monetary policy needs to be.
- Communication, Consumer Discretionary and IT Sector shares helped SPX Eminis tap new all time highs.
MNI US TSYS: Fed Gov Waller's Late Session Dec Rate Cut Comment Buoys Tsys
- Treasury curves twisted flatter Monday as bonds led a midmorning rebound off session lows, 2s10s re-inverting (-1.789) but off last week's low of -2.215. Futures bounced again late Monday after Fed Gov Waller still leans toward a rate cut at the December 18 FOMC policy announcement, citing recent "economic data in hand today and forecasts that show that inflation will continue on its downward path to 2 percent over the medium term."
- Earlier, Atlanta Fed President Bostic remains confident inflation is slowing but is uncertain how restrictive monetary policy needs to be.
- The ISM manufacturing survey was broadly stronger than expected (ISM mfg: 48.4 (cons 47.5, 56 estimates) after 46.5, its highest since June.) with some encouraging signs from new orders in November. The activity data are sequentially supported by the recent gains in the PMI. Prices paid falling back (Prices paid: 50.3 (cons 55.2, 6 estimates) after 54.8.) limited hawkish reaction to the data although the series has been particularly volatile recently.
- S&P Global US manufacturing PMI revised higher: 49.7 in final Nov (cons & flash 48.8) after 48.5 in Oct. It pushes the index to its highest since June.
- Focus remains on Wednesday's ADP private employment and ISM data ahead of Friday's employment report for November.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00696 to 4.52397 (-0.05757 total last wk)
- 3M -0.00148 to 4.46472 (-0.05474 total last wk)
- 6M -0.00819 to 4.37540 (-0.05357 total last wk)
- 12M -0.01959 to 4.23430 (-0.04569 total last wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.59% (+0.02), volume: $2.209T
- Broad General Collateral Rate (BGCR): 4.58% (+0.02), volume: $773B
- Tri-Party General Collateral Rate (TGCR): 4.58% (+0.02), volume: $750B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $95B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $254B
FED Reverse Repo Operation Falls to New Low
RRP usage falls to new multi year low of $135.858B this afternoon from $197.627B on Friday. Compares to prior low of $144.243B on Tuesday, November 5 - last seen on May 6, 2021. The number of counterparties drops to 56 from 67 prior.
US SOFR/TREASURY OPTION SUMMARY
SOFR and Treasury options saw better downside put volume on two-way flow Monday, some large Tsy 5Y midcurve put rolls reported in the first half. Underlying futures bounced off midmorning lows, curves twisting flatter as short end rates underperformed on robust selling in Mar'25 5Y & 10Y Tsy futures. Projected rate cuts into early 2025 recede vs. early morning levels (*) : Dec'24 cumulative -15.8bp (-15.9bp), Jan'25 -20.6bp (-21.8bp), Mar'25 -33.8bp (-36.0bp), May'25 -41.9bp (-43.6bp).
- SOFR Options:
- -10,000 SFRZ4 95.62 calls, 2.0 ref 95.5675
- +5,000 SFRF5 95.43 puts, 0.5 ref 95.76
- +30,000 SFRF5 95.56/95.68 2x1 put spds 2.25-2.5 ref 95.765
- -10,000 SFRU5 95.50/96.00 2x1 put spds, 6.25 net ref 96.055
- +3,000 0QJ5/0QM5 97.50 call spds, 2.5 net and bid, ref 96.27
- +2,500 SFRF5 95.87/96.06/96.18 call flys, 2.25 ref 95.77/0.05%
- 5,000 0QZ4 96.00 puts ref 96.18
- 2,800 0QZ4 96.18/96.25/96.37/96.43 call condors ref 96.175
- 1,000 0QZ4 95.87/96.06/96.37 put flys ref 96.175
- Treasury Options
- 2,000 TYF5 110/111 2x1 put spds trf 111-04.5
- over 15,000 TYG5 113 calls, 27 last ref 111-05
- 58,000 Screen/Blocks Wk1/Wk2 5Y 106.75 put spd rolls, Wk1 total over 84,800
- over 4,800 wk1 TY 110 puts, 5 last ref 111-02.5, expire Friday
- +7,500 TYF5 110.25/111 put spds vs. 112.25 calls, 1 net ref 111-01
- 3,000 TYF5 110/112 call spds ref 111-01.5
MNI BONDS: EGBs-GILTS CASH CLOSE: OAT Underperformance Continues
French political risk remained the dominant theme in EGBs Monday, with OAT underperformance continuing.
- The 10Y OAT/Bund spread rose over 7bp to 88bp, a fresh post-2012 closing high, with the government facing no confidence motions after PM Barnier said it will attempt to force through its social security bill without a vote.
- The spread closed 7bp above the session's lows which were reached in early trade, as it looked like a no confidence vote could be averted after government fiscal concessions to the far-right.
- Implied market pricing for a 50bp ECB cut next week pulled back by around 2bp (to 30bp), with Bunds gaining fairly steady throughout the session.
- Gilts traded without clear direction, closing with a decent rally (mirroring Treasuries, rather than any local developments) to avoid losses for the day but still leaving UK instruments underperforming German counterparts.
- The UK curve bull flattened, with the German belly outperforming on the curve. The French sell-off spilled over into periphery EGBs, though OATs were still the underperformer overall.
- Tuesday's calendar includes Spanish labour market data and ECB speakers (Cipollone, Panetta), with some attention on Swiss CPI.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 5.2bps at 1.899%, 5-Yr is down 5.8bps at 1.868%, 10-Yr is down 5.4bps at 2.034%, and 30-Yr is down 5.4bps at 2.271%.
- UK: The 2-Yr yield is down 2.6bps at 4.208%, 5-Yr is down 2.5bps at 4.069%, 10-Yr is down 3bps at 4.212%, and 30-Yr is down 1.8bps at 4.733%.
- Italian BTP spread up 4.4bps at 123.2bps / French OAT up 7.6bps at 88.2bps
MNI EGB OPTIONS: Mixed Rates Trade, With Large Bobl Call Fly Selling
Monday's Europe rates/bond options flow included:
- OEF5 119.5/120/120.5 call fly 17.5K given at 6.5/6.0
- ERZ4 97.37 calls 5.5K given at 0.5.
- ERH5 97.75/97.62/97.50/97.37 put condor paper paid 4 on 7.5K.
- ERJ5 98.375/98.625/98.75 1x3x2 call fly paper paid 2.25 on 4K
MNI FOREX: EURJPY Sinks Below 158.00, USDCNH Approaches 7.30
- USD/CNH rose to a fresh four month high of 7.2956 on Monday, narrowing in on 7.30 and the 2024 highs at 7.3114. Broader USD gains are being supported by a higher US yield backdrop, while China yields continue to track lower, with the 10yr residing below 2.00% at fresh multi decade lows. In the process, the pair has risen above downtrend resistance drawn from the 2023 highs, which may have exacerbated the price action to start the week.
- Expectations for central bank policy rate convergence is particularly weighing on cross/JPY today, with the well-known French political risks adding to the lingering concerns in Germany, both fuelling outside expectations that the ECB could cut rates by more than 25bp on December 12.
- EURJPY is down 0.85% on the session as we approach the APAC crossover, which extends the post US election pullback to as much as 5.40%. We have broken below trendline support drawn from the 2022 lows, which could signal scope more a more protracted move lower. The Sep 16 low at 155.15 represents a key support and below here, a cluster of daily lows between 154.46 and 153.27 will be targets.
- For USDJPY, the pair broke lower in late trade on Monday, extending below the 149.50 lows to closely match support at 149.09, the Oct 21 low, before recovering around 70 pips.
- Elsewhere, most other G10 majors have strengthened in line with the broader USD index adjustment, with EURUSD looking set to close back below 1.0500. The medium-term trend direction is down. A stronger reversal lower would refocus attention on the bear trigger at 1.0335, the Nov 22 low.
- Swiss inflation data and US JOLTS job openings highlight the data calendar on Tuesday.
MNI OPTIONS: Larger FX Option Pipeline
- EUR/USD: Dec04 $1.0400(E1.7bln), $1.0450(E830mln), $1.0525(E1.1bln), $1.0700(E1.0bln); Dec05 $1.0500-05(E1.1bln), $1.0550-65(E2.4bln); Dec06 $1.0500(E1.5bln)
- USD/JPY: Dec04 Y143.50($2.2bln)
- AUD/USD: Dec04 $0.6500(A$1.1bln); Dec05 $0.6590-00(A$1.7bln)
- USD/CNY: Dec04 Cny7.2000($2.1bln); Dec05 Cny7.2000($2.1bln), Cny7.1900($1.3bln), Cny7.2000($1.5bln), Cny7.2500($1.8bln)
MNI US STOCKS: Late Equities Roundup: Remain Off Early Session Lows
- Stocks remain modestly mixed after drifting off early Monday lows, S&P Eminis and Nasdaq indexes still outperforming the DJIA in late trade. Currently, DJIA trades down 99.99 points (-0.22%) at 44810.18, S&P E-Minis up 6.5 points (0.11%) at 6058, Nasdaq up 154.5 points (0.8%) at 19372.55.
- Communication Services, Consumer Discretionary and Information Technology sectors continued to lead gainers in late trade, interactive media and entertainment stocks supported the Communication Services sector: Meta Platforms +2.84%, Alphabet +1.45% while Netflix trades +0.97%. The Discretionary sector was supported by a mix of cruise lines and casinos: Norwegian +4.28%, Las Vegas Sands +3.49%, Carnival +2.44%.
- Meanwhile, the tech sector saw broad gains in a variety of hardware, chip and software stocks: Super Micro Computer continued to trade in double digit ranges, up 28.52% after a special committee found no evidence of accounting misconduct, while the current CFO will be stepping down. Elsewhere, Lam Research +5.55%, Applied Materials +4.63%, Enphase +4.32%.
- On the flipside, Utilities and Energy sectors underperformed in the first half, electricity and independent power providers weighing on the later: PG&E -4.67% after announcing a $1.2B public offering, Exelon -2.88%, Vistra -2.86%. Oil and gas stocks continue to trade weaker: Texas Pacific -6.25%, Targa Resources -4.57%, , Williams -2.80%.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Fresh All-Time High
- 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 Intraday high
- PRICE: 6066.75 @ 1533 ET Dec 2
- SUP 1: 5960.85 20-day EMA
- SUP 2: 5876.00 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. 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 5960.85, the 20-day EMA.
MNI COMMODITIES: WTI Crude, Gold Steady Amid Further US Dollar Gains
- WTI has reversed earlier gains to be trading only marginally higher on the day, with a stronger US dollar offsetting better Chinese economic data and signs of the Israel-Hezbollah ceasefire failing.
- WTI Jan 25 is up by 0.1% at $68.1/bbl.
- Reuters is reporting that the Israeli military is attacking targets in Lebanon, after multiple reports today of ceasefire violations by both the IDF and Hezbollah in Lebanon.
- With a bearish threat in WTI futures still present, attention is still on $65.74, the Oct 1 low.
- Meanwhile, Henry Hub is on track for its lowest close since Nov 22, as strong domestic production offsets the current cold snap and robust LNG demand.
- US Natgas Jan 25 is down by 4.2% at $3.22/mmbtu.
- Spot gold has also edged down by 0.2% to $2,639/oz, as the yellow metal continues to consolidate after the sharp pull-back on Nov 25.
- The long-term trend condition in gold remains bullish and the Oct 31 - Nov 14 bear leg appears to have been a correction. Resistance to watch is $2,721.4, the Nov 25 high.
- Copper is broadly unchanged today at $414/lb, despite the larger-than-expected increase in China’s Caixin manufacturing PMI in November.
- A bearish trend condition in copper futures remains intact, with focus on $401.35, the Aug 7 low and a bear trigger.
TUESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 03/12/2024 | 0700/0200 | * |  TR | Turkey CPI |
| 03/12/2024 | 0730/0830 | *** |  CH | CPI |
| 03/12/2024 | 0800/0900 |  EU | ECB's Cipollone at GeoEconomy Talk | |
| 03/12/2024 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 03/12/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 03/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS jobs opening level |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS quits Rate |
| 03/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 03/12/2024 | 1735/1235 | US | Fed Governor Adriana Kugler | |
| 03/12/2024 | 1830/1330 | US | Chicago Fed's Austan Goolsbee | |
| 03/12/2024 | 2045/1545 | US | Chicago Fed's Austan Goolsbee | |
| 04/12/2024 | 2200/0900 | * |  AU | S&P Global Final Australia Services PMI |
| 04/12/2024 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |
| 04/12/2024 | 0030/1130 | *** | AU | Quarterly GDP |
| 04/12/2024 | 0030/0930 | ** |  JP | S&P Global Final Japan Services PMI |
| 04/12/2024 | 0030/0930 | ** | JP | S&P Global Final Japan Composite PMI |
| 04/12/2024 | 0145/0945 | ** |  CN | S&P Global Final China Services PMI |
| 04/12/2024 | 0145/0945 | ** | CN | S&P Global Final China Composite PMI |
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