HIGHLIGHTS
- Treasuries finish near session lows as Chairman Powell comments from NABE conference seemed more hawkish than post FOMC views on pace of Fed rate cuts. “This is not a committee that feels like it’s in a hurry to cut rate quickly,” Powell said.
- Curves bear flattened while projected rate cuts recede with less than 75bp priced in by year end after the bell.
- Focus turns to Tuesday's Flash PMI, JOTLS and ISM data and additional Fed speak from Bostic, Barkin and Cook.
US TSYS
US TSYS: Tsys Near Lows As Chair Powell Rebuts His Own Post FOMC Comments
- Treasuries look to finish near session lows after comments from Chairman Powell at NABE conference taken hawkishly by markets, projected rate cut pricing receding as Powell stressed the Fed is not in a hurry to cut rates.
- Dec'24 10Y futures nearly breached initial technical support of 114-07, last Thursday's low, before rebounding 114-11 (-12.5) after Powell ended his session. Curves bear flattened: 2s10s -4.701 at 14.234 vs. -13.208 low after climbing to 19.687 this morning.
- Treasuries traded a narrow band earlier, taking cues from EGBs -- bouncing to top of session range in reaction to ECB Pres Lagarde commenting that the ECB will take into account stronger confidence in the inflation outlook at that gathering.
- Tsys held near top of range after MNI Chicago PMI comes out higher than expected at 46.6 (but still contractionary -- well below 50). The marginal rise was due to two of the five subcomponents improving significantly: Order Backlogs and Employment. Meanwhile, reductions in Supplier Deliveries, New Orders, and Production restricted the upward move.
- Focus turns to tomorrow's flash PMI, JOLTS and ISMs and more Fed speak from Bostic, Barkin and Cook.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00160 to 4.84570 (-0.01312 total last wk)
- 3M -0.00124 to 4.59211 (-0.09790 total last wk)
- 6M -0.00798 to 4.25387 (-0.08954 total last wk)
- 12M -0.00640 to 3.77668 (-0.04841 total last wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.84% (+0.01), volume: $2.077T
- Broad General Collateral Rate (BGCR): 4.83% (+0.00), volume: $787B
- Tri-Party General Collateral Rate (TGCR): 4.83% (+0.00), volume: $753B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $94B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $248B
FED Reverse Repo Operation
RRP usage continues to climb heading into month/quarter end, latest at $465.638B this afternoon from $436.518B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties at 69 from 59 prior.
US SOFR/TREASURY OPTION SUMMARY
Option desks report better downside put trade on net -- well ahead of Chairman Powell's comments at NABE conf that weighed heavily on markets. SOFR White pack (SFRZ4-SFRU5) currently -0.090-0.135, while projected rate cuts into early 2025 recede vs. early morning levels (*): Nov'24 cumulative -34.1bp (-35.1bp), Dec'24 -68.9bp (-71.4bp), Jan'25 -100.6bp (-103.4bp). Salient trade includes:
- SOFR Options:
- -10,000 SFRV4 95.75/95.93/96.06/96.25 call condors, 11.0 ref 96.005
- +8,000 SFRV4 95.87/95.93/96.00 put flys, 1.25 vs. 95.975/0.05%
- +6,000 2QZ4 96.62/97.00 2x1 put spds vs 2QV4 96.68/96.93 2x1 put spds, 1.25
- Block, +5,000 SFRZ4 95.68/95.81 2x1 put spds 1.0 net ref 96.00 at 0854:53ET
- +5,000 SFRZ4 96.00/96.25 call spds 8.0
- +9,000 SFRZ4 95.93/96.00/96.06 put flys, 0.5
- +5,000 SFRX4 96.12/96.37 cal spds 2.0 over 2QX4 97.25/97.37 call spds
- over 28,000 SFRX4 95.81/95.93 put spds ref 96.005
- 2,500 SFRV4 95.75/95.81/95.87 put trees ref 96.00
- 5,000 SFRV4 96.06/96.25 call spds ref 95.995
- Block, 15,000 SFRV4 96.12/96.18 call spds 1.25 vs. 96.005/0.07%
- 3,000 SFRX4 96.12/96.25/96.31/96.43 call condors ref 95.985
- Block, 3,000 SFRH5 95.43/95.50 put spds 0.5 vs. 96.51/0.05%
- 1,000 SFRZ4 95.68/95.75/95.75 & SFRZ4 95.75/95.81/95.93 2x3x1 put flys
- Block/screen, 15,000 SFRZ4 95.25/95.75/96.25 put flys, 25.0 ref 95.995 to 96.00
- Block, 5,000 SFRH5 96.50/97.00 call spds vs. 2QH5 97.50/98.00 call spds, 9.0 net steepener
- Block/screen 13,000 SFRV4 96.18/96.25 call spds
- 4,000 0QZ4 96.50 puts, 4.0 ref 97.085
- Treasury Options:
- 3,000 wk1 TY/TYX4 114 put spds, 13 ref 114-19
- 4,500 wk2 10Y 113/114 3x2 put spds, 30 net ref 114-13.5
- 3,000 TYX4 115/116/117 call flys ref 114-15.5
- 2,300 TYX4 113 puts, 10 last
- 3,000 Wednesday wkly 10Y 114 puts, 3 ref 114-16.5
EGBS
BONDS: EGBs-GILTS CASH CLOSE: Bunds Gain On Lagarde Inflation "Confidence"
Gilts underperformed, as Bunds strengthened to start the week.
- Curves bear flattened early on, with German state-level inflation if anything on the dovish side of expectations. But European bonds sold off regardless, which was seen as the result of overly-dovish positioning going into the releases.
- Core EGBs rallied sharply in early afternoon on ECB President Lagarde's commentary that the latest inflation developments "strengthen our confidence" and "we will take that into account" at the October meeting. MNI published an ECB sources piece titled "Chances of October ECB Cut At Least 50-50" (link here).
- The UK curve bear flattened on the day, with Germany's leaning bull flatter as implied October ECB cut pricing touched 92%, compared to 20% at the start of last week.
- Periphery EGB spreads widened modestly as European equities reversed Friday's gains.
- BoE's Greene speaks after the cash close. Tuesday's agenda includes Euro flash HICP (MNI is tracking a 1.7% Y/Y figure), final manufacturing PMIs, and ECB speakers including Nagel, Rehn and de Guindos.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.8bps at 2.068%, 5-Yr is down 0.5bps at 1.947%, 10-Yr is down 1bps at 2.123%, and 30-Yr is down 0.7bps at 2.459%.
- UK: The 2-Yr yield is up 4.3bps at 3.983%, 5-Yr is up 3.6bps at 3.86%, 10-Yr is up 2.6bps at 4.003%, and 30-Yr is up 0.9bps at 4.584%.
- Italian BTP spread up 1.1bps at 133bps / Spanish up 1.1bps at 80.3bps
FX EXPIRY
OPTIONS: Expiries for Oct01 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1050(E527mln), $1.1080-00(E2.6bln), $1.1155-60(E612mln), $1.1200(E944mln), $1.1265-70(E1.1bln)
- USD/JPY: Y142.00($525mln), Y143.30-50($1.0bln), Y143.80-00($1.2bln)
- EUR/JPY: Y155.75(E1.3bln)
- AUD/USD: $0.6790-08(A$1.8bln)
EQUITY TECHS: E-MINI S&P: (Z4) Bulls Remain In The Driver’s Seat
- RES 4: 5900.00 Round number resistance
- RES 3: 5871.77 2.0% Upper Bollinger Band
- RES 2: 5868.50 1.00 proj of the Apr 19 - Jul 16 - Aug 5 price swing
- RES 1: 5830.00 High Sep 26
- PRICE: 5785.75 @ 07:43 BST Sep 30
- SUP 1: 5709.39 20-day EMA
- SUP 2: 5641.58 50-day EMA
- SUP 3: 5500.00 Round number support
- SUP 4: 5451.25 Low Sep 6 and a bear trigger
A bull cycle in S&P E-Minis remains intact and last week’s fresh cycle highs, reinforce this theme. Moving average studies are in a bull-mode setup and this also reinforces the bullish theme. Scope is seen for a climb towards 5851.84, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5709.39, the 20-day EMA. Key support lies at 5641.58, the Sep 27 low.
COMMODITIES
COMMODITIES: Iron Ore Jumps After China Eases Home-Buying Curbs, Crude Steady
- Iron ore spiked almost 10% on Monday after some of China’s biggest cities eased curbs on home-buying. Shanghai, Guangzhou and Shenzhen loosened rules, following through on Beijing’s latest efforts to prop up the embattled property sector.
- After opening higher, however, copper gave up its gains through Monday’s session, with the red metal currently 1.1% lower on the day at $455/lb.
- Copper remains over 12% above its Sept 5 low, however, and Codelco chairman Maximo Pacheco said today that the company’s output has started to recover.
- For now, the move down in copper futures is considered corrective. Key support is seen at $430.32, the 50-day EMA. Key near-term resistance is seen at $479.00, today’s intraday high.
- Spot gold is also 1% lower at $2,631/oz.
- Meanwhile, oil struggled for direction on Monday as bullish Middle East drivers have failed to hold up against a weak backdrop for oil.
- WTI Nov 24 is up 0.2% at $68.3/bbl.
- Signs of an imminent Israeli ground invasion into Lebanon proved supportive later in the session but has again failed to hold as markets assess no direct impact for oil flows yet.
- For WTI futures, a move lower would refocus attention on $64.61, the Sep 10 low and bear trigger. Resistance is seen at the 50-day EMA of $71.77.
TUESDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 01/10/2024 | - | *** | Sep | NA-made light vehicle sales SAAR | -- | -- | (m) |
| 01/10/2024 | 0855 | ** | 28-Sep | Redbook Retail Sales y/y (month) | 5.2 | -- | % |
| 01/10/2024 | 0855 | ** | 28-Sep | Redbook Retail Sales y/y (week) | 4.4 | -- | % |
| 01/10/2024 | 0945 | *** | Sep | S&P Global Manufacturing PMI (f) | 47 | 47 | |
| 01/10/2024 | 1000 | *** | Sep | ISM Man. Employment Index | 46 | -- | |
| 01/10/2024 | 1000 | *** | Sep | ISM Manufacturing Index | 47.2 | 47.7 | |
| 01/10/2024 | 1000 | *** | Sep | ISM Manufacturing New Orders | 44.6 | -- | |
| 01/10/2024 | 1000 | *** | Sep | ISM Manufacturing Prices Index | 54 | -- | |
| 01/10/2024 | 1000 | * | Aug | Construction Spending m/m | -0.3 | 0.1 | % |
| 01/10/2024 | 1000 | *** | Aug | JOLTS job openings level | 7673 | 7693 | (k) |
| 01/10/2024 | 1000 | *** | Aug | JOLTS quits rate | 2.1 | -- | % |
| 01/10/2024 | 1030 | ** | Oct | Dallas Fed services index | -7.7 | -- | |
| 01/10/2024 | 1130 | * | 04-Oct | Bid to Cover Ratio | -- | -- | |
| 01/10/2024 | 1130 | ** | Sep | Bid to Cover Ratio | -- | -- |
1316 words