HIGHLIGHTS
- Treasuries extend late session lows on forward guidance headlines the ECB my not be as dovish as hoped in early 2025.
- The European Central Bank cuts its three key interest rates by 25 basis points on Thursday, sending the benchmark Deposit Rate to 3.0%, the lowest in over two years.
- PPI and weekly jobless claims data both higher than expected, 30Y bond auction re-open tailed 1.2bp.
MNI US: Tsys Extend Late Lows, ECB Guidance May Not Be As Dovish as Expected
- Treasuries drifting near moderate session lows after the bell, decent overall volumes (TYH4 >1.4M) as rates extended lows late on headline the ECB may not be as aggressive in cutting rates in early 2025 after cutting 25bp this morning.
- No where near where US markets started the session: slightly higher than expected PPI and weekly jobless claims saw Tsys see-saw to early session highs (TYH5 110-25) before ratcheting lower by midmorning.
- Producer price inflation picked up by more than expected in November, at +0.4% (0.38% unrounded) M/M vs 0.3% prior (0.25%, reflecting an upward revision from 0.20% initial). The core indices were cooler though: ex-food/energy registered 0.2% (from 0.3% prior, in line with expectations) and the more important ex-food/energy/trade services printed an 18-month low of 0.05% unrounded (0.34% prior, and vs 0.2% expected).
- Initial jobless claims were firmly higher than expected at 242k (sa, cons 220k) in the week to Dec 7 after a marginally upward revised 225k (initial 224k). That’s the highest single week since Oct 12 although the four-week average saw a more muted 5k increase to 224k away from recent lows of 218/219k having been exactly in line with the 2019 average.
- Treasuries extended lows after the $22B 30Y auction reopen (912810UE6) tailed 1.2bp: 4.535% high yield vs. 4.523% WI; 2.39x bid-to-cover vs. 2.64x in the prior month.
- Limited data ahead Friday with import/export prices, the main focus remains on next weeks FOMC policy announcment on Wednesday, Dec 18.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.04642 to 4.39709 (-0.08021/wk)
- 3M -0.03688 to 4.35857 (-0.06815/wk)
- 6M -0.03419 to 4.26045 (-0.06897/wk)
- 12M -0.02728 to 4.12138 (-0.05941/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.62% (-0.02), volume: $2.287T
- Broad General Collateral Rate (BGCR): 4.60% (-0.01), volume: $855B
- Tri-Party General Collateral Rate (TGCR): 4.60% (-0.01), volume: $820B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $104B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $244B
FED Reverse Repo Operation
RRP usage recedes to $165.025B Thursday afternoon from $180.120B prior. Usage has risen on the week from last Friday's multi-year low of $130.014B (last seen at May 3 2021: $129.724B). The number of counterparties at 49.
US SOFR/TREASURY OPTION SUMMARY
Option desks report mixed two-way SOFR & Treasury option flow overnight, moderate volumes as accounts await PPI inflation data after yesterday's CPI helped underscore softer policy expectations from the Fed. Projected rate cuts into early 2025 look near steady vs. late Wednesday (*) - but well off yesterday's post-CPI lows: Dec'24 cumulative -24.7bp (-23.7bp), Jan'25 -29.5bp (-29.1bp), Mar'25 -44.1bp (-44.6bp), May'25 -51.6bp (-52.2bp).
SOFR Options
+5,000 SFRU5 95.87/96.00/96.12/96.25 put condor 2 ref 96.135
+10,000 2QG5 96.50/97.00 call spd v 3QG5 96.50/97.00 call spd .5 net
-6,000 SFRZ5 95.25/95.75 2x1 put spds 1.5 ref 9620
+5,000 2QG5 95.50/96.00 put spds 6.0 ref 96.285
-6,000 0QH5 97.25/97.75 call spds vs 2QH5 97.37/97.87 call spds .5net
+10,000 SFRM5 96.56 calls v 2QM5 97.00 calls 1.25 net
-5,000 SFRZ4 95.62/95.68 call spds 3.0 vs. 95.655/0.91%
-5,000 SFRH5 95.62/95.87/96.12 call flys vs 95.87 puts .25 net
-5,000 SFRZ4 95.62/95.68 call spds 3.0 ref 95.6525
+5,000 SFRM5 98.00 calls 2.0 vs. 96.085/0.10%
+4,000 SFRF5 SFRG5 95.56/95.62/95.68 put fly strip .75 total
+10,000 SFRZ5 98.00/99.00 1x2 call spds 2.0 ref 96.22
3,000 SFRH5 95.75/95.87 call spds ref 95.86
4,000 SFRH5 95.75/96.00 2x1 put spds ref 95.865
3,500 0QF5 96.25/96.50/96.62 broken call flys ref 96.215
1,600 SFRU5 96.31/96.56 call spds ref 96.12
1,500 SFRF5/SFRH5 95.75/95.87 put spd spd
Treasury Options
3,100 TYG5 109/112 strangles, 38 ref 110-19
4,000 TYG5 109.5/112 strangles, 45 ref 110-22
3.600 USG5 114 puts, 25 ref 118-01
2,000 TYF5 111.5/111.75/112/112.25 call condors
7,000 TYG5 108/109.5 2x1 put spds ref 110-23.5 to -24
4,700 TYG5 112.5/113.5 call spds, 6 ref 110-16
2,250 FVH5 110.25 calls ref 107-07
3,000 TYF5 112.75 calls, 1 ref 110-17
8,000 wk2 TY 110.25/110.75 2x1 put spds, 12 ref 110-17
Block, 20,000 TYG5 108/108.5/109/110 broken put trees, 3 net/3-legs over ref 110-19
MNI BONDS: EGBs-GILTS CASH CLOSE: BTPs Notable Underperformers After ECB Cut
European yields rose sharply Thursday, with periphery EGBs underperforming.
- Soft US producer price and jobless claims data helped push core FI to session highs as the post-ECB meeting press conference got underway, but Bunds and Gilts would fully reverse those gains and head lower by the cash close.
- While the ECB cut by 25bp as had fully been expected, and dropped language saying it would keep policy "sufficiently restrictive", Lagarde's tone seemed less dovish, noting two-sided risks to inflation.
- Around 7bp of cuts were priced out through the next 6 meetings, though around 125bp is still foreseen (a Bloomberg sources piece after the cash close pointed to two 25bp cuts at the next two meetings, less than market-implied, but had little impact).
- The lack of dovish follow-through from Lagarde saw Bunds lead a steady sell-off, with periphery spreads hard-hit, in particular BTPs on prospects of less monetary easing, with 10Y spreads widening 8+bp.
- The German curve belly underperformed, with the UK's leaning bear steeper (though 5s underperformed 2s and 10s).
- Friday's scheduled highlight will be UK monthly activity data, along with ECB speakers (scheduled are Villeroy, Holzmann, Centeno)
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 6.9bps at 2.021%, 5-Yr is up 8.2bps at 2.037%, 10-Yr is up 7.8bps at 2.205%, and 30-Yr is up 6.8bps at 2.445%.
- UK: The 2-Yr yield is up 2.2bps at 4.273%, 5-Yr is up 4.7bps at 4.18%, 10-Yr is up 4.5bps at 4.362%, and 30-Yr is up 5.6bps at 4.932%.
- Italian BTP spread up 8.1bps at 114.5bps / French OAT down 0.3bps at 76.6bps
MNI OPTIONS: UK Rate Upside Buying Continues, Before And After ECB
Thursday's Europe rates/bond options flow included:
- RXF5 136.50c, bought for 19 in 4k
- ERZ4 97.37/97.50cs, bought for 0.25 in 5k
- ERZ4 97.37c, bought for 0.25 in 3k
- ERJ5 98.12/98.37/98.62c fly vs ERG5 97.87/98.00/98.12c ladder, sold the fly at 2.25 in 23k
- SFIH5 95.30p, bought for 1.25 in 5k
- SFIH5 95.80/95.90/96.10c fly, bought for half in 2k
- SFIM5 96.15/96.45/96.75c fly, bought for 3.75 in 8k
MNI FOREX: CHF Lags Following Bold SNB Easing, GBP Also Underperforms
- Following the bold 50bp rate cut from the SNB, the Swiss Franc is the worst performer in G10 on Thursday. Despite the initial EURCHF spike to 0.9344, momentum did then stall and a late mention that the likelihood of negative rates has become smaller prompted a reversal back to 0.9305 ahead of the ECB. However, ERUCHF (+0.61%) has been steadily grinding higher since and looks set to close near session highs.
- USDCHF rose to a fresh two-week high of 0.8902, and the renewed strength sees us narrow the gap to the post-election highs of 0.8957. The 50-day EMA has supported the pair well here, with the dip following non-farm payrolls providing a good entry point to the broader trend.
- The Euro is currently just above pre-ECB announcement levels ~1.0495, with a tight 55pip range containing the two-way swings post press conference. Support at 1.0461, the Dec 2 low, continues to hold for now and we pointed out that notable option expiries up to Monday between 1.0500-1.0600 might limit the single currency downside.
- Relative weakness for sterling has prompted EURGBP to rise 0.41% on the session, briefly reaching 0.8273 post ECB. Attention remains on key support at 0.8203, the Mar 7 ‘22 low and the lowest point of a multi-year range.
- AUDUSD had a volatile session, initially rallying well on the solid jobs report overnight, where the unemployment rate fell back sub 4.0%, well below forecasts. However, mixed signals this week from the China developments and the RBA dovish pivot keeps the broader dovish trend dominant. Spot has edged back below 0.6400 and is just 40 pips above Wednesday’s fresh one-year low of 0.6337.
FX OPTION EXPIRY:
- EURUSD: 1.0500 (1.5bn), 1.0525 (467mln), 1.0550 (1.79bn), 1.0560 (426mln), 1.0575 (843mln), 1.0580 (200mln), 1.0583 (380mln), 1.0600 (1.29bn).
- GBPUSD: 1.2750 (231mln), 1.2800 (452mln).
- USDJPY: 152.00 (595mln), 152.15 (331mln), 152.70 (1.1bn), 153.00 (260mln).
- USDCAD: 1.4100 (1.16bn), 1.4150 (291mln).
- AUDUSD: 0.6390 (521mln), 0.6450 (1.12bn).
- USDCNY: 7.2500 (401mln).
MNI US STOCKS: Late Equities Roundup Extending Late Session Lows
- Major stock averages looked to extend lows late Thursday, no particular headline driver at play trading desks said, but more attributed to position squaring as Treasuries dipped at the same time on headlines forward ECB rate cuts may not be as aggressive as hoped. Currently, the DJIA trades down 226.99 points (-0.51%) at 43922.65, S&P E-Minis down 25.75 points (-0.42%) at 6067.25, Nasdaq down 82.8 points (-0.4%) at 19952.64.
- Individual laggers included Adobe Inc -14.35% on weak outlook tied to AI disruption concerns, industrial products maker Nordson -9.55% on weaker than expected guidance for 2025, while steel maker Nucor declined 4.98% on downgrades the day after raising quarterly dividends slightly ($0.54 to 0.55).
- On sector performance, Consumer Discretionary and Health Care lead laggers: apparel and travel relate stocks weighing on the Discretionary sector: Norwegian Cruise Lines -2.36%, Lululemon -2.29% while Expedia traded 1.98% lower. The health care sector weighed by CVS -3.12%, Regeneron Pharmaceuticals -2.98% and Cign -2.92%.
- On the positive side, Warner Brothers surged +13.86% after announcing a new corporate structure implementation in the near term, CH Robinson Worldwide +4.78% while West Pharmaceuticals gained 4.29%.
- Real Estate and Consumer Staples sectors outperformed in the second half, residential and retail investment trusts supporting the former: Essex Property +1.97%, Equity Residential +1.81%, CBRE Group +1.71%. Meanwhile, food & beverage stocks supported Staples: Hershey +2.87%, Conagra Brands +1.44% while Coca-Cola gained 1.29%.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Bulls Remain In The Driver’s Seat
- RES 4: 6200.00 Round number resistance
- RES 3: 6184.00 1.000 proj of the Nov 4 - 11 - 19 price swing
- RES 2: 6145.26 1.236 proj of the Aug 5 - Sep 3 - 6 price swing
- RES 1: 6111.00 High Dec 6 and the bull trigger
- PRICE: 6066.50 @ 1455 ET Dec 12
- SUP 1: 6024.92 20-day EMA
- SUP 2: 5976.25/5931.08 Low Nov 26 / 50-day EMA
- SUP 3: 5855.00 Low Nov 19
- SUP 4: 5814.75 Low Nov 6
The S&P E-Minis contract remains bullish and the latest pullback is considered corrective. Recent gains confirm a resumption of the uptrend and signal scope for a continuation near-term. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. A resumption of the uptrend would open 6145.26, a Fibonacci projection. Initial support to watch lies at 6024.92, the 20-day EMA.
MNI COMMODITIES: Crude Recoups Losses, Precious Metals Decline
- Spot gold has fallen for a first session in five today, with the yellow metal declining by 1.2% to $2,685/oz.
- Traders are said to be booking profits after earlier mixed US data, with analysts at Saxo Bank saying that at this time of year when conviction is low, any price reversal will be met with position squaring.
- Nonetheless, the yellow metal has pierced a key short-term resistance at $2,721.4, the Nov 25 high this week, which represents a positive development.
- A continuation higher would expose key resistance at $2,790.1, the Oct 31 high.
- On the downside, first support is at $2,646.5, the 50-day EMA.
- Silver is underperforming today, down by 2.9% at $31.0/oz, bringing the gold-silver ratio up to its highest since Dec 02.
- For silver, the bear cycle that started Oct 23 remains in play and a resumption of the bear leg would open $28.446, a Fibonacci retracement.
- Crude has regained most of its earlier losses, boosted by a Times of Israel story suggesting Israel is continuing its readiness for strikes on Iran.
- WTI Jan 25 is down by 0.3% at $70.1/bbl.
- Meanwhile, the OPEC+ delay has materially reduced supply, but the market is still expected to be oversupplied by 1.4mb/d if barrels are returned from April as planned, according to the IEA monthly oil report.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 13/12/2024 | 0700/0800 | ** |  SE | Unemployment |
| 13/12/2024 | 0700/0700 | ** |  GB | UK Monthly GDP |
| 13/12/2024 | 0700/0700 | ** | GB | Index of Services |
| 13/12/2024 | 0700/0700 | *** | GB | Index of Production |
| 13/12/2024 | 0700/0700 | ** | GB | Output in the Construction Industry |
| 13/12/2024 | 0700/0700 | ** | GB | Trade Balance |
| 13/12/2024 | 0700/0800 | ** |  DE | Trade Balance |
| 13/12/2024 | 0745/0845 | *** |  FR | HICP (f) |
| 13/12/2024 | 0800/0900 | *** |  ES | HICP (f) |
| 13/12/2024 | 0930/0930 | ** | GB | Bank of England/Ipsos Inflation Attitudes Survey |
| 13/12/2024 | 1000/1100 | ** |  EU | Industrial Production |
| 13/12/2024 | - | *** |  CN | Money Supply |
| 13/12/2024 | - | *** | CN | New Loans |
| 13/12/2024 | - | *** | CN | Social Financing |
| 13/12/2024 | 1330/0830 | ** |  US | Import/Export Price Index |
| 13/12/2024 | 1330/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 13/12/2024 | 1330/0830 | ** | CA | Wholesale Trade |