MNI (NEW YORK) - HIGHLIGHTS:
- Euro Sinks, EGB Yields Hit November Lows As PMIs Point To Weak Growth
- WTI Crude, Spot Gold Extend Gains
- Focus Next Week On Eurozone Inflation, US/Canada GDP, Fed Minutes, RBNZ Decision
US TSYS: Underperforming Global Peers In Twist Flattening Move
Treasuries closed Friday little changed, underperforming global peers.
- Futures traded within Thursday's ranges, with data having little lasting impact: November flash services PMI was much stronger than expected and the highest since March 2022, though soft employment and output price inflation metrics softened the impact.
- Elevated final November UMichigan survey long-term inflation expectations saw Treasuries hit the worst levels of the day, but the move reversed.
- The limited move in yields stood in contrast to pronounced gains in Europe, where weaker-than-expected PMIs renewed concern over regional growth and boosted ECB rate cut pricing. That helped boost Treasuries in overnight trade, but as noted, the US rate move subsided.
- Futures volumes remained robust (2.4M TYZ4), though again it was largely quarterly roll-related.
- The curve twist flattened on the day, and Friday's moves left 10Y yields just 2bp lower on the week.
- Latest levels: The Dec 24 T-Note future is up 5/32 at 109-21, having traded in a range of 109-16.5 to 109-26.5. 2-Yr yield is up 1.8bps at 4.3665%, 5-Yr is down 0.9bps at 4.2948%, 10-Yr is down 1.8bps at 4.4041%, and 30-Yr is down 1.1bps at 4.5906%.
- MNI's weekly US macro wrap is here (PDF).
- Next week's schedule is condensed by the Thanksgiving holiday, with highlights including FOMC Minutes (MNI Preview here - PDF) and GDP/PCE data.
MNI US Macro Weekly: Case For Fed Pause Continues To Build
- In comparison with largely stronger-than-expected activity readings seen in the past two months, data in the week of Nov 18-22 was more mixed.
- That included jobless claims, regional Fed manufacturing surveys, and housing activity, none of which provided conclusive new insights into the economic trajectory except to confirm that a pullback in growth does not look imminent. In the most positive development, November services PMI came in at the highest since Mar 2022, but even that was caveated by a fourth month of employment declining.
- A more generous reading of the week’s data though would be that current activity is steady at worst, and prospects for growth in the next few quarters are looking a little brighter. And it provides more evidence that the downside risks to growth - which seemed apparent even a couple of months ago - have subsided.
- FOMC commentary continued the recent theme of greater caution on policy easing, as another Fed Governor (Cook) invoked the term “pause” to describe a potential course of future action (after Gov Kugler did so the previous week).
- Her colleague Gov Bowman – one of the most hawkish FOMC members – repeated concern over inflation.
- Between that rhetoric, the aggregation of solid data over the past couple of months, and speculation over reflationary policy under the incoming Trump administration - cumulative Fed cuts have continued to diminish in probability, with futures markets now on a coin flip for a December cut (13bp), the first full cut only priced two meetings later in March (32bp), and barely two quarter-point cuts through June (49bp).
- In a Thanksgiving holiday-abbreviated Nov 25-29 week, the highlights of a compressed data schedule mainly come simultaneously on Wednesday morning when we get the 2nd reading of Q3 GDP, October PCE, weekly jobless claims, and durable goods and trade balance data. We also get the November FOMC Minutes.
PLEASE SEE HERE FOR THE FULL REPORT:
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: SOFR Ticks Up In Line With Bill Settles
As broadly anticipated, SOFR ticked up Thursday by 1bp to 4.57% - this is likely attributable to unusually large bill settlements (including $50B cash management bill in addition to the usual bills). Secured rates are roughly expected to remain around current levels or slightly higher through most of the rest of the month. Effective Fed Funds remains steady as ever, at 4.58%.
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.57%, 0.01%, $2291B
- Broad General Collateral Rate (BGCR): 4.56%, no change, $798B
- Tri-Party General Collateral Rate (TGCR): 4.56%, no change, $771B
New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 4.58%, no change, volume: $101B
- Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $281B
US TSYS/OVERNIGHT REPO: Partial Bounceback In ON RRP Takeup
Takeup of the Fed's overnight reverse repo facility partially rebounded Friday from Thursday's drop, rising $15.7B to $204.3B after a prior $29.2B fall.
- The latter was likely induced by flows out of ON RRP into bills Thursday amid unusually large bill settlements.
- ON RRP takeup is expected to remain relatively steady until picking up at end-month.
US SOFR/TREASURY OPTION SUMMARY
Friday's US rates/bond options flow included:
- SFRZ4 95.50/95.56/95.62c fly, bought for 0.75 in 5k total.
- SFRF5 95.75/95.62/95.50p fly, bought for 3 in 5k.
- SFRM5 96.50/97.00cs, sold at 5.25 in 8k.
- SFRM5 97.00/97.50c strip vs SFRZ5 97.50c, bought the strip for flat in 5k
- SFRZ5 96.125 ^ sold at 87.5 in 500
- 2QH5 97.25/97.50cs, bought for 1.5 in 5k
EGBs-GILTS CASH CLOSE: Yields Hit Month's Lows On Weak PMIs
EGBs and Gilts rallied sharply Friday after PMI data heightened concern over Eurozone growth.
- EGB curves bull steepened after November flash Eurozone PMIs came in weaker than expected, particularly in services - helping fuel bets on an outsized 50bp cut at the December meeting of the ECB, which has been increasingly focused on downside growth risks.
- UK PMIs were likewise weak but Gilt reaction was comparatively limited outside of the spillover from the Euro move (softer than expected UK retail sales were shrugged off).
- ECB December cut pricing jumped to ~12% of a 50bp cut to around 60% in the immediate PMI aftermath. Bund and Gilt yields hit fresh November lows, with periphery and some semi-core EGBs unable to keep pace.
- Notably OATs remained under pressure, with the 10Y spread to Bunds 1.9bp wider and closing above the 80bp mark amid continued political/fiscal concerns (and potential rating deterioration, with S&P potentially placing the sovereign on negative outlook next week).
- Speaking of ratings, Moody’s are set to review Italy’s after the cash close Friday, with its current Baa3 (Outlook Stable) one notch below that of S&P and Fitch (both BBB, last reviewed on Oct 18). An outlook upgrade is seen as possible.
- Next week brings the November round of preliminary Euro HICP, which could prove decisive for the December rate decision.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 11.7bps at 1.991%, 5-Yr is down 8.4bps at 2.057%, 10-Yr is down 7.6bps at 2.242%, and 30-Yr is down 4.4bps at 2.496%.
- UK: The 2-Yr yield is down 5.8bps at 4.325%, 5-Yr is down 5.8bps at 4.239%, 10-Yr is down 5.7bps at 4.386%, and 30-Yr is down 5.6bps at 4.855%.
- Italian BTP spread up 0.7bps at 126bps / Spanish up 0.6bps at 73.1bps
EUROPE OPTIONS: Europe Rate/Bond Options: Upside Eyes An Outsized ECB Dec Cut
Friday's Europe rates/bond options flow included:
- OEF5 118.50/119.25/119.75/122.00c condor vs 117.25/116.50ps, bought the condor for 1 in 13k.
- ERZ4 97.37/97.50cs, bought for 2.25 in 3k.
- ERZ4 97.37c sold at 2.5 in 2k.
- ERZ4 97.37/97.50cs, sold at 2.25 in 2k.
- ERG5 97.50/97.625/97.75/97.875 call condor sold at 4.5 down to 3.5 in 46k
- ERH5 97.75/97.50ps, bought for 6.5 in 3k.
- 0RZ4 97.875p, sold at 1.25 in 10k.
FOREX: EURUSD Sinks to a 1.0335 Low Before Stabilising, USDCHF Soars
- Friday's prelim Eurozone PMI numbers were seen as critical for near-term Euro sentiment and the particularly soft releases for both France and Germany weighed heavily across the single currency during the European session.
- The fallout took EUR/USD to trade fresh pullback lows at 1.0335 – and despite stabilising, we remain 0.55% lower on the session, just above the 1.04 handle. This would represent the lowest weekly close since November 2022 and this week’s extension reinforces the bearish trend condition.
- Moving average studies continue to highlight a dominant downtrend, suggesting scope for a continuation near-term and beyond today’s low print of 1.0335, immediate sights are on 1.0311, a Fibonacci projection. Below here, a previous low print at 1.0223 and 1.0201 (61.8% retracement of the Sep 28 - Juk 18 bull leg), represent an important area of support.
- While bearish Euro price action was broad based on Friday, there was a notable turnaround for the Swiss Franc, with EURCHF actually seen higher on the session and USDCHF the best performing major pair, up 0.8%. The moves came as SNB Chairman Schlegel reiterated the central bank board cannot rule out going back to negative rates. Sight deposits data on Monday will also be of high importance to see if the SNB may have intervened at all to curb CHF strength.
- USDCHF rose to a fresh post-election high of 0.8957 and exponential moving average indicators continue to highlight a bull trend. Medium-term attention now turns to 0.9050 and the key resistance zone between 0.9224/44.
- German IFO data crosses Monday before Tuesday’s release of the FOMC minutes. On Wednesday focus will turn to Australian CPI and the RBNZ decision.
FX OPTIONS: Expiries for Nov25 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0425-40(E2.7bln), $1.0485-90(E1.7bln), $1.0600(E1.0bln), $1.0650(E1.0bln);
- USD/JPY: Y156.50($763mln)
- EUR/GBP: Gbp0.8295-00(E580mln)
- NZD/USD: $0.6000(N$1.7bln)
EQUITY TECHS: E-MINI S&P: (Z4) Trend Signals Remain Bullish
- RES 4: 6145.26 1.236 proj of the Aug 5 - Sep 3 - 6 price swing
- RES 3: 6103.88 1.500 projection of the Sep 6 - 17 - 18 price swing
- RES 2: 6070.16 1.382 projection of the Sep 6 - 17 - 18 price swing
- RES 1: 5985.00/6053.25 High Nov 21 / 11 and the bull trigger
- PRICE: 5972.50 @ 14:38 GMT Nov 22
- SUP 1: 5855.00 Low Nov 19
- SUP 2: 5843.83 50-day EMA
- SUP 3: 5724.25 Low Nov 4 and a key support
- SUP 4: 5675.25 Low Sep 18
S&P E-Minis remain above Tuesday’s low. Recent weakness in the contract appears to have been a correction. Medium-term trend signals such as MA studies, continue to highlight a dominant uptrend. The contract has recently traded through support at the 20-day EMA and the next key support to monitor is 5843.83, the 50-day EMA. A clear break of this EMA would signal scope for a deeper retracement. The bull trigger is 6053.25, the Nov 11 high.
COMMODITIES: WTI Crude, Spot Gold Extend Gains
- WTI has extended its gains today and is trading at its highest level since Nov 8, supported by ongoing geopolitical tensions.
- WTI Jan 25 is up by 1.7% at $71.3/bbl, taking total gains this week to 6.6%.
- Besides the ratcheting up of tensions in Ukraine, the oil market is still complacent about geopolitical risks posed by an extension of sanctions against Iran and Russia, according to analysts at Rapidan Energy.
- Despite trading higher this week, initial firm resistance for WTI futures at $72.41, the Nov 7 high, remains intact. Above here, key short-term resistance is at $77.04, the Oct 8 high.
- Meanwhile, spot gold has risen for a fifth consecutive session on Friday, with the yellow metal up by another 1.5% at $2,710/oz.
- The move takes total gains this week to more than 5.7%, which would be the biggest weekly increase since March of last year, according to Bloomberg.
- Analysts at Saxo Bank say that the renewed safe haven demand has injected fresh momentum back into the market, after the early November correction.
- With gold’s reversal higher extending, the yellow metal has pierced $2,710.4, the Nov 11 high today, opening $2,730.4, a Fibonacci retracement.
- Copper remains an outlier, with the red metal down by another 0.9% today, to $413/lb, amid further gains in the US dollar.
A continuation lower would open $401.35, the Aug 7 low and a bear trigger.
DATA/EVENTS CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 25/11/2024 | 0800/0900 | ** |  ES | PPI |
| 25/11/2024 | 0900/1000 | *** |  DE | IFO Business Climate Index |
| 25/11/2024 | 0900/0900 |  GB | BOE's Lombardelli At Watchers' Conference | |
| 25/11/2024 | 1030/1030 | GB | BOE's Dhingra At Watchers' Conference | |
| 25/11/2024 | 1330/0830 | * |  CA | Quarterly financial statistics for enterprises |
| 25/11/2024 | 1400/1500 | ** |  BE | BNB Business Sentiment |
| 25/11/2024 | 1530/1030 | ** |  US | Dallas Fed manufacturing survey |
| 25/11/2024 | 1630/1730 |  EU | ECB's Lane at BoE Watchers' Conference | |
| 25/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 25/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 25/11/2024 | 1800/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 25/11/2024 | 1800/1300 | * | US | US Treasury Auction Result for 2 Year Note |
| 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 | 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 |
| 27/11/2024 | - |  NZ | Reserve Bank of New Zealand Meeting | |
| 27/11/2024 | 0030/1130 | *** |  AU | Quarterly construction work done |
| 27/11/2024 | 0030/1130 | *** | AU | CPI Inflation Monthly |
| 27/11/2024 | 0100/1400 | *** | NZ | RBNZ official cash rate decision |
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