MNI (NEW YORK) - HIGHLIGHTS:
- Dollar Optimism Continues, EURUSD Slides Back Below 1.0500
- Treasury Curve Bear Flattens As 2025 Cut Prospects Called Into Question
- Crude, Gold Rise As Geopolitical Tensions Remain High
US TSYS: Modest Bear Flattening As We Await A Treasury Secretary Nominee
Treasuries weakened modestly Thursday with modest bear flattening in the cash curve.
- Futures gained overnight on renewed geopolitical tensions as Russia reportedly used an experimental ICBM against Ukraine. They would recede slightly but hit session highs of 109-28+ in mid-morning once the major data was out of the way.
- From there, Treasuries faded, as the missile episode was talked down by US officials, and equities hit the week's best levels following Wednesday's NVidia earnings beat.
- We await further developments after reports that president-elect Trump had selected a Treasury Secretary nominee - hedge fund manager Scott Bessent is again the favorite to take the nomination per betting markets as we publish this.
- Volumes were notably elevated (3.4M TYZ4) , but that's due to the quarterly roll ahead of the Thanksgiving holidays.
- Data did not have a lasting impact: solid initial jobless claims (for payrolls reference week) offset weakness in continuing claims, existing home sales remained subdued as expected, and regional Fed manufacturing surveys (Philly, KC) offered mixed indications on current activity.
- Likewise, the multiple Fed speakers brought little new insight on the rates front, including an overnight interview with NY's Williams and, disappointingly, Cleveland Fed's Hammack who had no commentary on current monetary policy.
- Latest levels: the 2-Yr yield is up 2.8bps at 4.3423%, 5-Yr is up 1.6bps at 4.2946%, 10-Yr is up 0.8bps at 4.4178%, and 30-Yr is up 0.9bps at 4.6063%.
- Friday's docket is highlighted by preliminary PMIs for November, with the final November UMichigan survey also of note - the only Fed speaker scheduled is Gov Bowman after hours, but we've already heard from her this week.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR FIX - Source BBG/CME
- 1M 4.58771 -0.00742
- 3M 4.52084 0.00705
- 6M 4.43378 0.01054
- 12M 4.29125 0.03023
US TSYS/OVERNIGHT REPO: SOFR Softens, Should Tick Up On CMB Settlement
Repo reference rates were little changed Wednesday, with SOFR ticking 1bp lower to 4.56%. Rates are expected to firm up Thursday, amid unusually large bill settlements ($50B cash management bill in addition to the usual bills). Effective Fed Funds remains steady as usual at 4.58%.
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.56%, -0.01%, $2155B
- Broad General Collateral Rate (BGCR): 4.56%, no change, $790B
- Tri-Party General Collateral Rate (TGCR): 4.56%, no change, $763B
New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 4.58%, no change, volume: $102B
- Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $277B
US TSYS/OVERNIGHT REPO: ON RRP Takeup Pulls Back
Takeup of the NY Fed's overnight reverse repo facility fell $29B to $188.6B - the lowest level in 4 sessions.
- The pullback could be partly related to an unusually large bill settlement (as mentioned earlier, $50B cash management bill in addition to the usual bills).
- Takeup is seen rising as usual toward end-month.
US SOFR/TREASURY OPTION SUMMARY
Thursday's US rates/bond options flow included:
- SFRZ4 95.50/95.56/95.62c fly, bought for 0.75 in 3k
- SFRZ4 95.56/95.62/95.68 call fly trades 1.5/11k
- SFRZ4 95.43/95.37ps vs SFRF5 95.50/95.37ps, bought the F5 for 0.25 in 8k total
- SFRZ4 95.50/95.43 p1x2 trades 1.25 in 6k
- SFRZ4 95.56/95.62 c/s (vs 9554.75 d8) trades 2.5 in1.5k
- SFRZ4 95.56/95.62/95.68 call fly trades 1.5 in 11k
- SFRZ4 95.62/95.37 put spread trades 10.75 in 2.5k
- SFRZ4 95.62/95.68 cs trades .75 in 12k
- SFRF5 95.68/95.50 put spread vs 96.06/96.18 call spread trades 4.75 in 4k
- SFRG5 96.00/95.87/95.75 put fly bought for 1.5 in 5k
- SFRJ5 95.62/95.50ps, bought for 3.5 in 25k
- 0QZ4 97.00c sold at 1 in 2k (synth 0.75)
- 0QF5 96.87/96.50/96.12 put fly trades 8 in 2k
2QZ4 96.25/96.50/96.62 c-tree vs 9620 d12 trades 4.5 in 3k
EGBs-GILTS CASH CLOSE: Slightly Stronger, Shrugging Off FX Move
EGBs and Gilts closed a little stronger Thursday, shrugging off larger cross-market moves.
- The biggest moves in the space occurred in early trade, Bunds/Gilts rallying on reports that Russia may have conducted an attack on Ukraine using an ICBM.
- The afternoon's standout moves in European markets were in FX, with equities rising strongly from session lows and EURUSD falling quickly to fresh cycle lows below 1.05. The latter move was seen as both fix-related and came alongside headlines that Spain's lower house approved a tax package that included an extension to a bank windfall tax, while Volkswagen workers were said to be set to strike in December.
- Core FI largely shrugged off the move: both the UK and German curves closed bull steeper. But the impact was seen more acutely in periphery EGBs, which saw spreads reverse earlier tightening.
- OATs continued to underperform, with 10Y spreads to Bunds widening 3bp as political and fiscal concern lingered.
- On that note, eurozone consumer confidence fell to a 6-month low, amid political uncertainty on both sides of the Atlantic.
- BOE hawk Mann continued to express support for for higher for longer rates until there is a change in underlying inflation dynamics.
- Attention Friday will be on November flash PMIs.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.3bps at 2.108%, 5-Yr is down 3.7bps at 2.141%, 10-Yr is down 3.3bps at 2.318%, and 30-Yr is down 1bps at 2.54%.
- UK: The 2-Yr yield is down 2.2bps at 4.383%, 5-Yr is down 2.6bps at 4.297%, 10-Yr is down 2.6bps at 4.443%, and 30-Yr is down 1bps at 4.911%.
- Italian BTP spread up 2.5bps at 125.3bps / Spanish up 1.4bps at 72.5bps
EUROPE OPTIONS: Large Sonia Call Fly, Bund Structures Feature Thursday
Thursday's Europe rates/bond options flow included:
- RXZ4 133.00 call bought for 12 to 15 in 10k all day
- RXF5 133/131 put spread bought for 44.5/45 in 5k
- ERH5 97.62p (x2) with ERH5 97.87c (x1) vs 2RH5 97.75p, bought the fronts for 11.75 in 2.7k.
- SFIM5 96.00/96.50/97.00 call fly paper paid 7.5 on 17K
FOREX: Greenback Optimism Continues, EURUSD Slides Back Below 1.0500
- The rally for the US dollar gained further traction on Thursday, as geopolitical risk headlines and a late sell-off for the Euro prompted the ICE USD index to rise back above 107 and print a fresh cycle high.
- EURUSD finds itself back below the 1.0500 handle and has printed a low of 1.0462 on the move. The 2023 lows at 1.0448 have so far provided support, however, the single currency remains vulnerable ahead of tomorrow’s release of Eurozone flash PMIs. Negative headlines surrounding a Spanish fiscal package and looming VW strikes in Germany have assisted the Euro lower.
- With equities holding up well throughout the session, the likes of EURAUD and EURCAD have underperformed, and are approaching key levels of 1.6000 and 1.4600 respectively. We provide a full technical update for a selection of EUR crosses here.
- JPY's resurgent safe haven status is again underpinning the currency, with JPY running firmer alongside another ratchet higher in geopolitical tensions across the early European session. In response to the use of US and Franco-British long-range missiles in Ukrainian territory, Russia were reported to have launched an ICBM strike on Ukraine – however, there were conflicting headlines on the exact definitions later in the day.
- Either way, EURJPY is down 1.1% on Thursday and reapproaches the Tuesday lows at 161.50, of which a break below would confirm a resumption of the recent bear leg. USDJPY also briefly slipped back below 154.00, however, the broader greenback optimism around the WMR fix provided solid support for the pair.
- As well as the European and US flash PMIs, UK and Canadian retail sales data is expected Friday, as well as a speech from SNB Chairman Schlegel.
FX OPTIONS: Expiries for Nov22 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0500(E2.2bln), $1.0530-40(E940mln), $1.0550-60(E713mln), $1.0600-15(E1.6bln)
- USD/JPY: Y154.00($884mln)
EQUITY TECHS: E-MINI S&P: (Z4) Bullish Outlook
- 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: 5974.25/6053.25 High Nov 15 / 11 and the bull trigger
- PRICE: 5969.50 @ 14:28 GMT Nov 21
- SUP 1: 5855.00 Low Nov 19
- SUP 2: 5838.64 50-day EMA
- SUP 3: 5724.25 Low Nov 4 and a key support
- SUP 4: 5675.25 Low Sep 18
Recent weakness in the S&P E-Minis contract appears to have been a correction. Medium-term trend signals such as moving average 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 5838.64, the 50-day EMA. A clear break of this level would signal scope for a deeper retracement. The bull trigger is at 6053.25, Nov 11 high.
COMMODITIES: Crude, Gold Rise As Geopolitical Tensions Remain High
- WTI is on track for its highest close since Nov 8, supported by concerns over further escalation in the Russia-Ukraine war. This is set against pressure from a small build in US crude inventories last week.
- WTI Jan 25 is up by 1.9% at $70.0/bbl.
- The escalatory nature of the Russia/Ukraine conflict is still adding support for energy markets. However, Reuters reports a US official stating that the Russian missile that struck the Ukrainian city of Dnipro today, "does not mark a gamechanger in the conflict."
- For WTI futures, a bearish theme remains intact, with eyes on $65.74 next, the Oct 1 low. Initial firm resistance is $72.41, the Nov 7 high.
- Meanwhile, spot gold has risen for a fourth consecutive session, gaining by a further 0.7% to $2,670/oz.
- The move brings the yellow metal to its highest since Nov 11, amid continued safe haven demand following the further escalation of geopolitical tensions.
- As a result, the 20-day EMA at $2,653.1 has been breached. This highlights a stronger reversal for gold and signals the end of the recent bearish corrective cycle, opening $2,710.4, the Nov 11 high.
- In contrast, copper has declined by 0.8% today, to $416/lb, as the further rally in the US dollar weighed on the red metal.
- A bearish theme in copper futures remains intact, with attention on $401.35, the Aug 7 low and a bear trigger.
DATA/EVENTS CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 21/11/2024 | 2140/1640 |  US | Fed Vice Chair Michael Barr | |
| 22/11/2024 | 2200/0900 | *** |  AU | Judo Bank Flash Australia PMI |
| 22/11/2024 | 2330/0830 | *** |  JP | CPI |
| 22/11/2024 | 0001/0001 | ** |  GB | Gfk Monthly Consumer Confidence |
| 22/11/2024 | 0030/0930 | ** | JP | Jibun Bank Flash Japan PMI |
| 22/11/2024 | 0700/0800 | *** |  DE | GDP (f) |
| 22/11/2024 | 0700/0700 | *** | GB | Retail Sales |
| 22/11/2024 | 0815/0915 | ** |  FR | S&P Global Services PMI (p) |
| 22/11/2024 | 0815/0915 | ** | FR | S&P Global Manufacturing PMI (p) |
| 22/11/2024 | 0830/0930 | ** | DE | S&P Global Services PMI (p) |
| 22/11/2024 | 0830/0930 | ** | DE | S&P Global Manufacturing PMI (p) |
| 22/11/2024 | 0830/0930 |  EU | ECB's Lagarde on Europe and New World Order | |
| 22/11/2024 | 0840/0940 | EU | ECB's De Guindos at Foro Observatorio Económico | |
| 22/11/2024 | 0900/1000 | ** | EU | S&P Global Services PMI (p) |
| 22/11/2024 | 0900/1000 | ** | EU | S&P Global Manufacturing PMI (p) |
| 22/11/2024 | 0900/1000 | ** | EU | S&P Global Composite PMI (p) |
| 22/11/2024 | 0930/0930 | *** | GB | S&P Global Manufacturing PMI flash |
| 22/11/2024 | 0930/0930 | *** | GB | S&P Global Services PMI flash |
| 22/11/2024 | 0930/0930 | *** | GB | S&P Global Composite PMI flash |
| 22/11/2024 | 1330/0830 | ** |  CA | Retail Trade |
| 22/11/2024 | 1330/0830 | ** | CA | Retail Trade |
| 22/11/2024 | 1445/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 22/11/2024 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 22/11/2024 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 22/11/2024 | 1545/1645 | EU | ECB's Schnabel in panel on MonPol | |
| 22/11/2024 | 2315/1815 | US | Fed Governor Michelle Bowman |
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