US TSYS: Solid Session, As Underperformance Vs Global Peers Continues
The Treasury curve bull flattened moderately Wednesday, with US instruments underperforming global peers.
- European core bonds, led by Gilts, had rallied sharply overnight after UK inflation came in softer than expected - Treasuries faintly echoed the move but the EGB/Gilt rally meant US yields continued to gain versus global counterparts.
- This was especially pronounced at the short end of the curve, with 2Y yields vs Germany at the widest levels since July (nearing 177bp) ahead of Thursday's ECB decision.
- Continued softness in crude oil prices helped support the space, with a late-morning fall in WTI to session lows below $70/bbl coinciding with a move to session highs for TYs (112-22), but both moves faded in early afternoon while equities gained.
- In data, September import prices pointed toward a little more upside to September PCE estimates via international airfares, but this was not a market mover. Earlier, MBA weekly data showed mortgage applications dropped by the most since April 2020 as rates rebounded.
- Corporate supply was highlighted by Goldman Sachs $5.5B 2-parter and Morgan Stanley $5.75B 3-parter, coming on the heels of favorable earnings reports.
- Dec 10-Yr futures (TY) last up 3/32 at 112-17 (L: 112-13 / H: 112-22), In cash, the 2-Yr yield is down 1.2bps at 3.9334%, 5-Yr is down 1.2bps at 3.8421%, 10-Yr is down 1.8bps at 4.0141%, and 30-Yr is down 2.1bps at 4.2992%.
- VP Harris is interviewed on Fox after the close (1800ET). Data flow picks up Thursday, with two key reports: weekly jobless claims (following up from the previous week's hurricane-impacted upside surprise) and retail sales. Chicago Fed Pres Goolsbee also makes an appearance at a careers event so unlikely to be a market-mover.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Spikes, Should Pull Back
SOFR records a sizeable 5bp jump to 4.86% Tuesday vs the previous print for Friday. It's the highest rate since Oct 2, at which point month/quarter-end dynamics were still settling down (SOFR hit 5.05% Oct 1).
- This is probably on the high side of expectations but a rise was expected largely on account of Treasury mid-month coupon settlements Tuesday. It's expected SOFR will subside again as the week goes on, before picking up toward the end of the month.
- Other key repo reference rates also picked up (BGCR and TGCR up 2bp respectively).
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.86%, 0.05%, $2272B
- Broad General Collateral Rate (BGCR): 4.83%, 0.02%, $834B
- Tri-Party General Collateral Rate (TGCR): 4.83%, 0.02%, $795B
O/N Reverse Repo Takeup Declines Further Below $300B
Takeup of the NY Fed's overnight reverse repo facility fell for a 2nd consecutive session Wednesday, to $272.0B vs $286.4B prior.
- Tuesday's fall below $300B (for the first time in a month) had been anticipated due to higher coupon settlements increasing demand for overnight financing.
- No significant pickup in ON RRP usage is seen until toward month-end - see chart for September's pattern.
US: SOFR FIX - 16/10/24 - Source BBG/CME
- 1M 4.78089 -0.00296
- 3M 4.63235 -0.0151
- 6M 4.43182 -0.01084
- 12M 4.11010 -0.0102
US SOFR/TREASURY OPTION SUMMARY
Wednesday's US rates/bond options flow included:
- SFRX4 95.68^ sold at 9.5 in 8.5k.
- SFRX4 95.87/96.25cs vs 0QX4 97.25/97.50cs, bought the front for flat in 5k.
- SFRX4 95.68/95.62/95.31 broken p fly, traded -1.5 (receive) in 2.5k.
- SFRX4 95.68/95.62/95.56p fly, traded for 1.25 in 2k.
- SFRZ4 95.62/95.56/95.50p fly traded half in 6k.
- SFRZ4 95.68/95.62/95.56p fly, traded 0.75 in 10k.
- SFRZ4 96.00/96.25cs vs 95.37p, sold the cs at even in 5k and 0.25 in 4k
- SFRM5 96.00/95.75/95.50/95.12p condor, bought for 4 in 2.5k.
- SFRM5 95.87p vs 0QM5 96.00p, bought the mid for 1 in 3k
- SFRH6 9650 straddle vs 9800 call sold at 93 in 4k all day
- 0QX4 96.50/96.25/95.87 broken p fly, traded for 3.5 in 6k.
- 0QZ4 96.37/96.25/96.00/95.87p condor, traded 2.5 in 4k
2QZ4 97.00/97.50cs 1x2, bought for 5 in 2k
BONDS: EGBs-GILTS CASH CLOSE: UK Curve Bull Steepens On Low CPI Surprise
Gilts easily outperformed Bunds in a broad rally for global government bonds Wednesday as UK CPI came in below expectations.
- UK September core and headline Y/Y CPI each came in 0.2pp low vs consensus Services CPI came in 0.58ppt below the BOE's August projections, and while this was largely driven by airfares and hotel prices, even excluding those categories services inflation was still marginally weaker than the BOE's forecast.
- That resulted in about 12bp in BoE cuts added to the profile through September 2025 on the day and set a constructive tone for the session, with a continued pullback in oil prices and European equities following Tuesday's rout helping underpin the fixed income space in the afternoon.
- Both the UK and German curves bull steepened, though the former move was more pronounced as 2Y UK yields saw their biggest drop since early August.
- Periphery EGB spreads mostly tightened, coming in from early wides as ECB cut pricing increased (7bp more priced through the next year).
- The ECB is Thursday's highlight - MNI's preview is here (PDF) - while a 25bp cut is expected and priced in, communicating the motivation for such a move will not be straightforward.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 4.1bps at 2.17%, 5-Yr is down 4.1bps at 2.042%, 10-Yr is down 3.8bps at 2.184%, and 30-Yr is down 3.5bps at 2.479%.
- UK: The 2-Yr yield is down 11.1bps at 4.019%, 5-Yr is down 10.7bps at 3.926%, 10-Yr is down 9.8bps at 4.064%, and 30-Yr is down 8.6bps at 4.592%.
- Italian BTP spread down 1.3bps at 122.6bps / Greek down 1.7bps at 88.6bps
EUROPE OPTIONS: UK Post-CPI Rate Upside Features Wednesday
Wednesday's Europe rates/bond options flow included:
- RXZ4 127.5p, bought for 2 in 1k.
- SFIX4 95.40/95.50/95.60/95.70c condor bought for 5.75 and 6 in 7k.
- SFIZ4 95.45/95.50/95.55/95.60c condor, bought for 1 in 2k (was bought for 0.75 in 20k Yesterday also)
- SFIZ4 95.60/95.45/95.25 broken p fly, bought for 4 in 8k.
- SFIH5 96.05/96.15cs vs 95.40ps, bought the cs for 1 up to 1.25 in 5k
FOREX: Greenback Trades on Firmer Footing, GBP and AUD Underperform
- Latest tariff commentary from former President Trump has continued to weigh on higher beta currencies on Wednesday, with the likes of MXN and AUD suffering most notably, while the USD trades on a firmer footing (USD index up 0.25%).
- For AUDUSD (-0.60%), downside momentum marks an extension of the bear leg that started Sep 30 and price has recently traded through both the 20- and 50-day EMAs. This notably undermines a bullish theme and signals scope for a deeper retracement, initially towards 0.6622, the Sep 11 low and a key support.
- GBP has also weakened, although this was helped lower initially by the softer-than-expected CPI data, prompting GBPUSD to trade back below 1.30 for the first time since mid-August.
- Additionally, fresh pullback lows were made in EURUSD through the London close - with greenback strength continuing to feed through - mainly against JPY and EUR in late trade. A negative close today would be the 12th in the past 14 sessions, with the 200-dma now cracked to the downside for the first time since late July.
- EUR/USD price action keeps the bear cycle intact, with moving average studies now having shifted to a bear-mode position. The recent double top reversal pattern on the daily chart also highlights a bearish theme - compounded by a potential break of 1.0881 Fibonacci support at today's close. 1.0778, the Aug 1 low, the next downside level.
- Tomorrow’s ECB meeting highlight’s the economic calendar, however, Australian employment figures and US retail sales data are also due.
FX OPTIONS: Expiries for Oct17 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0735-45(E1.9bln), $1.0800(E988mln), $1.0845-50(E695mln), $1.0975(E914mln), $1.0990-10(E2.8bln), $1.1065(E1.3bln)
- USD/JPY: Y147.60($1.1bln), Y149.50($575mln), Y150.00-05($1.2bln)
- EUR/JPY: Y162.00(E530mln), Y165.00(E808mln)
- AUD/USD: $0.6690-00(A$1.2bln)
- AUD/NZD: N$1.0950(A$775mln)
- USD/CAD: C$1.3600-10($1.0bln)
USD/CNY: Cny6.9867($1.3bln), Cny6.9913-18($2.0bln), Cny6.9934($1.0bln), Cny7.0056($1bln)
EQUITIES: Financials, Tech Stabilization Underpin Broad Gains
The Dow Jones led US equity gains Wednesday, rising 0.8% vs 0.5% rises in the S&P 500 and 0.3% in the NASDAQ.
- 9 of 11 GICS subsectors in the S&P 500 were in the green - Consumer Staples (-0.2%) and Communication Services (-0.4%) lagged.
- Utiltiies (+2.2%) and Financials (+1.2%) led gains, with the latter benefiting from continued solid earnings from big banks including Morgan Stanley today pre-market (+6.8% on the day). Indeed the Dow's outperformance owed to a higher weighting toward higher-performing financials.
- Tech stabilized vs Tuesday's chipmaker-led fall, with info tech GICS up 0.3%.
On that note, Netflix will be Thursday's earnings highlight after the close - MNI's calendar is here.
EQUITY TECHS: E-MINI S&P: (Z4) Bullish Trend Sequence
- RES 4: 6012.75 1.00 projection of the Aug 5 - Sep 3 - 6 price swing
- RES 3: 6000.00 Psychological handle
- RES 2: 5961.00 1.00 projection of the Sep 6 - 17 - 18
- RES 1: 5918.50 High Oct 14
- PRICE: 5864.50 @ 14:28 BST Oct 16
- SUP 1: 5789.86/5724.00 20-day EMA / Low Oct 2
- SUP 2: 5708.29 50-day EMA
- SUP 3: 5675.25 Low Sep 18
- SUP 4: 5658.00 Low Sep 13
A bull cycle in S&P E-Minis remains intact and Tuesday’s pullback appears to be a correction. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Sights are on 5961.00, a Fibonacci projection. Initial support to watch is 5789.86, the 20-day EMA.
COMMODITIES: Spot Gold, Copper Gain, Crude Rangebound
- Spot gold is up by a further 0.5% to $2,675/oz, having traded within a whisker of the all-time high of $2,685.6 earlier in the session.
- The trend condition in gold remains bullish, with sights still on $2,690.2, a Fibonacci projection.
- Copper prices have rebounded moderately today, with the red metal rising by 0.8% to $437/lb.
- Despite this, copper futures remain in a short-term retracement mode and traded below the 50-day EMA, at $436.82, earlier.
- A clear breach of this average would signal scope for a deeper retracement and open $415.93, a Fibonacci retracement point.
- Crude markets are ending the day rangebound as the market continues to monitor the situation in the Middle East and the outlook for demand in 2025.
- WTI Nov 24 is down 0.1% at $70.5/bbl.
- For WTI futures, an extension lower would threaten the recent bullish theme and expose support at $66.33, the Oct 1 low. On the upside, key short-term resistance is at $78.46, the Oct 8 high.
- Meanwhile, Henry Hub front month has sunk to its lowest level since Sep 20, continuing a downward trend which started Oct 4. Milder weather forecasts for the last week of October have added downward pressure.
- US Natgas Nov 24 is down 5.3% at $2.37/mmbtu.
| Date | GMT/Local | Impact | Country | Event |
| 17/10/2024 | - |  EU | European Central Bank Meeting | |
| 17/10/2024 | 2350/0850 | ** |  JP | Trade |
| 17/10/2024 | 0030/1130 | *** |  AU | Labor Force Survey |
| 17/10/2024 | 0900/1100 | *** | EU | HICP (f) |
| 17/10/2024 | 0900/1100 | * | EU | Trade Balance |
| 17/10/2024 | 1100/0700 | *** |  TR | Turkey Benchmark Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Deposit Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Main Refi Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Marginal Lending Rate |
| 17/10/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 17/10/2024 | 1230/0830 | * |  CA | International Canadian Transaction in Securities |
| 17/10/2024 | 1230/0830 | *** | US | Retail Sales |
| 17/10/2024 | 1230/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 17/10/2024 | 1245/1445 | EU | ECB Monetary Policy Press Conference | |
| 17/10/2024 | 1315/0915 | *** | US | Industrial Production |
| 17/10/2024 | 1400/1000 | * | US | Business Inventories |
| 17/10/2024 | 1400/1000 | ** | US | NAHB Home Builder Index |
| 17/10/2024 | 1415/1615 | EU | ECB Podcast: Lagarde presents MonPol Decision | |
| 17/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 17/10/2024 | 1500/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 17/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 17/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 17/10/2024 | 2000/1600 | ** | US | TICS |
| 17/10/2024 | 2000/2100 |  GB | BOE's Woods Speech at Mansion House | |
| 18/10/2024 | 2330/0830 | *** | JP | CPI |
| 18/10/2024 | 0200/1000 | *** |  CN | GDP |
| 18/10/2024 | 0200/1000 | *** | CN | Fixed-Asset Investment |
| 18/10/2024 | 0200/1000 | *** | CN | Retail Sales |
| 18/10/2024 | 0200/1000 | *** | CN | Industrial Output |
| 18/10/2024 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |
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