HIGHLIGHTS
- Treasuries pare sizeable gains late in the session ahead of Thanksgiving
- A third robust US Treasury auction of the front-loaded week
- USDJPY hits a fresh one-month low as greenback slide extends
- Nvidia leads "Magnificent Seven" drag on equity indices
- Ahead, Aussie capex data in Asia hours before Germany preliminary CPI headlines the broader macro calendar
US TSYS: Paring Gains Ahead Of Thanksgiving
- Treasuries have extended an easing from highs seen after a strong 7Y auction marked a third solid auction for the front-loaded week. It’s likely positioning ahead of Thanksgiving although WTI futures lifting off lows have added some impetus.
- TYH5 at 110-27+ (+11+) has seen a pick-up in volumes recently, moving away from post-auction highs of 111-01. The round 111-00 appears to have offered some light resistance, after which lies 111-03 (drawn from the 10Y yield at 4.2205%) before 111-14+ (50-day EMA).
- Gains are considered corrective though, with support seen at 109-20 (Nov 20/21 low).
- Cash yields are 4-6.5bp lower on the day, with declines led by 7s following the auction.
- The day’s data deluge was mixed but ultimately quite close to consensus. Still, it offered a reminder of core PCE inflation remaining on track to overshoot median FOMC projections for Q4 whilst supercore PCE inflation stabilizes at rates still uncomfortably above the 2% target.
- Fed Funds implied rates are little change since the data. Cumulative cuts from 4.58% effective: 16bp Dec, 22bp Jan, 35bp Mar and 52bp June.
- Market operating hours over Thanksgiving:
- Cash Tsys: Thursday Nov 28: closed, Friday Nov 29, shortened session closing at 14:00 NY/13:00 Chicago.
- Tsy futures: Thursday Nov 28: goes into pre-open (early close, no settlement) at 13:00 NY/12:00 Chicago, Friday Nov 29: Early close at 13:15 NY/12:15 Chicago
US TSYS/SUPPLY: 7Y Auction Review – Strong Despite Rally Into It
Treasuries rallied on the strong 7Y auction, with yields 1.5-2.5bp lower shortly after the bidding deadline as 5s-10s pushed towards yield lows for the session and 30s are through them. The directs take stepped strongly higher, just as was the case in yesterday’s 5Y in signs of domestic bidding demand vs foreign bidding pulling back.
Treasury sold $44bn of the 7Y at a high yield of 4.183% vs the WI of 4.197% per Bloomberg.
- The 1.4bp stop through follows a strong 2.0bp from Oct vs the five-auction average of 0.5bp.
- Bid-to-cover: 2.71x vs 2.74x in Oct (highest since Mar 2020) and a five-auction average of 2.62x.
- Primary dealer take: 9.99% vs 7.47% in Oct (lowest on record) and a five-auction average of 10.17%.
- Indirects take 64.08% (lowest since Dec 2023) vs 71.96% in Oct and a five-auction average of 72.38%.
- Directs take 25.94% (highest since Mar 2022) vs 20.57% in Oct and a five-auction average of 17.45%.
BONDS: EGBs/GILTS CASH CLOSE: BTP Spreads Unwind Bulk Of France-led Widening
10-year EGB spreads to Bunds have mostly tightened through the session, unwinding a sizeable portion of yesterday's sharp OAT-led widening.
- French paper unsurprisingly lagged, with political uncertainty set to remain prevalent into year-end. The OAT/Bund spread was at one point 2bp tighter today at 84bps but ended up almost unchanged at 85.7bp after yesterday’s lurch higher.
- The BTP/Bund spread mostly unwound yesterday's widening in contrast, down almost 3bps today at 125bps despite a late intraday widening.
- The relative political stability in Italy compared to France has supported BTP outperformance over OATs since the French snap legislative elections were announced in early June. 10-year BTP/OAT spread has extended multi-decade lows through November and now trades below 40bps.
- Alongside the ongoing risk of Government collapse, S&P are due to review France's sovereign rating on Friday, which presents a further potential headwind for OATs.
- Gilts saw sizeable outperformance meanwhile, with 10Y yields sliding 5.8bps despite little in the way of domestic inputs.
- Gilt futures traded as high as 95.68 in the main session with a lack of conviction before lifting to a high of 95.70 just prior to the close. Next resistance nearby at the 1.764 projection of the Nov 18-19-20 price swing (95.73). A break there would expose the 2.00 projection of the same move (96.03) and pose deeper threat to the bearish trend.
FOREX: USDJPY Hits Fresh One-Month Low as Greenback Slide Extends
- The USDJPY (-1.59%) selloff paused for breath in the immediate aftermath of the WMR fix, however, weakness then resumed and was exacerbated on a clear break of the 151.00 handle, to print a fresh one-month low at 150.46. Bearish sentiment has picked up after the pair closed below the 20-day EMA for the first time since Oct 01, gathering solid downside momentum as we traded below both the post-election lows and the 50-day EMA.
- Given how aggressive the move has been, we would highlight 150.19, the 38.2% retracement of the Sep 16 - Nov 15 and 149.09, the Oct 21 low as the next supports.
- In sympathy, the dollar index is down roughly 1%, trading below 106, with notable gains for the likes of EUR and GBP, despite the weakness for major equity indices.
- Minor technical levels in both EURUSD (+0.92%) and GBPUSD (+0.95%) are being tested, and resistances here can be found at the 20-day EMAs of 1.0624 and 1.2739 respectively.
- NZD is the second best performer in G10, owing to the RBNZ statement that implied further cuts into 2025, but not as much as the market had priced pre the meeting. Waning risk sentiment has relatively weighed on the AUD however, prompting a sharp pullback for AUDNZD (-0.87%), which earlier in the week traded to fresh two-year highs.
CANADA: USDCAD Reverses Most Of Tariff Jump, CAD Underperforms Other Majors
- USDCAD has trended slightly lower today, currently at 1.4031 (session low 1.4010) having reversed most of Monday’s jump from 1.3985 to a multi-year high of 1.4178 on President-elect Trump’s tariff threats.
- CAD significantly underperforms most G10 peers today. The impact from the tariffs threat still clearly lingers along with typical underperformance owing to its US-linkages amidst broader USD weakness plus equity futures giving back yesterday’s gains.
- The technical trend points to further increases from current levels, with resistance drawn at that multi-year high, whilst support is seen at 1.3952 (20-day EMA).
- Tomorrow is likely to see a quieter session with Thanksgiving but there is still the CFIB business barometer, current account and SEPH employment data. That’s before GDP data on Friday in one of the last two major releases before the BoC decision on Dec 11.
- Tariff concerns have modestly weighed on near-term BoC pricing this week, with implied cuts building to 33bp for Dec from closer to 30-31bp after some stronger than expected recent data.
- Can-US 2Y yield differentials at -102bps are little changed from yesterday's close off a low of -107bps, close to levels seen pre-tariff talk.
US STOCKS: Nvidia Leads Magnificent Seven Drag On Equity Indices
- ESZ4 holds its earlier paring of losses, currently at 6017 (-0.4%) off a low of 6000.25 a little after midday ET.
- It reverses most of yesterday’s 0.5% gain despite a 5bp decline in 10Y real yields offering a slightly more conducive macro backdrop.
- An overnight high of 6047.00 approached the bull trigger of 6053.25 (Nov 11 high). Support meanwhile is seen at 5944.60 (20-day EMA).
- The day’s losses are dragged by some megacaps, notably Nvidia (-2.0%) but also with solid declines for Tesla (-1.5%), Meta (-1.1%), Microsoft (-0.9%) and Amazon (-0.6%).
- Declines are unsurprisingly therefore led by IT (-1.3%) and consumer discretionary (-0.55%) whilst real estate (+0.95%) enjoys lower yields with health care (+0.6%) in second.
- The Nasdaq 100 (-0.9%) underperforms, whilst Dow Jones (-0.2%) and Russell 2000 (+0.2%) outperform the S&P 500.
- Market operating hours over Thanksgiving:
- Cash equities: Thursday Nov 28: Closed, Friday Nov 29: early close at 13:00 NY/12:00 Chicago
- Equity futures: Thursday Nov 28: goes into pre-open (early close, no settlement) at 13:00 NY/12:00 Chicago, Friday Nov 29: Early close at 13:15 NY/12:15 Chicago
COMMODITIES: Crude Rangebound Following Ceasefire, Henry Hub Falls
- Crude front month has eased back to near rangebound today, as the market weighs a larger US stock draw against the Israel-Hezbollah ceasefire.
- WTI Jan 25 is 0.1% lower at $68.7/bbl.
- The ceasefire between Israel and Hezbollah will be monitored closely with both sides attacking in the hours before the truce was due to begin.
- With a bearish theme in WTI futures still intact, attention remains on $65.74 next, the Oct 1 low.
- Meanwhile, Henry Hub has lost ground today amid a largely expected, but below-average US storage withdrawal last week.
- US Natgas Jan 25 is down by 7.5% at $3.21/mmbtu.
- Spot gold has edged up by 0.1% today to $2,635/oz, keeping the yellow metal around 3% below Monday’s high.
- Monday’s move lower is - for now - considered corrective, despite it being a very sharp pullback. Resistance to watch is $2,721.4, Monday’s high, while key support to monitor is $2,536.9, the Nov 14 low.
- Silver is underperforming today, currently 1.3% lower at $30.0/oz. As a result, the gold-silver ratio has risen to its highest level since Sept 12.
- The corrective cycle in silver that started on Oct 23 remains in play, with focus on $28.446, a Fibonacci retracement.
US TSYS/OVERNIGHT REPO: ON RRP Usage Lifts Modestly Heading Towards Month-End
- Take-up of the Fed's overnight reverse repo facility increased $21bn to $169.8bn today, lifting from levels close to the recent lows of $144bn from Nov 5.
- Usage could increase more notably at month-end.
- The number of counterparties fell further to 49 from 51 yesterday and 57 on Monday. That’s the lowest since Nov 1.
- On a related note from Wednesday’s FOMC minutes: Staff recommendations: “The first consideration focused on the possibility of a technical adjustment to the ON RRP offering rate. […] The staff also noted that lowering the ON RRP offering rate 5 basis points would align the ON RRP offering rate with the bottom of the target range for the federal funds rate and would probably put some downward pressure on other money market rates”
- “Some participants remarked that, at a future meeting, there would be value in the Committee considering a technical adjustment to the rate offered at the ON RRP facility to set the rate equal to the bottom of the target range for the federal funds rate, thereby bringing the rate back into an alignment that had existed when the facility was established as a monetary policy tool.”
US TSYS/OVERNIGHT REPO: Steady Reference Rates
No change in yesterday's reference rates, with no sign of a further drift higher in SOFR as we move towards month-end with Thanksgiving disruption.
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.58%, no change, $2214B
- Broad General Collateral Rate (BGCR): 4.57%, no change, $804B
- Tri-Party General Collateral Rate (TGCR): 4.57%, no change, $777B
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: $279B
DATA
US DATA: Core PCE Confirms Likely Beat Of FOMC Forecast, Supercore Above Target
- Core PCE inflation was broadly as expected in October at 0.27% M/M (cons 0.3, unrounded 0.28).
- It saw the 3-mth run rate accelerate to 2.8% annualized from 2.4 in Sep and 1.9 in Jul-Aug, whilst the six-month rate held steady at 2.3% annualized.
- The Y/Y rate was also as expected at 2.80% Y/Y (note that cons was 2.8 and not the 2.6 noted in our unrounded post), which as we noted in the preview leaves it on track for a sizeable overshoot of the median FOMC projection of 2.6% for Q4 (from the Sept SEP having revised down from 2.8% in the June SEP).
- Indeed, two 0.20% M/M readings ahead would indicatively leave core PCE at 2.9% Y/Y, on track with the (presumably) most hawkish members considering the FOMC range of 2.4-2.9% for Q4.
- Supercore PCE inflation printed a strong 0.36% M/M in Oct after a slightly upward revised 0.31% M/M in Nov (initial 0.30). We hadn’t seen many detailed estimates beforehand but TDS had looked for 0.39% M/M.
- That leaves it running at 3.5% annualized over three months, 2.9% over six months and 3.5% Y/Y. The three-month rate recently bottomed out at 2.2% in July whilst the six-month rate has stabilized at an average 2.8% for the past four months. Supercore averaged 2.2% Y/Y through 2010-19 and ended 2019 at 1.9% Y/Y so latest trends remain at a rate comfortably above historically norms.
US DATA: Marginally Softer Domestic Demand Contribution But Still Very Robust
The second release for real GDP growth saw growth almost completely unrevised at 2.83% annualized in Q3 vs 2.82% in the advance release. That's another solid reading after the 3.0% in Q2, but domestic demand continues to contribute by a greater extent than was the case in Q2.
- The component revisions saw private consumption a little softer than expected at 3.5% (initial and cons 3.7%) but that’s still a further acceleration from the 2.8% in Q2 for its fastest since 1Q23.
- This downward revision trimmed the consumption contribution by -0.09pps to a still heavy 2.37pp, with a partial offset from stronger than first thought non-residential investment.
- Changes in inventories provided the offsetting slightly larger boost but it doesn’t change the picture from a large sequential drag on the quarter from inventories after they swung higher back in Q2.
- Note the core PCE downward revision from 2.2% to 2.1% was heavily exaggerated by rounding, as it only shifted from 2.156% to 2.146% as of today (Q/Q annualized) after the 2.79% in Q2.
US DATA: Healthy Initial Claims vs Continuing Trending Higher
The jobless claims data continued the recent trend where firms are cooling re-hiring rather than actively looking at layoffs.
- Initial jobless claims were broadly in line, dipping to 213k (sa, cons 215k) in the week to Nov 23 after an upward revised 215k (initial 213k).
- That small upward revision doesn’t alter an improvement for the then payrolls reference week, comparing favorably to the 242k and 222k in relevant Oct and Sept weeks.
- The four-week average inched to 217k (-1k) for its lowest since early May and broadly remaining at the 2019 average as layoffs remain at healthy levels.
- Continuing claims meanwhile surprisingly increased to 1907k (sa, cons 1892k) for the week to Nov 16 after a downward revised 1898k (initial 1908k), i.e. maintaining a fresh three-year high.
- This compares far less well to prior payrolls reference periods of 1888k and 1827k.
US DATA: Goods Supporting Still Strong Consumption Trend, Incomes Higher
- Personal incomes saw a surprisingly strong 0.6% M/M increase in Oct (cons 0.3) after an unrevised 0.3% M/M in Sept, which carried over into strong disposable income growth of 0.7% M/M after 0.3%.
- With nominal spending as expected at 0.4% M/M (cons 0.4) after an upward revised 0.65% (initial 0.53), it saw the savings ratio lift three tenths to 4.4% from downward revised 4.1% (initial 4.6).
- The savings ratio sees regular and sometimes large revisions [especially in the annual revisions two months again which saw BEA finding an extra $559bn in 2023 for national incomes] but the latest iteration shows a first monthly increase in the savings ratio since January. The decline from the recent high of 5.5% in Jan has acted as a tailwind to consumption since then.
- As for latest spending momentum, real personal spending disappointed slightly in Oct with 0.1% M/M (cons 0.2) after mixed revisions, with an upward revised 0.47% M/M (initial 0.36) in Sept after a downward revised 0.08% M/M (initial 0.16) in Aug. That Aug revision was behind the earlier surprise downward revision from 3.7% to 3.5% annualized for Q3.
- Trend consumption is still strong, rising 3.0% annualized on a 3m/3m basis to October.
- Goods consumption paused in October after a booming Sept (0.0% M/M after 1.1% M/M), as indicated by surprisingly soft retail sales data earlier in the month. Services consumption meanwhile saw a second consecutive month at a somewhat mellow 0.17% M/M.
- Goods consumption continues to drive recent trend growth, rising 4.0% annualized vs 2.6% for services on 3m/3m rates, something that be borne in mind when it comes to initial reactions to upcoming retail sales data.
| Date | GMT/Local | Impact | Country | Event |
| 28/11/2024 | 0030/1130 | * |  AU | Private New Capex and Expected Expenditure |
| 28/11/2024 | 0800/0900 | *** |  ES | HICP (p) |
| 28/11/2024 | 0800/0900 | ** |  SE | Economic Tendency Indicator |
| 28/11/2024 | 0900/1000 | ** |  EU | M3 |
| 28/11/2024 | 0900/1000 | ** |  IT | ISTAT Business Confidence |
| 28/11/2024 | 0900/1000 | ** | IT | ISTAT Consumer Confidence |
| 28/11/2024 | 0900/1000 | ** | IT | PPI |
| 28/11/2024 | 0900/1000 | *** |  DE | North Rhine Westphalia CPI |
| 28/11/2024 | 0900/1000 | *** | DE | Bavaria CPI |
| 28/11/2024 | 1000/1100 | ** | EU | EZ Economic Sentiment Indicator |
| 28/11/2024 | 1000/1100 | * | EU | Consumer Confidence, Industrial Sentiment |
| 28/11/2024 | 1300/1400 | *** | DE | HICP (p) |
| 28/11/2024 | 1330/0830 | * |  CA | Current account |
| 28/11/2024 | 1330/0830 | * | CA | Payroll employment |
| 28/11/2024 | 1700/1800 | EU | ECB's Lane speech at the 25th anniversary of Euro 50 Group at Banque de France | |
| 29/11/2024 | 2330/0830 | ** |  JP | Tokyo CPI |
| 29/11/2024 | 2330/0830 | * | JP | Labor Force Survey |
| 29/11/2024 | 2350/0850 | * | JP | Retail Sales (p) |
| 29/11/2024 | 2350/0850 | ** | JP | Industrial Production |
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