MNI (NEW YORK) - HIGHLIGHTS:
- Treasury Yields Jump After Hawkish FOMC Sees Higher Inflation Ahead, Fewer Cuts
- USD Index at Two-Year Highs, US Stocks See Heavy Declines As Support Levels Crumble
Focus Turns To Multiple Central Bank Decisions Thursday Including BOJ and BOE
US TSYS: Multiple Supports Breached On Hawkish Fed, 10YY Briefly Clears 4.50%
- After initially some trepidation ahead of the 4.50% handle, 10Y yields managed to push to session highs of 4.5080% before dipping back below again (currently 4.496%).
- In doing so it cleared the Nov 15 high of 4.5007% for highs since May.
- The belly sees the largest sell-off on the day, with 5Y yields +13.2bps (real yield 12.4bps) having cleared 4.40% for the first time since June.
- TYH5 has touched a fresh low of 108-29 (currently 109-00) having started the FOMC press conference at ~109-13+ and been at 109-29 prior to the FOMC announce.
- It has cleared a bear trigger at 109-02+ (Nov 15 low) and also the round 109-00, for now stopping short of testing further support at 108-28 (1.236 proj of Oct 1-14-16 price swing).
STIR: Only One and A Half Fed Cuts Seen For The Cycle
- Fed Funds implied rates modestly extended their sharp hawkish reaction to hawkish SEP through Chair Powell’s press conference.
- The June implied rate sits 1.5bp higher than before Powell started speaking for +10bp since the announcement/SEP.
- Cumulative cuts from an assumed effective rate of 4.33%: 2bp Jan, 12bp Mar, 16bp May and 22bp Jun.
- SOFR futures implied yields see the largest post-FOMC increases in Z5/H6 contracts (currently +17bps) whilst the terminal yield has climbed 13bp (when looking far out to end-2027).
- The terminal yield of 3.96% is the lowest since May and implies just 1.5 x 25bp cuts to come this cycle.
FED: Instant Answers: Fed Cuts 25BP; SEP Signals 2 Cuts In '25, 2 In '26
- Federal Funds Rate Range Maximum: 4.5%
- Number of dissenters on size of rate move: One. Cleveland Fed President Beth Hammack preferred to maintain target range at 4.5% to 4.75%. SEP's "Dot Plot" shows total of 4 officials wanted to hold rates steady.
- Median Projection of Fed Funds Rate at End of 2025: 3.9% vs 3.4% PREV
- Median Projection of Fed Funds Rate at End of 2026: 3.4% vs 2.9% PREV
- Median Longer Run Projection of Fed Funds Rate: 3.0% vs 2.9% PREV
- Number of 2025 dots > 3.625%: FOURTEEN
- Number of 2025 dots < 3.625%: TWO
- ON RRP Offer Rate: 4.25%. Fed lowered rate 5BP to "support effective monetary policy implementation and the smooth functioning of short-term funding markets."
FED: Economic Projections, Rate Outlook More Hawkish
A more hawkish set of projections than expected on the Dot Plot, particularly for the higher 3.4% median in 2026 (looks like above any expectations we'd seen), suggesting that the Fed is very cautious about the neutral rate.
- Econ forecasts basically in line except for the PCE projections in 2025, pretty significant increases for both core and headline, with core and headline not seeing returning to 2% until 2027 vs 2026 in the prior set.
The 50bp of cuts seen in 2025 (vs 100bp last time, 75bp consensus) appears to reflect this more hawkish outlook.
BOJ: MNI BoJ Preview - Dec 2024: Pushing Further Tightening Into 2025
EXECUTIVE SUMMARY
- The broad consensus for the BoJ policy meeting outcome on Thursday is for no changes in policy settings.
- Towards late November, market pricing for the meeting outcome stood at over 60% in terms of a 25bps hike priced in. This has fallen back sharply though as we have gotten closer to the meeting date, last around 14% probability priced for a full rate hike.
- In terms of what has shifted sentiment around the likely meeting outcome, it has more reflected press articles, along with BoJ commentary, as opposed to shifts in data outcomes.
- Our onshore policy team in Japan has also noted political considerations in terms of potentially holding fire for a near term rate hike. Media outlets have also hinted that the central bank doesn’t see an urgent need to raise interest rates in the near term, but this didn’t mean a December hike wouldn’t be considered/discussed.
- The FOMC announces its policy decision before the BoJ tomorrow. A 25bps cut is widely expected by the Fed. A surprise hold would boost the USD and drive USD/JPY higher, which could prompt a BoJ rethink at tomorrow’s outcome.
- Full preview here
MNI BoE Preview - December 2024: 8-1 Vote for Hold
- We expect this week’s MPC meeting to see an 8-1 vote split for Bank Rate to be on hold (with Dhingra the sole dissenter looking for a 25bp cut) and with guidance largely unchanged.
- We look through where we expect each MPC member to sit within the "cases" framework.
- And we look at when we do expect the guidance to change, and what could be the triggers.
- In addition we summarise over 20 sellside views.
FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK: MNI BoE Preview - Dec24.pdf
RIKSBANK: MNI Riksbank Preview: Dec '24 - Still Cutting For Now
EXECUTIVE SUMMARY
- The Riksbank is expected to bring its policy rate to 2.50% with a 25bp cut in December. Although inflation has tracked a little above the September MPR projections over the past three months, continued softness in domestic economic activity means there is little reason for the Executive Board to go against its November guidance.
- The December decision includes an updated monetary policy report and rate path projection. Since the September rate path only incorporated a small implied probability of a 50bp cut in November or December, we should see a mechanical shift lower at the front-end of the December path.
- Although recent commentary from Executive Board member’s Seim, Breman and Jansson suggests the November guidance (i.e. another cut in H1 2025) still holds, we think this timeframe may be narrowed down to Q1 in the policy statement. The Riksbank’s bias remains tilted towards further easing for now, and keeping the existing guidance could be seen as too cautious/vague by markets, possibly eliciting a hawkish reaction.
- Analysts are unanimous in expecting a 25bp cut at the December meeting. From the previews we have seen, most expect a terminal rate of either 1.75% or 2.00%.
SEE HERE FOR THE FULL PUBLICATION
MNI Norges Bank Preview: Dec '24 - Cuts Are Approaching
EXECUTIVE SUMMARY
- Norges Bank has signalled since September that policy rates will likely be kept at 4.50% through the end of 2024. As such, anything other than another hold in rates would be a significant surprise to markets.
- The September MPR rate path assigned a near-certain implied probability of a 25bp cut in Q1 2025, so it won’t be a surprise for Norges Bank to signal such an intention in the December policy statement.
- The December decision includes an updated MPR and rate path projection. Immediate focus for markets will be on whether Norges Bank indicates that a cut is more likely in January (an interim meeting) or March (an MPR meeting).
- Focus will then turn to the path for easing through 2025 and 2026. It is likely that the December rate path will be revised a little higher through the forecast horizon, tilting towards three rather than four cuts in 2025.
- Analysts are unanimous in expecting Norges Bank to remain on hold in December, with most looking for the first cut to be delivered in March.
SEE HERE FOR THE FULL PUBLICATION: MNI Norges Preview - 2024-12.pdf
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: Secured Funding Rates Pull Back, FOMC Awaited
Secured rates came off monthly highs Tuesday as expected, with SOFR pulling back 3bp to 4.62% and BGCR and TGCR dipping 2bp as well. Large net bill redemptions ($26B) Tuesday helped rates come off higher levels earlier in the week that had been spurred by tax payments and Treasury settlements.
- There was no change in effective Fed funds, as usual. The expected 25bp cut to the Fed funds rate Wednesday will only be implemented on Thursday. There's also expected to be a 5bp downward adjustment to ON RRP (to 4.25%), which is likely to pull down SOFR but have a much more modest impact on EFFR.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.62%, -0.03%, $2341B
* Broad General Collateral Rate (BGCR): 4.59%, -0.02%, $856B
* Tri-Party General Collateral Rate (TGCR): 4.59%, -0.02%, $830B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.58%, no change, volume: $103B
* Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $225B
US TSYS/OVERNIGHT REPO: ON RRP Takeup Rebounds For 2nd Session
Takeup of the Fed's overnight reverse repo facility rose for a 2nd consecutive day Wednesday, up $13.6B to $131.7B. That retraces most of the ~$70B fall in takeup between Dec 11 and Dec 16 when it hit a post-pandemic low just above $110B. The drop was seen as largely reflecting a large Treasury settlement, with ON RRP takeup seen retracing to pre-December levels ($140-200B) through the rest of this week and into next.
BONDS: EGBs-GILTS CASH CLOSE: Gilt Yields Widen Vs Bunds Again Pre-BoE
The Gilt sell-off continued Wednesday as BoE rate cut pricing diminished yet again.
- While UK CPI data was largely in line, follow through from Tuesday's strong wage data saw implied BoE rate cuts diminish below 50bp for 2025. A hold is still the overwhelming base case for Thursday's decision.
- The effects continued to be felt through the curve, and the 10Y Gilt/Bund spread extended to another post-1990 wide (231bp). 10Y Gilt yields closed 0.5bp below the 2024 high close.
- The UK curve bear steepened though the 10Y segment, with Germany's twist steepening.
- Periphery / semi-core EGB spreads were mixed.
- Attention after the cash close is on the Federal Reserve meeting, while Thursday's focus will be the Bank of England decision - MNI's preview is here.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.3bps at 2.028%, 5-Yr is up 0.3bps at 2.07%, 10-Yr is up 1.5bps at 2.245%, and 30-Yr is up 2.3bps at 2.475%.
- UK: The 2-Yr yield is up 1bps at 4.463%, 5-Yr is up 2.3bps at 4.394%, 10-Yr is up 3.4bps at 4.558%, and 30-Yr is up 1.6bps at 5.063%.
- Italian BTP spread up 0.4bps at 115.9bps / French OAT down 0.3bps at 80.2bps
EUROPE OPTIONS: Notable Rate Upside After UK CPI Data
Wednesday's Europe rates/bond options flow included:
- 0RH5 99.12c, bought for 0.75 in 10k
- SFIG5 95.50/95.40/95.30/95.20p condor, sold at 2.75 in 2k.
- SFIH5 95.40/95.30/95.20p ladder, bought for 1.25 in 5k.
- SFIU5 96.00/96.10 call spread vs. 95.50/95.40 put spread, paper paid 0.5 on 7K, buying the call spread vs 95.79 (10% delta).
- 0NG5 96.10/96.30/96.40 broken put fly, bought for 4.25 in 3k
- 0NM5 96.10/96.30/96.50c fly, bought for 2.25 in 2k.
- 0NM5 96.10/96.30cs, bought for 7.25 for 4k.
FOREX: Greenback Soars on Outright Hawkish Fed, USD Index at Two-Year Highs
- A hawkish dissent, matched with an outright hawkish set of projections from the FOMC has prompted substantial dollar gains late Wednesday, with the USD index soaring to the highest level in two years.
- Chair Powell added little throughout his press conference and as such, we have seen consistent demand for the greenback, bolstered by the weakness for major equity benchmarks and front-end yields rising over 10 basis points.
- Sentiment has weighed heavily on higher beta currencies, with the likes of AUD and NZD underperforming against the dollar in G10.
- AUDUSD is now down 1.66%, with momentum building on a break of 0.6270, with the pair trading at a fresh two-year low. The trend needle in AUDUSD continues to point south and this week’s fresh cycle lows reinforce current conditions. Sentiment may have also been aided by the most recent RBA dovish pivot.
- The move down maintains the price sequence of lower lows and lower highs. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Below here, attention will be on 0.6210, the Oct 21 ’22 low.
- EURUSD (-1.25%) slides back below 1.0400 in sympathy with the broader bid in the dollar and risk off tone, with recent gains appearing to have been a correction. Price action has seen spot substantially narrow the gap to key support at 1.0335, the Nov 22 low and bear trigger. Below here, 1.0311 and 1.0258 are notable targets, both Fibonacci projections.
- For USDJPY, the weakness for stocks and the close proximity to the Bank of Japan decision overnight has limited gains to just 0.75%. We have printed fresh recovery highs, but remain just shy of 154.84, a Fibonacci retracement level. 156.75, the Nov 15 high and the bull trigger remains the key topside mark.
- After the BOJ on Thursday, central bank decisions in Sweden, Norway and the UK are all scheduled.
FOREX: FX OPTION EXPIRIES - Larger in the EUR
FX OPTION EXPIRY: Focus is on Friday for the EUR.
Of note:
EURUSD 1.86bn at 1.0491/1.0500.
AUDUSD ~1bn at 0.6350.
EURUSD 4.51bn at 1.0450, 7.41bn at 1.0500, 3.39bn at 1.0525 (fri).
EURGBP 2.6bn at 0.8290/0.8300 (fri).
AUDUSD 2.14bn at 0.6330/0.6350 (fri).
USDCNY 2.86bn at 7.3000 (fri).
EURUSD 2bn at 1.0500 (mon).
- EURUSD: 1.0450 (555mln), 1.0475 (233mln), 1.0491 (629mln), 1.0500 (1.23bn), 1.0510 (226mln), 1.0525 (249mln), 1.0550 (998mln).
- USDCAD: 1.4300 (699mln).
- AUDUSD: 0.6350 (945mln).
- NZDUSD: 0.5750 (465mln).
- USDCNY: 7.3000 (795mln), 7.3100 (479mln).
US STOCKS: Heavy Declines At Support Levels Crumble
- The S&P 500 e-mini (ESH5) has continued to slide well after Powell's press conference has concluded, recently pushing to 5911.5 for a ~230 point decline futures on the back of surprisingly hawkish Fed projections.
- It erases post US presidential election gains.
- It briefly saw an almost 40 point recovery from the 5940 mark, aided as the surge in Treasury yields slowed having hit 4.40% for 5Y yields and 4.50% for 10Y yields, but the recovery has proved short-lived.
- The post-FOMC slide has seen it tumble through multiple support levels at 6105.41 (20-day EMA), 6043.0 (Nov 26 low), 6014.78 (50-day EMA), 5970.24 (Nov 21 low) and now 5921.00 (Nov 19 low)
- E-mini comparison: S&P 500 -3.5%, Nasdaq 100 -4.4%, Dow Jones -2.9%, Russell 2000 -4.9%
- Some heavy losses for megacaps, most notably Tesla (-10%) but also Amazon (-4.6%), Alphabet (-3.8%), Meta (-3.3%) and Microsoft (-3.4%). Apple (-2.1%) and Nvidia (-1.1%) round out the “magnificent seven”.
| Date | GMT/Local | Impact | Country | Event |
| 19/12/2024 | 2145/1045 | *** |  NZ | GDP |
| 19/12/2024 | - |  NO | NorgesBank Meeting | |
| 19/12/2024 | 0300/1200 | *** |  JP | BOJ Policy Rate Announcement |
| 19/12/2024 | 0700/0800 | * |  DE | GFK Consumer Climate |
| 19/12/2024 | 0745/0845 | ** |  FR | Manufacturing Sentiment |
| 19/12/2024 | 0830/0930 | *** |  SE | Riksbank Interest Rate Decison |
| 19/12/2024 | 0900/1000 | *** | NO | Norges Bank Rate Decision |
| 19/12/2024 | 0900/1000 | ** |  EU | EZ Current Account |
| 19/12/2024 | 1200/1200 | *** |  GB | Bank Of England Interest Rate |
| 19/12/2024 | 1200/1200 | GB | BOE MPS and Minutes | |
| 19/12/2024 | 1200/1200 | GB | BOE Agents' summary of business conditions | |
| 19/12/2024 | 1200/1200 | *** | GB | Bank Of England Interest Rate |
| 19/12/2024 | 1330/0830 | *** |  US | Jobless Claims |
| 19/12/2024 | 1330/0830 | *** | US | GDP |
| 19/12/2024 | 1330/0830 | * |  CA | Payroll employment |
| 19/12/2024 | 1330/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 19/12/2024 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 19/12/2024 | 1500/1000 | *** | US | NAR existing home sales |
| 19/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 19/12/2024 | 1600/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 19/12/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 19/12/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 19/12/2024 | 1800/1300 | ** | US | US Treasury Auction Result for TIPS 5 Year Note |
| 19/12/2024 | 1900/1400 | *** |  MX | Mexico Interest Rate |
| 19/12/2024 | 2100/1600 | ** | US | TICS |
| 20/12/2024 | 2330/0830 | *** | JP | CPI |