HIGHLIGHTS
- Treasuries running weaker after Monday's close, off midday lows as markets set sights on Friday's October employment data.
- Markets quickly discounted geopolitical risk tied to Israel's "limited" strike against Iran over the weekend, note crude prices fell sharply (WTI -4.28 at 67.50) as fallout for the retaliatory strike was muted.
- Even stocks gained ahead of a heavy corporate earning's slate this week: approximately 40% of the S&Ps market cap.
MNI US TSYS: Yields Inch Higher Ahead Heavy Data Docket, Corporate Earnings
- Treasuries tested the wide early overnight range Monday, Treasury futures extended session highs by midmorning: Dec'24 10Y trading 111-02 (0.0), 10Y yield -.0119 at 4.2280%, 30Y +3 at 118-12. Muted market reaction to Israel's limited strike against Iran (note crude prices have fallen sharply, however: WTI -4.76 to 67.22 low).
- Support evaporates as Tsys swung lower by noon, extending lows after both Treasury note auctions tailed Monday:
- Weak $69B 2Y note auction (91282CLS8) tailed 0.8bp: 4.130% high yield vs. 4.122% WI;
- Weak $70B 5Y note auction (91282CLR0) tails 1.6bp: drawing 4.138% high yield vs. 4.122% WI. Tsy 10Y futures fell to 110-18.5 low, 10Y yield climbing to 4.2982% high.
- Market turns focus on this Friday's headline employment report for October, ADP Wednesday, not to mention a heavy corporate earning's docket this week and month end extension. Next week Tuesday's presidential election likely keeping some trading accounts on the sidelines as well.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01081 to 4.69649 (-0.05176 total last wk)
- 3M -0.01547 to 4.58917 (-0.02699 total last wk)
- 6M -0.01802 to 4.41270 (-0.01299 total last wk)
- 12M -0.00823 to 4.14467 (+0.02059 total last wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.83% (+0.00), volume: $2.188T
- Broad General Collateral Rate (BGCR): 4.82% (-0.01), volume: $799B
- Tri-Party General Collateral Rate (TGCR): 4.82% (-0.01), volume: $765B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $104B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $267B
FED Reverse Repo Operation:
RRP usage rebounds to $251.032B from $227.000B last Friday, compares to new multi year low of $202.798B from Thursday, October 24, '24. Number of counterparties climbs to 67 from 62 prior.
US SOFR/TREASURY OPTION SUMMARY
Option desks report better SOFR/Treasury put volumes Monday, particularly in Nov'24 & Dec'24 SOFR midcurves and Treasury 10Y week 2 Midcurves. Underlying futures trading lower off low end of the range. Current projected rate cuts into early 2025 receded vs. this morning levels (*): Nov'24 cumulative at -23.8bp (-24.1bp), Dec'24 -42.3bp (-43.4bp), Jan'25 -58.1bp (-59.9bp), Mar'25 -76.4bp (-79.2bp). Highlight trade includes:
SOFR Options:
+6,000 SFRU5 95.62/2SU5 95.50 put spds 1.5
-7,000 SFRZ4 95.43/95.68/95.81 Iron Flys 13.75 ref 9560.5
+5,000 SFRZ4 95.68/95.75 call spds 2.0 vs. 95.63/0.10%
-4,000 0QX4 96.75/96.93 call spds w/ 96.81/96.93 call spd strip, 3.75 total
-30,500 0QX4 96.62 calls vs. 96.25/96.37 put spds ref 96.425, 2.0 net/calls over
+5,000 0QZ4 95.87/96.00/96.12 put flys, 1.0 ref 96.41
+5,000 SFRF5 95.75/95.87/96.00 put flys, 1.75 ref 95.95
5,000 0QZ4 95.50/96.00 put spds vs. 2QZ4 96.00/96.25 put spds
+4,000 0QZ4 96.75/97.00/97.25 call flys, 2.5
16,000 0QZ4 96.00 puts
9,000 0QZ4 95.50 puts
8,400 0QZ4 97.00 calls
Treasury Options:
BLOCK/screen +58,000 wk2 TY 108.25/109 put spds, 8 ref 110-20.5 (expire November 8)
2.000 TYZ4 112/114 2x3 call spds, 38 ref 110-25.5
3,000 TYZ4 106/108 put spds vs. 113/115 call spds, 2 net/call spd over ref 110-27.5
3,000 Monday wkly 10Y 111.25/111.75 1x2 call spds ref 110-30
2,500 Wednesday wkly 10Y 110.75/111 put spds ref 110-30
5,800 wk1 TY 110 puts, 11 ref 110-27.5
5,000 TYZ4 109.5 puts, 32 last
2,200 Wednesday wkly 30Y 116 puts, 4 expire this Wed.
3,500 wk1 FV 106.75/107.25 2x1 put spds 4.5
MNI BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform Pre-UK Budget
Gilts underperformed EGBs Monday, with continued focus on the UK budget release this week.
- Global core FI sold off overnight on easing geopolitical risk, after an Israeli attack on Iran proved more restrained than expected. Oil prices fell sharply and safe haven assets retreated.
- Bunds and Gilts recovered strongly in morning trade, but gains were capped in early afternoon as oil recovered. Poor US auctions toward the European cash close also weighed.
- The short-end outperformed on the German curve and underperformed on the UK's. ECB Dec 50bp rate cut probability extended to 45% from 40% prior, assisting the German bull steepening move.
- The UK curve bear flattened, in contrast. While there was no overt driver for Gilt underperformance on the day, the UK budget release Wednesday remains a concern - MNI's Preview is here (link). Our overall expectation is that the impact on BoE policy will likely be more subdued than the market currently fears; BoE cut estimates retreated slightly on the day.
- Periphery/semi-core spreads tightened modestly. OATs outperformed overall (10Y -2.8bp to Bunds) after France avoided a Moody's downgrade Friday.
- The key highlights this week remain the UK budget and Eurozone flash October inflation (beginning Wednesday)/Eurozone GDP, though Tuesday's schedule is more limited.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.6bps at 2.1%, 5-Yr is down 1.4bps at 2.102%, 10-Yr is down 0.5bps at 2.286%, and 30-Yr is down 0.3bps at 2.596%.
- UK: The 2-Yr yield is up 4.3bps at 4.208%, 5-Yr is up 3.1bps at 4.133%, 10-Yr is up 2.1bps at 4.254%, and 30-Yr is up 1.7bps at 4.752%.
- Italian BTP spread down 1.3bps at 120.6bps / Spanish down 1.1bps at 69.5bps
MNI EGB OPTIONS: Euribor Upside Plays Continue To Build Monday
Monday's Europe rates/bond options flow included:
- ERZ4 97.50 call, bought for 1.25 in 10k
- ERZ4 97.37/97.50cs, bought for 2 in 4k
- ERM5 98.12/98.37/98.62c fly, bought for 3.75 and 4 in 60k
FOREX
MNI FOREX: Renewed JPY Pressure as US Yields Revisit the Highs
- The renewed upward pressure on treasury yields throughout the US session has weighed on the FI sensitive Japanese yen, and the latest auction tails have helped USDJPY consolidate back above 153.20 in late session trade.
- As noted earlier, initial JPY pressure this week came following surprise weekend election results in Japan, in which Ishiba's LDP-led coalition lost their majority in parliament for the first time in 15 years - a result that's brought considerable uncertainty to Japanese politics.
- While USDJPY (+0.64%) remains a way off the session highs of 153.88, the latest bounce is supportive of the underlying bullish trend. A daily close above 153.40, (61.8% retracement of the downleg posted off the July 3rd high) will be monitored and current price action sets the scene for an extension towards 155.27, the 2.00 projection of the Sep 16 - 27 - 30 price swing.
- Single currency strength also sees EURJPY edging back closer to 166.00, currently up 0.84% on the day. The first resistance point currently resides at 166.53 (July 31 high) and above here, markets will focus on 168.01 (July 26 high).
- Elsewhere, fx markets have been contained ahead of the very busy data calendar this week, which includes Eurozone inflation and US employment. The Bank of Japan will also meet this week ahead of next week's US election.
- AUD is a notable underpeformer, down 0.38% as we approach the APAC crossover, potentially owing to oil prices, which have slumped around 5% on Monday, as the market takes some comfort from Israel striking military targets in Iran over the weekend, rather than oil or nuclear facilities, and some geopolitical risk premium is trimmed.
MNI FOREX: FX OPTION EXPIRY
Of note:
USDCAD 2.3bn at 1.3850/1.3855.
EURUSD 2.4bn at 1.0800 (tue).
USDCAD 4.78bn at 1.3800/1.3820 (wed).
EURUSD 1.09bn at 1.0800 (thu).
EURGBP 2.36bn at 0.8300/0.8350 (thu).
- EURUSD: 1.0750 (484mln), 100770 (325mln), 1.0800 (523mln), 1.0900 (864mln).
- USDCAD: 1.3850 (910mln), 1.3855 (1.39bn).
- AUDUSD: 0.6550 (450mln), 0.6650 (310mln), 0.6660 (944mln), 0.6700 (604mln).
MNI US STOCKS: Equities Roundup: Holding Gains Ahead Heavy Earnings Slate
- Stocks are trading firmer, inside narrow ranges ahead midday as markets await approximately 40% of the S&P 500 market cap to report earnings this week. Incidentally, S&P Eminis opened higher overnight as fallout over Israel's limited attack on Iran over the weekend appeared muted. Currently, the DJIA trades up 226.05 points (0.54%) at 42342.56, S&P E-Minis up 16.75 points (0.29%) at 5862.5, Nasdaq up 78.5 points (0.4%) at 18597.31.
- Utilities and Financial sectors led gainers in the first half, independent and electricity providers buoyed the former: NextEra Energy +2.44%, Vistra +2.26%, AES Corp +2.06%. Banks and services shares supported the Financial sector: Citigroup +3.51%, Synchrony Financial +2.86%, Discover Financial Services +2.74%.
- On the flipside, Energy and Information Technology sectors underperformed in the first half, oil and gas shares pressed by a sharp decline in crude (WTI -3.83 at 67.95) the limited react to Israel's targeted attack cited: APA -4.19%, Diamondback Energy -3.14%, Haliburton -2.23%. Semiconductors weighed on IT amid modest profit taking following last week's gains: Lam Research -2.09%, Teradyne -0.81%, Nvidia -0.71%, Micron -0.48%.
- Key reports this week include: TUES: Alphabet, McDonald's, Pfizer, Visa, AMD; WEDS: Microsoft, Eli Lilly, Meta Platforms, Caterpillar; THURS: Apple, Amazon, MasterCard, Merck; FRI: Chevron, ExxonMobil. So far this quarter we see earnings continuing to exceed expectations, with the average name (of the ~170 to have reported) beating EPS forecasts by 7.4%, although expectations for revenues have been generally inline.
MNI US 10YR FUTURE TECHS: E-MINI S&P: (Z4) Bulls Remain In The Driver’s Seat
- 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 price swing
- RES 1: 5927.25 High Oct 17 and the bull trigger
- PRICE: 5876.75 @ 14:44 GMT Oct 28
- SUP 1: 5801.00/5753.57 Low Oct 23 / 50-day EMA
- SUP 2: 5724.00 Low Oct 2
- SUP 3: 5675.25 Low Sep 18
- SUP 4: 5658.00 Low Sep 13
S&P E-Minis continues to trade below their recent highs. Short-term weakness is considered corrective and the uptrend remains intact. Price has recently traded through support at the 20-day EMA, at 5854.44, but is - for now - trading above this average. A clear bearish break of the EMA would open 5753.57, the 50-day EMA. A stronger resumption of gains would refocus attention on 5961.00, a Fibonacci projection.
MNI COMMODITIES: Crude Plunges As Geopolitical Risks Ease After Israel Strike
- WTI has sunk today as the geopolitical risk premium associated with Israel's retaliatory strike on Iran evaporated when the former avoided hitting energy and nuclear facilities.
- WTI Dec 24 is down by 6.0% at $67.5/bbl.
- Israeli missile strikes on Iranian military targets in and around Tehran on the night of Oct 26 are seen as being on the less-escalatory end of the spectrum of potential responses to Iran's ballistic missile barrage launched against Israel on Oct 1.
- A bearish theme in WTI futures remains intact and today’s gap lower reinforces this theme.
- A continuation down would expose $65.99, the Oct 1 low, and $64.16, the Sep 10 low and a key support.
- Meanwhile, Henry Hub is plunging today, amid indications of milder weather throughout the continental US, coupled with strong output levels. This is tracking the wider selloff in the energy complex due to abating geopolitical risks from the Middle East.
- US Natgas Nov 24 is down by 9.7% at $2.31/mmbtu.
- Elsewhere, spot gold has edged down by 0.2% to $2,741/oz, as the yellow metal consolidates just below last week’s record high of $2,758.
- Gold bulls remain in the driver’s seat, with sights on $2,767.1 next, a Fibonacci projection point, ahead of the $2,800.0 handle.
TUESDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 29/10/2024 | 0855 | ** | 26-Oct | Redbook Retail Sales y/y (month) | 5.1 | -- | % |
| 29/10/2024 | 0855 | ** | 26-Oct | Redbook Retail Sales y/y (week) | 4.6 | -- | % |
| 29/10/2024 | 0900 | ** | Aug | Case-Shiller Home Price Index | -- | -- | |
| 29/10/2024 | 0900 | ** | Aug | FHFA Home Price Index m/m | 0.1 | -- | % |
| 29/10/2024 | 0900 | ** | Aug | Prior Revised HPI % Chge mm SA | -- | -- | % |
| 29/10/2024 | 0900 | ** | Aug | FHFA Home Price Index m/m | 0.1 | -- | % |
| 29/10/2024 | 0900 | ** | Aug | Prior Revised HPI % Chge mm SA | -- | -- | % |
| 29/10/2024 | 1000 | *** | Oct | Conference Board Confidence | 98.7 | 99.0 | |
| 29/10/2024 | 1000 | *** | Oct | Previous Consumer Confidence Index Revised | -- | -- | |
| 29/10/2024 | 1000 | ** | Q3 | housing vacancies rate | 0.9 | -- | % |
| 29/10/2024 | 1000 | *** | Sep | JOLTS job openings level | 8040 | 7900 | (k) |
| 29/10/2024 | 1000 | *** | Sep | JOLTS quits rate | 1.9 | -- | % |
| 29/10/2024 | 1030 | ** | Oct | Dallas Fed services index | -2.6 | -- | |
| 29/10/2024 | 1130 | * | 01-Nov | Bid to Cover Ratio | -- | -- | |
| 29/10/2024 | 1130 | ** | Sep | Bid to Cover Ratio | -- | -- | |
| 29/10/2024 | 1300 | ** | Oct | Bid to Cover Ratio | -- | -- | |
| 29/10/2024 | 1300 | ** | Oct | Bid to Cover Ratio | -- | -- |