HIGHLIGHTS
- Treasuries look to finish weaker but off lows in the lead-up to Friday's headline October employment data, taking into account Wednesday's higher than expected ADP jobs gain while paying heed to lower NFP survey estimates.
- Nonfarm payrolls growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
- In the prior session, former Fed VC Brainard that Friday’s employment data will likely be lower due to “disruptive hurricanes, strike activity”.
MNI US TSYS: Bonds Lead Bounce in Second Half Trade, Pre-NFP Squaring
- Treasury futures are quietly pared losses in the second half, curves mildly flatter (2s10s -.344 at 11.028; 5s30s -2.334 at 31.670) with bonds leading the move. In the absence of headline drivers, the late drift off lows mirrored late moves in Gilts.
- The Dec'24 10Y futures contract trades currently -7 at 110-15.5 vs. 110-04 low, initial technical resistance above at 111-06.5 (Oct 25 high) to 111-29 (20-day EMA).
- Trading desks note modest short covering from proprietary/trading accts looking to square up positions ahead of tomorrow's October employment report at 0830ET, current survey estimate at +105k jobs vs. +254k in September.
- The FOMC announces their next rate decision on Thursday, November 7 (dots not included. Current projected rate cuts into early 2025 are largely steady vs. late Wednesday levels (*): Nov'24 cumulative at -23.5bp ( -23.5bp), Dec'24 -42.8bp (-42.8bp), Jan'25 -58.1bp (-58.1bp), Mar'25 -75.0bp (-76.0bp).
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01565 to 4.65606 (-0.05124/ wk)
- 3M -0.01182 to 4.55924 (-0.04540/wk)
- 6M -0.01074 to 4.40726 (-0.02346/wk)
- 12M -0.00560 to 4.16874 (+0.01584/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.81% (-0.01), volume: $2.045T
- Broad General Collateral Rate (BGCR): 4.81% (+0.00), volume: $798B
- Tri-Party General Collateral Rate (TGCR): 4.81% (+0.00), volume: $768B
- (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: $269B
FED Reverse Repo Operation: New Low Usage
RRP usage falls to a new multi-year low of $201.278B vs. $228.946B on Wednesday, today's reverse repo usage the lowest level since May 11, 2021. Number of counterparties at 57 from 54 prior.
US SOFR/TREASURY OPTION SUMMARY
Heavier SOFR & Treasury option volumes were reported Thursday, mostly buying downside risk insurance interspersed with position unwinds and outright vol structure selling ahead of Friday's headline October employment report. Underlying futures held weaker but off lows in late trade. Current projected rate cuts into early 2025 are largely steady vs. late Wednesday levels (*): Nov'24 cumulative at -23.5bp ( -23.5bp), Dec'24 -42.8bp (-42.8bp), Jan'25 -58.1bp (-58.1bp), Mar'25 -75.0bp (-76.0bp).
SOFR Options:
+45,000 0QH5 95.50 puts, 7.0 vs. 96.335/0.14%
-5,000 SFRM5 95.62/96.62 call over risk reversal 4.5, 96.125/0.50%
-13,000 SFRX4 95.62 straddles vs. 95.50 puts, 10.25-10
+10,000 0QZ4 96.37/96.62 1x2 call spd w/ 0QZ4 96.50/96.75 1x2 call spd/strip 0.75-1.0
+5,000 SFRZ4 95.37/95.50 call spds 9.5 vs. 95.615/0.18%
+10,000 SFRF5 95.75/95.87/96.00 put flys, 1.75 ref 95.91
-5,000 SFRH5 95.75/96.18/96.25/96.50 Iron Condor 30.25 ref 95.91
-10,000 2QZ4 96.00 puts 10.0 ref 96.28
+10,000 SFRZ4 95.37/95.43/95.50/95.56 put condors 1.5 ref 95.605
+5,000 0QH5 95.50 puts, 7.0 96.335/0.14%
Block, +10,000 SFRF5 95.75/95.87/96.00 put flys 1.75 ref 95.90
Block, 5,000 0QZ4 95.93/96.12/96.31 put flys, 3.0 net ref 96.31
Blocks, over 14,700 0QX4 96.50/96.81 3x2 put spds, 24 net ref 96.325
-10,000 2QZ4 96.37 straddles, 40.5 vs. 96.315/0.08%
+5,000 0QZ4 95.68/96.18 put spds vs 3QZ4 95.37/96.12 put spds, 1.0 net
+5,000 0QX4 96.00/96.12 put strip 10.5 ref 9632
2,500 0QF5 96.43/96.56/96.68 call trees ref 96.345
3,000 0QX4 95.81/96.00 put spds ref 96.305
+10,000 SFRZ4 95.12 puts, 0.5 ref 95.61
Block, 10,000 SFRZ4 95.37/95.50 call spds, 9.5 ref 95.605
-2,500 0QX4 96.00/96.12/96.25 put trees, 12.0 2-legs over ref 96.315
-5,000 SFRZ5 96.50/96.87/97.25 put flys, 4.0 ref 96.315
Treasury Options:
5,600 wk2 TY 107.75/108.5/109.25 put flys, 7 ref 110-11.5
12,000 TYZ4 109/109.5 put spds
-10,000 TYZ4 108.5/112.5 strangles 43-45
12,000 TYZ4 109 puts, 36
+10,500 TYZ4 109.75 puts, 45 vs. 110-16.5
6,000 TYZ4 108.5/110 put spds vs. 113 calls ref 110-15.5
+5,000 FVZ4 108.25 puts 118-119 ref 107-08
3,100 wk3 TY 107/108 put spds ref 110-14 to -13.5
-28,000 TYZ4 109/110.5 put spds, 33 ref 110-19.5
-30,000 TYZ4 109.5/110.5 put spds, 25 ref 110-19
+20,000 TYZ4 108.5 puts, 21 - partly tied to 108.5/112.5 strangle
MNI BONDS: EGBs-GILTS CASH CLOSE: Gilts Extend Slide In Another Bear Flattening Move
UK yields rose sharply again Thursday as the implications of Wednesday's budget announcement continued to be digested.
- Continued concern over the UK budget's inflationary and bond supply impacts weighed heavily on the UK curve, with the short end underperforming for a 2nd consecutive session as BoE cuts were further priced out.
- Italian and French inflation were largely in line with expectations. But this merely confirmed that after Wednesday's upside surprise in Germany, that Eurozone-wide core HICP failed to decelerate in October, defying expectations coming into the week (flash core was 2.7% Y/Y, vs 2.6% exp. and unch from Sep).
- Yields finished off highs but the damage was done in Gilts in particular.
- The UK curve bear flattened sharply, with Germany's twist flattening. Periphery EGB spreads were mixed, closing off session wides.
- The global focus Friday will be the US employment report, with final October Manufacturing PMIs also featuring.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 2.1bps at 2.281%, 5-Yr is up 0.8bps at 2.267%, 10-Yr is up 0.2bps at 2.39%, and 30-Yr is down 2.4bps at 2.595%.
- UK: The 2-Yr yield is up 11.8bps at 4.437%, 5-Yr is up 9.7bps at 4.323%, 10-Yr is up 9.4bps at 4.446%, and 30-Yr is up 4.8bps at 4.88%.
- Italian BTP spread up 1.2bps at 126.2bps / Spanish down 0.4bps at 70.5bps
MNI FOREX: GBPJPY Plummets 1.6% as UK Budget Concerns Dominate
- Spillover from yesterday’s UK Budget detailing more inflationary aspects than expected has pressured the pound on Thursday. Adding this to the sharp weakness for global equity indices, GBPJPY has plummeted 1.6%, erasing a considerable amount of the late October upswing in the process.
- The moves were potentially exacerbated by a moderately hawkish interpretation of the latest Bank of Japan meeting. Bank of Japan Governor Kazuo Ueda on Thursday left the door open to a rate hike in December, saying downside risks to the U.S. economy had fallen, but noting fresh risks stemming from next week’s presidential election.
- As such USDJPY is down 0.75% on the session, briefly printing below 152.00 as a technically overbought condition for the pair is allowed to unwind amid the broader pressure on equities.
- The USD index is just 0.10% in the green as we approach tomorrow’s significant US employment report, emphasising how the moves have been firmly centered around GBP and JPY today.
- Highlighting the sterling weakness, EURGBP has again traded sharply higher, clearing both the 20- and 50-day exponential moving averages in the process, which represents a strong short-term bullish development. Furthermore, spot has also shown above the next key resistance at 0.8434, the Oct 3 high and a potential trend reversal point.
- Clearance of this level would strengthen the developing bullish theme and might target a move to downtrend resistance around 0.8550.
- Swiss CPI cross Friday before the US jobs data. Nonfarm payrolls growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
MNI FX OPTIONS: Expiries for Nov01 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0750(E699mln), $1.0800-03(E1.1bln), $1.0840-50(E1.4bln), $1.0895-00(E1.4bln), $1.0925-30(E510mln)
- USD/JPY: Y152.00($575mln), Y153.00($606mln)
- GBP/USD: $1.2900(Gbp584mln)
- EUR/GBP: Gbp0.8340(E719mln)
- NZD/USD: $0.6100(N$720mln)
- USD/CAD: C$1.3885($620mln), C$1.3940($618mln)
- USD/CNY: Cny7.1500($854mln)
MNI US STOCKS: Late Equities Roundup: Near Three Wk Lows Ahead NFP Data Risk
- Stocks remain near the lowest levels in three weeks late Thursday, partly tied to position squaring in the lead up to Friday's headline employment report for October, while disappointing earnings reports continues to weigh on the Information Technology and Consumer Discretionary sectors. Currently, the DJIA trades down 251.6 points (-0.6%) at 41889.57, S&P E-Minis down 101.75 points (-1.74%) at 5750.5, Nasdaq down 497.9 points (-2.7%) at 18110.26.
- Semiconductor and software makers continued to weigh on the IT sector in late trade: Monolithic Power -19.9% after missing expectations, while Super Micro Computer has erased the year's gains as it declines another -15.48% after losing over 33% Wednesday when it's independent auditor Ernst & Young resigned over "governance and transparency concerns".
- Meanwhile, Microsoft, which makes up 6.51% of the S&P, trades -5.47% despite reporting better than expected earnings late Thursday. Sell pressure may be associated with plans to make changes in it's OpenAI investments, according to SEC filings.
- The Consumer Discretionary sector was weighed down by a mix of auto and travel related shares: Aptiv -20.10% after diverging Q3 adjusted earnings rose vs. falling revenues, MGM Resorts -11.62%, Caesars Entertainment -3.62%. Other notable laggers included Ebay -8.94% after multiple rating agency downgrades, Deckers Outdoor -4.75%.
- Conversely, Utilities and Energy sectors continued to lead gainers in late trade, Entergy Corp +15.66% after beating estimates, Xcel Energy +7.38% after missing expectations slightly but offering a robust 5Y investment plan that must have mollified investors. Oil and gas stocks gained on the back of a bounce in crude on the day (WTI +0.72 at 69.33): ConocoPhillips +6.27%, Marathon Petroleum +6.12%.
- More earnings announcements after the close include: Amazon, Apple, Avis, AES Corp, Intel, Ingersoll Rand and Juniper Networks.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Retracement Extends - 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: 5844.00/5927.25 Intraday high / High Oct 17 and bull trigger
- PRICE: 5773.00 @ 14:34 GMT Oct 31
- SUP 1: 5765.76 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 are down sharply today. The contract has cleared the 20-day EMA and this exposes the next important support at 5765.76, the 50-day EMA. A clear break of this EMA, would strengthen a short-term bearish threat and signal scope for a deeper retracement. This would open 5724.00, the Oct 2 low. On the upside, a reversal higher would refocus attention on the key resistance and bull trigger at 5927.25, the Oct 17 high.
MNI COMMODITIES: Risk Off Sentiment Prompts Sharp Pullback for Gold, Oil Spikes
- General risk off sentiment on Thursday, emphasised by the sharp weakness for major equity benchmarks, has prompted a solid pullback for gold. The spot price has declined 1.5%, unwinding an overbought condition for the yellow metal.
- Overall, the trend condition in Gold is unchanged and bulls remain in the driver’s seat. The latest climb has resulted in a breach of $2685.6, the Sep 26 high, confirming a resumption of the primary uptrend and maintaining the price sequence of higher highs and higher lows.
- For oil prices, WTI had been heading into the close holding most of its gains on the day, building on the upward momentum following talks of an OPEC+ cut unwinding delay and a drop in U.S. crude inventories. A Reuters sources led story on Wednesday said that OPEC+ was considering delaying returning voluntary cuts back to the market by a month or more referring to the planned December unwinding.
- However, late headlines from Axios reporting that Iran is preparing for a major retaliatory strike on Israel “within days” via a strike from Iraq, citing Israeli intel sources, drove a geopolitical risk premium back into oil on Thursday. WTI futures are currently up 2.75% as we approach the APAC crossover.
- For Natural gas, Henry Hub extended losses today after an above-average weekly injection into US natural gas storage, according to the latest weekly EIA data.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 01/11/2024 | 0730/0830 | *** |  CH | CPI |
| 01/11/2024 | 0730/0830 | ** |  CH | Retail Sales |
| 01/11/2024 | 0930/0930 | ** |  GB | S&P Global Manufacturing PMI (Final) |
| 01/11/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 01/11/2024 | 1230/0830 | *** |  US | Employment Report |
| 01/11/2024 | 1345/0945 | *** |  US | S&P Global Manufacturing Index (final) |
| 01/11/2024 | 1400/1000 | *** |  US | ISM Manufacturing Index |
| 01/11/2024 | 1400/1000 | * |  US | Construction Spending |