HIGHLIGHTS
- Treasuries pare back early losses in lead up to Wednesday morning's November CPI release, curves flip to mildly flatter.
- Consolidation weighing on stocks after the bell, investors migrating to the sidelines while chip stocks and real estate investment trusts underperform.
- Projected rate cuts into early 2025 look steady to slightly lower vs. this morning (*) as follows: Dec'24 cumulative -21.5bp (-21.5bp), Jan'25 -27.4bp (-27.4bp), Mar'25 -43.4bp (-44.3bp), May'25 -52.3bp (-53.4bp).
MNI US TSYS: Tsys Back Near Morning Highs, Curves Flatter Ahead Key CPI Data
- Still weaker after the bell, Treasuries are back near early session highs as markets consolidate ahead of Wednesday morning's key CPI inflation data for November.
- Analysts’ forecasts for November CPI imply remarkably steady sequential inflation versus October, with the MNI median and average for core expected to show an unchanged 0.28% M/M. Headline inflation is seen picking up slightly, to 0.27% (median) from 0.24% prior, with both food and energy prices accelerating slightly on a sequential basis. On an annual basis, that means steady Y/Y core (3.3%), with a modest uptick in headline (2.7% vs 2.6%).
- The Mar'25 10Y contract trades 111-00 last (-5.5) vs. midmorning high of 111-00, 10Y yield +.0194 at 4.2205%. Curves reversed early steepening (2s10s -.333 at 7.129), partially due to incoming corporate and Tsy issuance and after large 2Y/30Y ultra bond flattener blocked in the first half: (-39,000 TUH5 103-03, sell through 103-03.5 post time bid vs. +7,500 WNH5 126-17, post time bid; appr DV01 $1.5M).
- Issuance factor: lackluster $58B 3Y note auction (91282CMB4) draws 4.117% high yield vs. 4.115% WI; 2.58x bid-to-cover vs. 2.60x prior, direct bidder take-up rebounds off prior low of 9.62% to 20.71%. Corporate issuance: Arthur J Gallagher $5B 5-part issuance is the largest since Conoco-Phillips issued $5.2B debt on November 25.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00543 to 4.44652 (-0.03078/wk)
- 3M -0.00403 to 4.39219 (-0.03453/wk)
- 6M -0.00309 to 4.28598 (-0.04344/wk)
- 12M +0.00190 to 4.13085 (-0.04994/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.63% (+0.03), volume: $2.305T
- Broad General Collateral Rate (BGCR): 4.60% (+0.02), volume: $845B
- Tri-Party General Collateral Rate (TGCR): 4.60% (+0.02), volume: $811B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $100B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $258B
FED Reverse Repo Operation
RRP usage climbs to $174.842B Tuesday afternoon from $153.029B prior. Usage has risen from last Friday's multi-year low of $130.014B (last seen at May 3 2021: $129.724B). The number of counterparties slips to 51 from 52 prior.
US SOFR/TREASURY OPTION SUMMARY
Option desks report mixed two-way SOFR & Treasury option flow Tuesday, moderate volumes as accounts continue to adjust positions ahead Wednesday's key CPI inflation data for November. Still weaker in late trade, underlying futures are gradually climbing off lows to near the top end of the day's range. Curves have reversed earlier steepening (2s10s now -0.555 at 6.907, while projected rate cuts into early 2025 look steady to slightly lower vs. this morning (*) as follows: Dec'24 cumulative -21.5bp (-21.5bp), Jan'25 -27.4bp (-27.4bp), Mar'25 -43.4bp (-44.3bp), May'25 -52.3bp (-53.4bp).
SOFR Options:
-10,000 SFRJ5 95.62/95.75 put spds, 3.0 vs. 95.645/0.10%
+10,000 SFRU6 96.62/97.12 call spds, 16.5-17.0
-4,000 SFRM5 95.75 puts, 10.0 vs. 96.03/0.28%
+5,000 SFRF5/SFRG5 95.87/95.93 strangle spread 7.0 net ref 95.875
+25,000 SFRF5 96.00/96.25 call spds 2.75 ref 95.88
-10,000 SFRZ5 95.50 puts 0.5 over SFRZ5 96.37/96.87 call spds ref 96.21
-20,000 SFRH5 95.62/95.87/96.12 call flys vs. 95.81 puts, 1.5-1.25 ref 95.875
+2,000 SFRH5 95.87 straddles, 26.25 ref 95.87
2,000 0QG5 95.87/96.12/96.25 broken put trees vs. 0QH5 95.75/96.12/96.25 broken put trees
2,000 SFRG5 95.81/95.87 put spds ref 95.87
1,500 SFRM5 96.75/97.12 call spds vs. 2QM5 97.25/97.62 call spds
1,500 SFRH5 95.50/95.62/95.68/95.81 put condors ref 95.875
3,100 SFRH5 95.75/95.93/96.12 call flys ref 95.885
Treasury Options:
5,000 FVF5 108/109 1x2 call spds ref 107-16.75
-5,000 USF5 121/122/123 2x2x3 call trees, 121 leg over for 5-4
over 5,100 TYF5 108 puts
2,000 USF5 112/126 strangles, 3 ref 118-25
2,000 TYG5 108.5/109.5 put spds ref 110-30
1,000 USH5 116 puts, 110 ref 118-27
1,700 TYG5 109/107 put spds vs. 113/115 call spds ref 111-00.5
5,000 TYF5 112.25/112.5/112.75 call flys ref 111-03 to -03.5
2,000 TYF5 112.5/112.75 call spds ref 111-07
MNI BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform With ECB Looming
Gilts underperformed global peers Tuesday.
- Movements in Gilts largely paralleled US Treasuries: initially UK yields appeared to lead Treasury yields higher in morning trade, before the space recovered through early afternoon.
- But a spike in the US dollar saw UK and US yields rise in tandem toward the cash close. That was particularly noticeable at the short end, with US (and alongside, UK) yields pressured higher ahead of supply and in anticipation of Wednesday's CPI data.
- Bunds traded in their own fashion, with yields receding through most of the session. With little on the European data/speaker calendar Tuesday, attention remains on Thursday's ECB decision.
- The German curve twist steepened on the day, with the UK's bear steepening.
- Periphery spreads widened modestly; French OAT spreads to Bunds bucked the wider trend, with slight tightening.
- MNI's preview of the ECB decision was published today (link): the ECB will cut by 25bp (fully priced by markets with just 5% implied of a 50bp cut), and even if language concerning the ‘restrictive’ policy stance is not removed from the policy statement this time around, it soon will be.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 3.4bps at 1.964%, 5-Yr is down 2.2bps at 1.956%, 10-Yr is up 0.1bps at 2.122%, and 30-Yr is up 0.6bps at 2.354%.
- UK: The 2-Yr yield is up 3bps at 4.277%, 5-Yr is up 4bps at 4.159%, 10-Yr is up 5.3bps at 4.323%, and 30-Yr is up 5.4bps at 4.878%.
- Italian BTP spread up 0.9bps at 108.6bps / French OAT down 0.6bps at 74.8bps
MNI OPTIONS: Large Euribor Call Fly Selling, Decent Sonia Call Fly Buying
Tuesday's Europe rates/bond options flow included:
- ERZ4 97.25/97.37cs vs 97.12p, bought the cs for 0.75 in 4k.
- ERM5 98.125/98.375/98.625c fly 1x2x2, sold at 7.75 down to 7.25 in 20.5k total
- 0RZ4 98.37/98.50cs, bought for half in 2.5k
- 0RZ4 98.12/98.25/98.37/98.50c condor, sold at 7 in 2.5k
- SFIH5 95.80/95.90/96.10c fly, bought for 0.25 in 5k
MNI FOREX: Antipodean FX Sharply Weaker, Fully Reverses China-Inspired Gains
- The USD index looks set to post its third consecutive session of gains Tuesday, advancing 0.34% to 106.50 ahead of the APAC crossover. The dollar strength is most notable against both AUD and NZD in a sharp reversal of the China-inspired sentiment to start the week.
- Antipodean currencies have fallen over 1% against the dollar, and notably have made fresh lows on the week. Aussie losses have been driven by a dovish pivot from the RBA, who noted growing confidence that inflationary pressures are declining.
- Multiple lows at 0.6380 this week are giving way in AUDUSD, turning attention to key support at 0.6350 and 0.6339. Below here, attention would be on 0.6259, the 1.00 projection of the Sep 30 - Nov 6 - 7 price swing.
- For NZDUSD, a breach of 0.5797 would place the pair at the lowest level since November 2023, with 0.5774 the next notable support.
- EURUSD is edging back towards 1.0500 as the post payrolls reversal extends to over 1%, and as noted above, punchy option expiries between 1.05/06 could provide an obstacle to a more significant breakout at this juncture ahead of the ECB.
- For USDJPY, further upward pressure on core yields have weighed on the Yen Tuesday, with the pair extending the most recent recovery to around 2.4%. Spot is now back above the 20-day EMA, and a close back above this average would bolster the case for a more protracted recovery to the bull trigger at 156.75, Nov 15 high.
- Global focus turns to US CPI, the final piece of the puzzle before the December fed decision, significant given the Fed remains in its media blackout period.
MNI OPTIONS: Expiries for Dec11 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0490-00(E2.7bln), $1.0510-15(E645mln), $1.0550-65(E1.7bln), $1.0660-80(E2.2bln)
- USD/JPY: Y148.75($1.1bln), Y151.50-60($830mln), Y153.00($596mln)
- GBP/USD: $1.2725-45(Gbp1.2bln)
- USD/CNY: Cny7.2700($848mln)
MNI US STOCKS: Late Equities Roundup: Chip Stocks, Real Estate Investment Trusts Lag
- Stocks are trading mixed late Tuesday, the DJIA outperforming mildly weaker SPX Eminis and Nasdaq averages as investors migrate to the sidelines ahead of Wednesday morning's key CPI inflation measures.
- Currently, the DJIA trades up 6.52 points (0.01%) at 44411, S&P E-Minis down 12.75 points (-0.21%) at 6053, Nasdaq down 65.4 points (-0.3%) at 19671.74.
- Communication Services and Consumer Staples sectors outperformed in late trade, interactive media and entertainment shares supporting Communication Services: Alphabet +5.16% (reportedly after Google made a breakthrough in quantum computing performance), Warner Brothers +2.98%, Charter Communications +2.73%.
- Broadline retailers buoyed the Consumer Discretionary sector in the second half: Walgreens Boots surged 19.44% after wires reported private equity group Sycamore Partners interest in purchasing Walgreens for $10B. Meanwhile, Kroger gained 3.06% while Dollar Tree gained 2.64%.
- Conversely, Information Technology and Real Estate sectors underperformed in late trade, chip stocks weighing on the tech sector: Oracle -7.91%, Super Micro Computer -5.97, Dell -5.52%. Investment trusts, particularly industrial and specialized REITS weighed on Real Estate: American Tower -3.71%, Weyerhaeuser -2.05%, Public Storage -1.58%.
- Earnings announcements this week includes GameStop and Dave & Busters is expected after the close. Midweek on: Macy's, Adobe, Ciena Corp, Costco and Broadcom.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Trend Needle Points North
- RES 4: 6200.00 Round number resistance
- RES 3: 6184.00 1.000 proj of the Nov 4 - 11 - 19 price swing
- RES 2: 6145.26 1.236 proj of the Aug 5 - Sep 3 - 6 price swing
- RES 1: 6111.00 High Dec 6
- PRICE: 6062.50 @ 14:38 GMT Dec 10
- SUP 1: 6014.79 20-day EMA
- SUP 2: 5919.51 50-day EMA
- SUP 3: 5855.00 Low Nov 19
- SUP 4: 5814.75 Low Nov 6
The S&P E-Minis contract maintains a bullish tone and short-term pullbacks are considered corrective. Recent gains confirm a resumption of the uptrend and signal scope for a continuation near-term. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 6145.26, a Fibonacci projection. Initial support to watch lies at 6014.79, the 20-day EMA.
MNI COMMODITIES: Gold Trend Structure Remains Bullish, Crude Ticks Higher
- Spot gold has risen by another 1.2% to $2,692/oz today, taking total gains so far this week to 2.2%.
- The move brings the yellow metal to its highest level since Nov 25, amid on-going uncertainties in the middle east, narrowing the gap to resistance at $2,721.4, the Nov 25 high.
- Clearance of this resistance level would highlight a bullish short-term development, opening $2,730.4, the 76.4% retracement of the Oct 31 - Nov 14 bear leg.
- Silver is also up by a further 0.5% to $32.0/oz.
- Despite a recovery in price, the bear cycle in silver that started Oct 23 remains in play and gains are considered corrective - for now.
- The 50-day EMA, at $31.212, has been pierced, exposing $33.125, the Nov 1 high.
- Meanwhile, copper is unchanged today at $427/lb, after gaining yesterday on the Chinese stimulus news.
- A bearish trend condition in copper futures remains intact and gains are considered corrective - for now. Key short-term resistance is $452.85, Nov 5 high.
- Elsewhere, crude markets have erased most of their earlier gains to be slightly higher as US close approaches. Recent support from a further Chinese stimulus in 2025, coupled with the middle east uncertainties are weighed against a weaker demand outlook.
- WTI Jan 25 is up 0.3% at $68.6/bbl.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 11/12/2024 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 11/12/2024 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 11/12/2024 | - | *** |  CN | Money Supply |
| 11/12/2024 | - | *** | CN | New Loans |
| 11/12/2024 | - | *** | CN | Social Financing |
| 11/12/2024 | 1330/0830 | *** | US | CPI |
| 11/12/2024 | 1330/0830 | * |  CA | Intl Investment Position |
| 11/12/2024 | 1445/0945 | *** | CA | Bank of Canada Policy Decision |
| 11/12/2024 | 1530/1030 | CA | BOC Governor Press Conference | |
| 11/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 11/12/2024 | 1800/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 11/12/2024 | 1900/1400 | ** | US | Treasury Budget |
| 12/12/2024 | - |  EU | European Central Bank Meeting | |
| 12/12/2024 | - |  CH | Swiss National Bank Meeting | |
| 12/12/2024 | 0030/1130 | *** |  AU | Labor Force Survey |