HIGHLIGHTS
- Treasuries see-sawed in a higher, narrow range Tuesday, curves bull flattening with 30Y Bonds leading support.
- Tempering projected rate cuts pricing into early 2025, KC Fed Schmid said "now is the time to dial back restrictiveness of policy"
- Initial bid led by an uptick in geopolitical tensions after Ukraine launched US made long range missiles at Russia.
- Putin responded by making changes to his country's 'nuclear doctrine', setting out the parameters for the use of nuclear weapons.
MNI US TSYS: Projected Rate Cut Pricing Cools, Geopol Tension Buoys Bonds
- Treasuries looked to finish higher Tuesday, off early session highs, curves bull flattening (2s10s -2.160 at 10.995) with bonds outperforming.
- Heightened geopolitical tensions lent to an early bid in EGBs, Treasuries in tow after Ukraine launched US made long range missiles into Russia. The Kremlin have formally approved a further tweak to their nuclear doctrine, allowing for use of nuclear weaponry in the case of long-range missiles used to strike inside Russian territory.
- Risk-off support moderated as the session wore on, US State Department Spokesperson Matthew Miller told reporters that the US has "seen no reason" to adjust its nuclear posture following Russian President Vladimir Putin's move to revise Russia's nuclear doctrine.
- Short end rates receded in the second half, tempering projected rate cuts pricing into early 2025, KC Fed Schmid said "now is the time to dial back restrictiveness of policy". Schmid repeated "While now is the time to begin dialing back the restrictiveness of monetary policy, it remains to be seen how much further interest rates will decline or where they might eventually settle."
- As curves bull flattened, projected rate cuts into early 2025 receded vs. early morning levels (*) : Dec'24 cumulative -14.8bp (-15.4bp), Jan'25 -21.7bp (-24.0bp), Mar'25 -36.0bp (-39.5bp), May'25 -43.9bp (-48.2bp).
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00696 to 4.59921 (-0.01124/wk)
- 3M -0.00086 to 4.52014 (+0.02901/wk)
- 6M -0.00105 to 4.43045 (+0.03854/wk)
- 12M -0.00436 to 4.28399 (+0.04156/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.57% (+0.00), volume: $2.297T
- Broad General Collateral Rate (BGCR): 4.56% (+0.00), volume: $811B
- Tri-Party General Collateral Rate (TGCR): 4.56% (+0.00), volume: $783B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $103B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $281B
FED Reverse Repo Operation
RRP usage inches up to $200.664B this afternoon from $200.030B Monday. Compares to $144.243B on Tuesday, November 5 -- the lowest since May 6, 2021. The number of counterparties rises to 62 from 59 prior.
US SOFR/TREASURY OPTION SUMMARY
SOFR and Treasury option flow remained mixed Tuesday, myriad trades leaning towards upside calls as underlying futures held moderate gains on narrow range since midmorning. As curves bull flattened, projected rate cuts into early 2025 receded vs. early morning levels (*) : Dec'24 cumulative -14.8bp (-15.4bp), Jan'25 -21.7bp (-24.0bp), Mar'25 -36.0bp (-39.5bp), May'25 -43.9bp (-48.2bp).
SOFR Options
Block, 20,000 SFRM5 95.50/96.00 2x1 put spds, 12.5 ref 95.975
+3,900 0QH5 96.06/96.18/96.31 call flys ref 96.215
+2,000 SFRH5 95.75/95.87/96.00 call fly w/ 96.00/96.25/96.37 call fly strip, 5.0 db ref 95.79
-5,000 SFRU5 95.00/95.50 put spds 7.5 vs. 96.12/0.12%
+4,000 SFRZ4 95.56/95.62/95.75 1x3x2 call flys, 0.75 ref 95.55
+4,000 SFRZ4 95.62/95.68/95.75 call flys 1.0 ref 95.55
+2,000 SFRH5 95.75/95.87/96.00 call fly w/ 96.00/96.25/96.37 call fly strip, 5.0 db ref 95.79
-5,000 SFRU5 95.00/95.50 put spds 7.5 vs. 96.12/0.12%
+4,000 SFRZ4 95.56/95.62/95.75 1x3x2 call flys, 0.75 ref 95.55
+4,000 SFRZ4 95.62/95.68/95.75 call flys 1.0 ref 95.55
6,000 SFRG5 95.12/95.37/95.62 put flys ref 95.81
5,000 0QZ4 95.50/95.75/96.00 put flys ref 96.16
2,000 0QZ4 96.37/96.62/96.75 broken call flys
4,000 SFRU5 96.25 calls ref 96.13
over 7,000 0QZ4 95.75 puts ref 96.18
4,350 0QZ4 95.81/95.93/96.06 put flys ref 96.215
6,300 SFRM5 96.50/97.00 call spds ref 96.04 to -.045
5,000 0QZ4 95.87/96.00 put spds
over 13,300 0QH5 97.37 calls, 3 ref 96.20
9,000 SFRZ4 95.75/96.00 call spds ref 95.55
1,700 SFRM5 95.93 straddles ref 96.025
Treasury Options: Reminder, Dec options expire Friday
5,000 TYH5 112.5 calls, 36 ref 109-31.5
10,000 TYZ4 115.25 calls ref 109-28.5
6,400 Wednesday wkly 30Y 118 calls, 8 ref 116-31 (expire tomorrow)
over 10,700 TYG5 111.5 calls, 41 last ref 110-02.5
over 12,300 USZ4 115 puts, 4
5,000 TYZ4 117.5 calls ref 109-31 to -31.5
2,600 TYF5 111.5/112.5 call spds, 12 ref 110-05.5
over 6,200 TYF5 109.5 puts, 42 last ref 110-05.5
over 10,500 TYF5 113.5 calls, 9 ref 110-05
5,200 TYZ4 111 calls, 4 ref 110-01
2,000 TYZ4 109.5/110.5 strangles, 14 ref 110-00
20,000 TYG5 114 calls, 12
over 31,600 TYZ4 108.5 puts, 1 ref 109-21.5 to -22
3,200 TYZ4 110.5 calls, 6 ref 109-31
over 19,000 TYZ4 110 calls 15-18 ref 109-30 to -30.5
MNI BONDS: EGBs-GILTS CASH CLOSE: Geopol Risk Bid Fades
European yields pulled back Tuesday, with geopolitical risk at the fore.
- Core global FI rose in European morning trade amid an escalation of Russia/Ukraine tensions and a change to Russia's nuclear doctrine in response to Ukraine firing US-made missiles into their territory.
- Yields hit the session's lows around 0900 London time. From there, Bunds and Gilts weakened fairly steadily as risk-off sentiment faded, with Russian foreign Minister Lavrov saying "a nuclear war will not happen."
- While 10Y Bunds / Gilts closed up 7bp / 6bp respectively from their lows, German and UK curves both bull steepened on the day, with EGB spreads modestly wider.
- ECB's Panetta called for clearer forward guidance on future rate cuts, instead of the current meeting-by-meeting approach.
- BOE's Bailey and Lombardelli said they both see risks to inflation as broadly balanced - but see greater consequences if UK inflation becomes more entrenched.
- On that note, Wednesday's scheduled highlight is UK CPI - MNI's preview is here (PDF). As we write in the preview, we think there is potential for a bigger market reaction to a downside services surprise (vs an upside surprise).
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 4.2bps at 2.139%, 5-Yr is down 3.2bps at 2.171%, 10-Yr is down 3.5bps at 2.338%, and 30-Yr is down 3.8bps at 2.541%.
- UK: The 2-Yr yield is down 0.8bps at 4.409%, 5-Yr is down 1.6bps at 4.32%, 10-Yr is down 2.3bps at 4.442%, and 30-Yr is down 4.3bps at 4.869%.
- Italian BTP spread up 1.8bps at 121.4bps / Spanish up 1bps at 70.7bps
MNI FOREX: EURJPY Posts Strong Reversal Higher amid Equities Bounce
- With Punchbowl reporting that Cantor Fitzgerald CEO Howard Lutnick is to be nominated as President-Elect Trump's Commerce Secretary, he is considered to be out of the running for the higher-profile and more influential position of Treasury Secretary.
- The US dollar index extended losses to session lows (and lowest levels since last Wednesday) on the back of the news, continuing a correlation we pointed out last week between Lutnick's Treasury nomination odds and the USD.
- Overall, however, the ICE Dollar index remains close to unchanged on the session as we approach the APAC crossover, with the moderate pull lower in recent sessions generally seen as corrective amid the broader dollar positive trend.
- The early theme on Tuesday was one of Euro weakness and JPY strength amid an upturn in geopolitical risk and escalated tensions between Russia and the West. The Kremlin have formally approved a further tweak to their nuclear doctrine, allowing for use of nuclear weaponry in the case of long-range missiles used to strike inside Russian territory.
- EURJPY's risk-off triggered slide made light work of yesterday's lows on the headlines, putting the cross at the lowest level since mid-October around 161.50. However, the late bounce for equities has assisted an impressive 200 pip reversal into the close.
- EURUSD’s inability to recapture the 1.06 handle is now bolstering the relative weakness for EUR crosses, with the likes of EURAUD (-0.38%) and EURCAD (-0.46%) pressing towards fresh session lows in recent trade.
- Canadian dollar outperformance comes in the wake of the firmer-than-expected inflation data in Canada, somewhat bolstering the chances of the BOC stepping the easing pace down to just 25bp in December.
- UK inflation data headlines the Wednesday docket, as markets then turn their focus to Eurozone flash PMIs on Friday.
MNI US STOCKS: Late Equities Roundup: IT, Communication Services Continue to Lead
- Stocks continue to climb off early session lows, S&P Eminis and Nasdaq indexes still outperforming modestly weaker DJIA late Tuesday. Currently, the DJIA trades down 160.92 points (-0.37%) at 43228.04, S&P E-Minis up 9.25 points (0.16%) at 5929.25, Nasdaq up 140 points (0.7%) at 18930.95.
- Information Technology and Communication Services sectors led gainers in late trade, IT most notably led by Super Micro Computer that gapped more than 40% higher in early trade after the company hired a new auditor and filed plans to come into listing compliance with the Nasdaq. Off highs, Super Micro Computer was +31.34%, Nvidia +3.87%, Crowdstrike Holdings +2.56%.
- The Communication Services sector was buoyed by interactive media and entertainment shares: Netflix +2.96%, Alphabet +1.59%, Warner Bros +1.11%.
- On the flipside, Energy and Financial sectors underperformed in lat etrade, Oil and gas stocks weighed on the Energy sector even as crude prices rebounded (WTI +0.14 at 69.30): APA Corp -2.09%, Devon Energy -1.91%, Schlumberger -1.62%.
- Insurance companies weighed on the Financials sector: Prudential Financial -2.51%, Principle Financial -1.82%, Chubb -1.43%.
- Big names still to report earnings this week include: Target, Williams-Sonoma, TJX, Nvidia, Palo Alto Networks, Intuit, Copart and the Gap.
MNI EQUITY TECHS: S&P E-Minis Bullish Trend Condition
- The latest move lower in the S&P E-Minis contract appears corrective.
- Medium-term trend signals such as moving average studies, continue to highlight a dominant uptrend. The contract has traded
- through the 20-day EMA. The next key support to monitor is the 50-day EMA.
- A clear break of this level would signal scope for a deeper retracement.
- A resumption of gains would refocus attention on the bull trigger at 6053.25, the Nov 11 high.
MNI COMMODITIES: Gold Extends Recovery From Last Week’s Lows
- Spot gold has risen another 0.7% to $2,630/oz today, amid the escalation in geopolitical tensions between Russia and the West.
- Despite President Putin's move to revise Russia's nuclear doctrine, however, US State Department Spokesperson Matthew Miller has told reporters that the US has seen no reason to adjust its own nuclear posture.
- Technicals for gold remain bullish, with eyes on the 20-day EMA at $2,651.1.
- A clear break above this average would highlight a possible reversal and signal the end of the recent bearish corrective cycle. This would open $2,710.4, the Nov 11 high.
- Copper has also risen by 0.7% to $420/lb.
- A bearish theme remains intact, however, with attention on $401.35, the Aug 7 low and a bear trigger. Key short-term resistance is at $452.85, the Nov 5 high.
- Meanwhile, WTI is headed for the close higher on the day, after earlier struggling for direction. News of Iran’s pledge not to further enrich weapon’s grade uranium added downside, while the increase in Russia tensions was supportive.
- WTI Jan 24 is up by 0.3% at $69.4/bbl.
- Iran has agreed to stop producing uranium enriched close to the level required for nuclear weapons, according to UN inspectors.
- For WTI futures, support at $65.74, the Oct 1 low, remains exposed. Initial firm resistance is at $72.41, the Nov 7 high.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 20/11/2024 | 0700/0800 | ** |  DE | PPI |
| 20/11/2024 | 0700/0700 | *** |  GB | Consumer inflation report |
| 20/11/2024 | 0700/0700 | *** | GB | Producer Prices |
| 20/11/2024 | 1000/1100 | ** |  EU | Construction Production |
| 20/11/2024 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 20/11/2024 | 1300/1400 | EU | ECB's Lagarde address on financial stability | |
| 20/11/2024 | 1500/1000 | US | Fed Vice Chair Michael Barr | |
| 20/11/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 20/11/2024 | 1600/1600 | GB | BOE's Ramsden speech on monetary policy | |
| 20/11/2024 | 1600/1100 | US | Fed Governor Lisa Cook | |
| 20/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 20/11/2024 | 1715/1215 | US | Fed Governor Michelle Bowman | |
| 20/11/2024 | 1800/1900 | EU | ECB's De Guindos speech on financial stability | |
| 20/11/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 20/11/2024 | 2100/1600 | US | Boston Fed's Susan Collins |