EXECUTIVE SUMMARY
- MNI US TSYS: Tsys Back Near Morning Highs, Curves Flatter Ahead Key CPI Data
- MNI US: Commerce Dept Finalizes USD$6b CHIPS Funding For Micron
- MNI ECB: MNI ECB Preview-December 2024: Back-to-Back Cuts Continue
- MNI CANADA: Freeland Appears To Accept Higher Fiscal Deficit Tracking
- MNI US DATA: Firmly Dovish ULC Revisions To Boost FOMC Confidence
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.
NEWS
MNI US: Commerce Dept Finalizes USD$6b CHIPS Funding For Micron
The US Commerce Department announced that it has finalised an award of up to USD$6.165 billion to chipmaker Micron Technology, from the 2022 CHIPS and Science Act. Commerce said in a statement: "This funding will support the first step in Micron’s two-decade vision to invest approximately $100 billion in New York and $25 billion in Idaho, which will create approximately 20,000 jobs and will help the U.S. grow its share of advanced memory manufacturing from less than 2% today to approximately 10% by 2035."
MNI US: Trump Allies Tapped To Lead House Committees On Energy And Foreign Affairs
The Republican Steering Committee recommended yesterday that Rep Brian Mast (R-FL) chair the House Foreign Affairs Committee and Rep Brett Guthrie (R-KY) chair the House Energy and Commerce Committee. The appointments will install two allies of President-elect Donald Trump to Congressional positions instrumental to Trump's agenda. Axios notes that Mast is closer to Trump's stance on Ukraine aid than the two more institutionally minded reps who contested the position and will replace term-limited committee chair Rep Michael McCaul (R-TX) - a staunch Ukraine advocate.
MNI ECB: MNI ECB Preview-December 2024: Back-to-Back Cuts Continue
EXECUTIVE SUMMARY: Back-To-Back Cuts Continue
The ECB will cut by 25bp, marking the third back-to-back cut, and the fourth reduction this year. Given that the ECB has previously shown some flexibility in following its self-prescribed data dependent and meeting-by-meeting approach, future meetings carry some degree of uncertainty over policy outcomes. This time around, the prospect of a 50bp cut, although appearing unlikely, cannot be entirely discounted. FOR THE FULL PUBLICATION PLEASE USE THIS LINK
MNI CANADA: Freeland Appears To Accept Higher Fiscal Deficit Tracking
Speaking to reporters in Ottawa, FM Freeland has said the government will meet its debt-to-GDP projection for FY 23-24 and will reduce the ratio over the medium term as it looks to maintain one of its fiscal anchors. Tellingly, our reporter writes that she declined to answer several questions about whether she’d honour a pledge to limit deficits to C$40bn after the 2024 Budget showed a C$40bn deficit in FY23-24 before C$39.8bn in FY24-25 and then declining. “A declining debt to GDP ratio is the guarantee, the numerical statement, of Canada’s fiscal sustainability,” Freeland said.
MNI SECURITY: Ukraine Peace Talks Could Start This Winter, Tusk
Polish Prime Minister Donald Tusk said today at a weekly cabinet meeting that peace talks on the war in Ukraine might start "this winter." Bloomberg reports: "Tusk told reporters he’ll speak with Volodymyr Zelenskiy later on Tuesday. He will also host French President Emmanuel Macron in Warsaw on Thursday to follow up on his talks with the Ukrainian leader and US President-elect Donald Trump in Paris on Saturday."
OVERNIGHT DATA
MNI US DATA: Firmly Dovish ULC Revisions To Boost FOMC Confidence
Nonfarm productivity data were as expected in the final Q3 release but ULCs saw some notably dovish revisions. Fed Chair Powell and some FOMC members have said for multiple months now that they don’t expect the labour market to be a source of elevated inflationary pressures in the near-term (Powell phrased it as “anytime soon” back in his August Jackson Hole appearance) and this release should further reinforce that view.
- Nonfarm labor productivity was unrevised in the final Q3 release at 2.2% annualized for a similar pace to the 2.1% seen in Q2. It left productivity growth of 2.0% Y/Y.
- The broader revisions were on the dovish side though as hourly compensation was revised down from 4.2% to 3.1% annualized in Q3, driven by softer manufacturing pay.
- That in turn led to softer than expected ULC growth of 0.8% annualized vs consensus of 1.3% and the initial Q3 estimate of 1.9%.
- The ULC data were all the more notable because Q2 was revised down from +2.4% to a much weaker -1.1% annualized.
- The data can be volatile when looking at any given quarter, but the level of the ULC index in Q3 is now 1.1% lower than previously estimated and the Y/Y for ULC growth is 2.2% Y/Y rather than 3.4% Y/Y.
- The softer wage growth profile behind these ULCs should help smooth any concerns about the recent acceleration in average hourly earnings data (standing at 4.5% annualized in the three months to Nov vs a recent low of 2.8% annualized back in April).
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 120.15 points (-0.27%) at 44278.5
S&P E-Mini Future down 20.75 points (-0.34%) at 6044.25
Nasdaq down 80.8 points (-0.4%) at 19654.37
US 10-Yr yield is up 1.7 bps at 4.2186%
US Mar 10-Yr futures are down 5/32 at 111-0.5
EURUSD down 0.0027 (-0.26%) at 1.0528
USDJPY up 0.67 (0.44%) at 151.87
WTI Crude Oil (front-month) up $0.01 (0.01%) at $68.38
Gold is up $31.35 (1.18%) at $2691.64
European bourses closing levels:
EuroStoxx 50 down 33.72 points (-0.68%) at 4951.74
FTSE 100 down 71.72 points (-0.86%) at 8280.36
German DAX down 16.8 points (-0.08%) at 20329.16
French CAC 40 down 85.36 points (-1.14%) at 7394.78
US TREASURY FUTURES CLOSE
3M10Y +2.977, -17.404 (L: -27.363 / H: -15.851)
2Y10Y -0.11, 7.352 (L: 6.211 / H: 9.321)
2Y30Y +0.385, 26.309 (L: 24.183 / H: 28.881)
5Y30Y +0.315, 31.322 (L: 29.943 / H: 32.939)
Current futures levels:
Mar 2-Yr futures down 1.375/32 at 103-3.125 (L: 103-01.5 / H: 103-05.375)
Mar 5-Yr futures down 3.5/32 at 107-16.75 (L: 107-13.5 / H: 107-22.25)
Mar 10-Yr futures down 5.5/32 at 111-0 (L: 110-26 / H: 111-09)
Mar 30-Yr futures down 10/32 at 119-1 (L: 118-21 / H: 119-17)
Mar Ultra futures down 12/32 at 126-17 (L: 125-31 / H: 127-07)
MNI US 10YR FUTURE TECHS: (H5) Bull Cycle Still In Play
- RES 4: 112-18 50.0% retracement of the Sep 11 - Nov 15 bear leg
- RES 3: 112-02 Low Oct 14
- RES 2: 111-24 38.2% retracement of the Sep 11 - Nov 15 bear leg
- RES 1: 111-20+ High Dec 6
- PRICE: 110-26 @ 1235 ET Dec 10
- SUP 1: 110-18 Low Dec 4
- SUP 2: 110-01/109-20 Low Nov 25 / Low Nov 20/21
- SUP 3: 109-02+ Low Nov 15 and the bear trigger
- SUP 4: 108-28 1.236 proj of the Oct 1 - 14 - 16 price swing
A bull cycle in Treasuries remains in play and recent gains reinforce the current bullish condition. The contract has traded through the 50-day EMA, at 111-12. Price has pulled back, however, a clear break of the average would strengthen a bullish theme and signal scope for a stronger recovery. Sights are on 111-24 next, a Fibonacci retracement. For bears, a reversal lower would signal the end of the bull cycle and open 109-02+, Nov 15 low.
SOFR FUTURES CLOSE
Dec 24 -0.005 at 95.620
Mar 25 -0.015 at 95.870
Jun 25 -0.025 at 96.055
Sep 25 -0.025 at 96.165
Red Pack (Dec 25-Sep 26) -0.03 to -0.025
Green Pack (Dec 26-Sep 27) -0.025 to -0.02
Blue Pack (Dec 27-Sep 28) -0.025 to -0.02
Gold Pack (Dec 28-Sep 29) -0.02 to -0.02
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.
MNI PIPELINE: $5B Arthur J Gallagher 5Pt Debt Issuance Launched
Arthur J Gallagher $5B 5-part issuance is the largest since Conoco-Phillips issued $5.2B debt on November 25:
- Date $MM Issuer (Priced *, Launch #)
- 12/10 $5B #Arthur J Gallagher $750M 3Y +52, $750M 5Y +77, $500M +7Y +85, $1.5B +10Y +97, $1.5B +30Y +117
- 12/10 $2.2B Saks Global 5NC2 (Neiman Marcus Group acquisition finding) 10.75%
- 12/10 $1.5B #M&T Bank WNG $500M 4NC3 +72, $1B 11NC10 +117
- 12/10 $1B #Amazon Conservation DAC 2042 +180
- 12/10 $700M Brookfield Finance 30NC10 6.3%
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 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.
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 |