EXECUTIVE SUMMARY
- MNI FED: MNI Fed Preview-Dec 2024: Greater Caution, Flatter Rate Path
- MNI FED: December Meeting To Bring Likely Downward Adjustment To ON RRP Rate
- MNI US: Lawmakers Make Final Bid To Include Permitting Reform In Govt Funding CR
- MNI US DATA: Import Inflation Solidifies, But Benign Nov PCE Implications
US
MNI FED: MNI Fed Preview-Dec 2024: Greater Caution, Flatter Rate Path
The latest unemployment and inflation data have kept the FOMC on track to cut the federal funds rate by 25bp (to 4.25-4.50%) on Dec 18, but macro and political developments have heightened uncertainty over its the next moves. With the unemployment rate likely to undershoot September’s median projection along with core PCE inflation and GDP growth overshooting, the FOMC will undoubtedly signal a more cautious approach to easing. This will be communicated most clearly in the updated Dot Plot, which is set to show 75bp of cuts in 2025 – 25bp less than the 100bp in the last edition - with 2026, 2027, and the Longer-Run dot in line for increases. Our preview of the December 17-18 FOMC meeting has been published (PDF here)
MNI FED: December Meeting To Bring Likely Downward Adjustment To ON RRP Rate
At next week's FOMC meeting, there is a good chance that the offering rate on standing overnight reverse repurchase operations (ON RRP) will be lowered by 5bp more than the Fed funds rate. This rate is currently set at 5bp over the lower bound of the Funds rate. So if the Fed cuts rates by 25bp as expected to 4.25-4.50%, the ON RRP rate should be set at 4.25% (from 4.55% currently), aligning it with the lower funds rate bound.
NEWS
MNI US: Lawmakers Make Final Bid To Include Permitting Reform In Govt Funding CR
House Speaker Mike Johnson (R-LA) may attach an energy permitting reform package to a FY2024 Continuing Resolution to punt government funding beyond the December 20 deadline. Reports from Capitol Hill suggest that Johnson plans to release the final text of the legislation by Sunday, with a House vote to follow early in the week.
MNI FRANCE: Macron Appoints Bayrou As Prime Minister
The Élysée Palace announced in a short statement that French President Emmanuel Macron has appointed centrist politician François Bayrou as Prime Minister of France after a meeting at the Élysée Palace described as “tense” by French media. The appointment, nine days after outgoing Prime Minister Michel Barnier was ousted by a confidence vote, follows two days of meetings with party leaders on strategy to bridge political divides on passing a budget. The far-right National Rally and the hard-left France Unbowed were excluded from talks.
MNI GERMANY: CDU Election Manifesto Calls For Income Tax Reductions - Bild
Some excerpts out of the CDU/CSU election manifesto, scheduled for a release next Tuesday, reported by Bild: Income tax rate is to be gradually reduced and the top tax rate of 42 percent will no longer apply from an annual taxable income of 67,000 euros, but from 80,000 euros. The solidarity surcharge is also to be completely abolished. Reduction of the VAT rate for food in restaurants from 19 per cent to seven per cent. A higher commuter allowance. No annual tax returns for a large set of retirees.
MNI BOJ: Kyodo Sees BoJ Weighing Skipping Dec Rate Hike
Kyodo's piece looks inline with MNI reporting from Dec04: "The Bank’s concerns over politics, and also over how markets might react to higher rates, means that an increase to the 0.25% policy rate at the Dec 18-19 meeting will be unlikely unless the yen weakens to JPY160 against the dollar." As well as the piece from Bloomberg earlier this week: "BoJ said to see little cost to waiting for next rate hike".
US TSYS
MNI US TSYS: Extending Late Session Lows, Curves Bear Steepen Ahead Next Wed's FOMC
- Treasuries traded steadily lower throughout Friday's session, initially mirroring weak action in Bunds and Gilts. By the close, the Mar'25 10Y contract slipped to 109-26 (-18) the lowest level since November 22, 10Y yield rising to 4.4046% high (+.0768).
- Initial technical support at 109-22 (76.4% Nov 15 - Dec 6 Upleg) followed by 109-20 (Low Nov 20/21).
- Curves bear steepened: 2s10s +2.272 at 15.568 as short end rates outperformed ahead of next week's FOMC policy announcement where another 25bp rate cut was expected but not certain amid current macro and political uncertainty. That said, the latest unemployment and inflation data have kept the FOMC on track to cut the federal funds rate by 25bp (to 4.25-4.50%) next Wednesday.
- Projected rate cuts into early 2025 look near steady to lower vs. this morning levels (*) as follows: Dec'24 cumulative -24.3bp (-23.7bp), Jan'25 -28.6bp (-29.6bp), Mar'25 -42.2bp (-43.9bp), May'25 -48.4bp (-50.5bp).
- No reaction to this morning's import/export prices, Monday brings flash S&P Global PMIs, Retail Sales, IP & Cap-U on Tuesday.
OVERNIGHT DATA
MNI US DATA: Import Inflation Solidifies, But Benign Nov PCE Implications
US import prices ticked up 0.1% M/M in November, above the -0.2% expected but largely offset by a 0.2pp downward revision to October (to 0.1%). Ex-petroleum, prices rose 0.2%, same as prior (unrounded, it was 0.16% for the 2nd consecutive month - 0.0% had been expected).
- These are all expressed on a non-seasonally adjusted basis, though, so the more important metric from an analytical perspective is Y/Y - the 2.1% rise in ex-petroleum prices vs Nov 2023 was a slight deceleration vs 2.2% in October, but that means that core import inflation has exceeded 2% Y/Y for two consecutive months, the first time since Nov-Dec 2022.
- As the upside surprise in November Core Goods CPI reminded, the disinflationary effect of the goods category is dissipating.
- Core PPI has shown waning momentum on a 6-month annualized basis but Y/y remains stubbornly above 3%, and core import prices have picked up sharply from a deflationary period in 2023-early 2024.
- The key element from this report for core PCE is import air passenger fares: these fell 4.8% M/M in November on a non-seasonally adjusted basis, which should translate into a soft print when the BEA seasonally adjusts it (see chart - this is the lowest M/M November print since at least 2018).
- November Core PCE expectations following CPI/PPI centered around 0.13-0.14% M/M, and we would expect little change after today's data, with perhaps a slight downside bias.
MNI CANADA DATA: Oct Wholesale Beats Expectations on Autos
- Wholesales ex-petroleum & grains +1% MOM in October, above StatsCan's advance estimate +0.5%, prior +0.8% and +1.7% YOY. Increase led by motor vehicles, up for second consecutive month +3.2%.
- In another report, Canada manufacturing sales +2.1% after two straight months of decline. Increase led by petroleum and coal and transportation equipment. Sales were above flash estimate +1.3% and prior -0.5%. Volumes +1.4%.
- Q3 industrial capacity utilization +0.2pp QOQ, -0.1pp YOY.
- Canadian industries operated +79.3% of capacity after +79.1% in Q2.
- Electric power, generation, transmission and distribution +1.9pp to +83.4% in Q3 amid higher-than-normal temperatures last summer.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 62.79 points (-0.14%) at 43851.98
S&P E-Mini Future down 3 points (-0.05%) at 6057.75
Nasdaq up 23.6 points (0.1%) at 19925.83
US 10-Yr yield is up 6.9 bps at 4.3967%
US Mar 10-Yr futures are down 16/32 at 109-28
EURUSD up 0.0029 (0.28%) at 1.0497
USDJPY up 1.04 (0.68%) at 153.67
WTI Crude Oil (front-month) up $1.21 (1.73%) at $71.23
Gold is down $31.2 (-1.16%) at $2649.85
European bourses closing levels:
EuroStoxx 50 up 2.42 points (0.05%) at 4967.95
FTSE 100 down 11.43 points (-0.14%) at 8300.33
German DAX down 20.35 points (-0.1%) at 20405.92
French CAC 40 down 11.37 points (-0.15%) at 7409.57
US TREASURY FUTURES CLOSE
3M10Y +7.822, 6.882 (L: -5.027 / H: 7.672)
2Y10Y +2.1, 15.396 (L: 12.264 / H: 16.039)
2Y30Y +1.724, 36.64 (L: 34.144 / H: 37.873)
5Y30Y +0.152, 36.1 (L: 35.129 / H: 36.962)
Current futures levels:
Mar 2-Yr futures down 3.75/32 at 102-28.125 (L: 102-27.75 / H: 102-31.875)
Mar 5-Yr futures down 9.75/32 at 106-27.5 (L: 106-26.5 / H: 107-06.25)
Mar 10-Yr futures down 16/32 at 109-28 (L: 109-26 / H: 110-14)
Mar 30-Yr futures down 31/32 at 116-9 (L: 116-04 / H: 117-15)
Mar Ultra futures down 42/32 at 122-11 (L: 122-05 / H: 123-30)
MNI US 10YR FUTURE TECHS: (H5) Pullback Extends
- RES 4: 112-18 50.0% retrace of the Sep 11 - Nov 15 bear leg
- RES 3: 112-02 Low Oct 14
- RES 2: 111-24 38.2% retrace of the Sep 11 - Nov 15 bear leg
- RES 1: 111-09+/111-20+ 50-day EMA / High 6 and the bull trigger
- PRICE: 109-31 @ 16:42 GMT Dec 13
- SUP 1: 109-26 Low Dec 13
- SUP 2: 109-22 76.4% Nov 15 - Dec 6 Upleg
- SUP 3: 109-20 Low Nov 20/21
- SUP 4: 109-02+ Low Nov 15 and the bear trigger
The pullback in Treasury futures picked up pace into the Friday close, with first support at 110-02 giving way before the London close. A bull phase remains in play, however, a corrective cycle has resulted in a pullback from recent highs. An extension lower would strengthen a bearish theme. For bulls, a reversal higher would refocus attention on key resistance at 111-20+, the Dec 6 high. Clearance of this level is required to resume the recent bull cycle.
SOFR FUTURES CLOSE
Dec 24 -0.005 at 95.643
Mar 25 -0.030 at 95.835
Jun 25 -0.045 at 95.975
Sep 25 -0.055 at 96.060
Red Pack (Dec 25-Sep 26) -0.07 to -0.055
Green Pack (Dec 26-Sep 27) -0.075 to -0.075
Blue Pack (Dec 27-Sep 28) -0.08 to -0.075
Gold Pack (Dec 28-Sep 29) -0.085 to -0.08
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01527 to 4.38182 (-0.09548/wk)
- 3M -0.00985 to 4.34872 (-0.07800/wk)
- 6M -0.00004 to 4.26041 (-0.06901/wk)
- 12M +0.01441 to 4.13579 (-0.04500/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.62% (+0.00), volume: $2.262T
- Broad General Collateral Rate (BGCR): 4.60% (+0.00), volume: $842B
- Tri-Party General Collateral Rate (TGCR): 4.60% (+0.00), volume: $812B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $111B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $259B
FED Reverse Repo Operation
RRP usage falls to $135.777B Friday afternoon from $165.025B prior. Nearing last Friday's multi-year low of $130.014B (last seen at May 3 2021: $129.724B). The number of counterparties falls to 44 from 49 prior.
MNI FOREX: EURJPY Extends Recovery, Rises 1% Back Above 161.00
- Higher core yields have further weighed on the Japanese Yen on Friday, boosting the latest USDJPY recovery comfortably back above 153.50, to the highest level since November 26. In similar vein, outperformance for the single currency has prompted a sharp 1% rally for EURJPY, with the cross briefly reaching initial resistance at the 50-day EMA, intersecting at 161.58.
- EURUSD printed a 1.0453 low overnight, however, notable expiries between 1.0500-1.0600 have helped the pair gravitate 0.25% higher on the session.
- GBP/USD traded to a new intraday low just ahead of the London close - placing the pair through the Dec02 low. 1.2563 is moderate support ahead of the bear trigger at 1.2487 - below which the underlying primary downtrend resumes. Momentum remains pointed lower, evident in the imminent formation of a death cross (50-dma < 200-dma) for GBP/USD in the coming sessions, the first since October last year - and only the third since the onset of the COVID pandemic in 2020.
- GBP weakness today comes on the back of the poor monthly UK GDP read this morning, but is more likely underpinned by strong demand for EUR/GBP off the lows, which re-entered an area of strong demand on this week's break lower - finding decent support as a result and rising back above 0.83 ahead of the weekend close.
- EURCHF is now ~100 pips above pre-SNB announcement levels, gathering momentum above the 50-day exponential moving average on Friday, placing the cross at its highest level in four weeks. A weekly close above this average would signal scope for a stronger recovery, targeting the early November highs at 0.9447 initially, before the 0.9500 handle.
- Focus next week will be on the central bank slate, with the FOMC and BOJ rate decisions. Eurozone flash PMIs are a notable data highlight.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 16/12/2024 | 0700/0800 |  EU | ECB's Lagarde press conference with Bank of Lithuania | |
| 16/12/2024 | 0815/0915 | ** |  FR | S&P Global Services PMI (p) |
| 16/12/2024 | 0815/0915 | ** | FR | S&P Global Manufacturing PMI (p) |
| 16/12/2024 | 0815/0915 | EU | ECB's Lagarde speech on resilience amid geopolitical shift | |
| 16/12/2024 | 0830/0930 | ** |  DE | S&P Global Services PMI (p) |
| 16/12/2024 | 0830/0930 | ** | DE | S&P Global Manufacturing PMI (p) |
| 16/12/2024 | 0830/0930 | EU | ECB's Lagarde in panel on pillars of resilience | |
| 16/12/2024 | 0845/0945 | EU | ECB's De Guindos remarks at Madrid Foro Empresarial | |
| 16/12/2024 | 0900/1000 | ** |  IT | Italy Final HICP |
| 16/12/2024 | 0900/1000 | ** | EU | S&P Global Services PMI (p) |
| 16/12/2024 | 0900/1000 | ** | EU | S&P Global Manufacturing PMI (p) |
| 16/12/2024 | 0900/1000 | ** | EU | S&P Global Composite PMI (p) |
| 16/12/2024 | 0930/0930 | *** |  GB | S&P Global Manufacturing PMI flash |
| 16/12/2024 | 0930/0930 | *** | GB | S&P Global Services PMI flash |
| 16/12/2024 | 0930/0930 | *** | GB | S&P Global Composite PMI flash |
| 16/12/2024 | - |  CA | Canada presents fiscal update, time TBD. | |
| 16/12/2024 | 1315/0815 | ** | CA | CMHC Housing Starts |
| 16/12/2024 | 1330/0830 | ** |  US | Empire State Manufacturing Survey |
| 16/12/2024 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 16/12/2024 | 1445/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 16/12/2024 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 16/12/2024 | 1630/1730 | EU | ECB's Schnabel speech at CEPR symposium | |
| 16/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 16/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 16/12/2024 | 2020/1520 | CA | BOC Governor Macklem speaks in Vancouver. |