EXECUTIVE SUMMARY
- MNI BRIEF: Powell Says US Is 'Far' From Fiscal Dominance
- MNI BRIEF: Powell Says Fed Can Be Cautious In Finding Neutral
- MNI FED: St Louis's Musalem Eyes Risks Of Easing Too Much Too Soon
- MNI FRANCE: Limited Risk-Off Reaction To Gov't Falling, Attention On Macron's Move
- MNI US DATA: ISM Services Still In Solid Shape Despite Unexpectedly Large Pullback
US
MNI BRIEF: Powell Says US Is 'Far' From Fiscal Dominance
The United States is far from the point where the Federal Reserve would ever have to re-think its ability to raise interest rates due to an overwhelming budget, Chair Jerome Powell said Wednesday, noting fiscal policy remains on an unsustainable path. "If the central bank can't raise rates to deal with inflation because the fiscal situation is so bad that they can't raise rates, that's called fiscal dominance, and we're so far from that," Powell said at a New York Times DealBook Summit.
MNI BRIEF: Powell Says Fed Can Be Cautious In Finding Neutral
Federal Reserve Chair Jerome Powell said Wednesday the central bank is on a path to bring interest rates back down to a more neutral level over time but because the economy appears stronger than previously thought it can move more cautiously. "The economy is strong and it's stronger than we thought it was going to be in September," he said in Q&A at a New York Times DealBook Summit. "The labor market is better and the downside risks appear to be less in the labor market. Growth is definitely stronger than we thought and inflation has come in a little higher. So, the good news is that we can afford to be a little more cautious as we try to find neutral."
MNI FED: St Louis's Musalem Eyes Risks Of Easing Too Much Too Soon
St Louis Fed Pres Musalem's comments (speech link) are a little more hawkish than those made recently by some of his FOMC colleagues (note he is a 2025 voter), though perhaps not quite as much as the initial Bloomberg headlines suggested and not surprisingly so given his historically hawkish leanings. His comments about risks of disinflation stalling, and potentially slowing/pausing cuts, were notably not part of his core scenario - and he says he is retaining "optionality" about the December FOMC meeting decision. However he does seem to see the balance of risks as tilted toward inflation remaining stubborn, entailing slower cuts.
NEWS
MNI US: Johnson Expects Debt Limit Deadline Will Be Postponed Until Summer 2025
Jake Sherman at Punchbowl News reporting on X that House Speaker Mike Johnson (R-LA) said that, "he believes the debt limit will not come due until Summer 2025." Bloomberg noted on December 2: "The debt limit will be reinstated on Jan. 2, prompting the Treasury Department to deploy a series of extraordinary measures that include spending down its cash pile and reducing the amount of T-bills it issues to preserve its borrowing capacity."
MNI US: GOP Reconciliation Plan Faces Pushback From Top GOP Tax Writer
Republican leadership appears set for a "100-day" strategy for the incoming Trump administration that includes a Continuing Resolution to punt government funding until late March and two major bills to be passed under reconciliation – a procedural manoeuvre that bypasses the Senate filibuster, allowing the governing party to move partisan legislation. The government funding package is expected to include disaster relief but is unlikely to include additional Ukraine funds or bipartisan legislation to protect banks that work with cannabis companies.
MNI FRANCE: Limited Risk-Off Reaction To Gov't Falling, Attention On Macron's Move
Little reaction to the National Assembly's vote of no-confidence in the French government (with 331 votes versus the 288 required). The fall of the government had largely been anticipated, though moves have largely been risk-off in nature: OAT futures initially dipped 11 ticks to 126.08 on the vote result, but have since rebounded to trade 126.25 (below session highs). Attention turns to President Emmanuel Macron's next move: Reuters reported earlier that according to its sources, Macron was aiming to name a new prime minister swiftly if the incumbent gov't of PM Michel Barnier fell today.
MNI US TSYS: Tsys Up on Lower Than Expected ADP Jobs, ISM Services, Powell Patient
- A flurry of early Wednesday data helped set the stage for renewed support in Treasuries: lower than expected ADP jobs gains and ISM Services data underpinned rates in the first half.
- Federal Reserve Chair Jerome Powell said the Fed is on a path to bring interest rates back down to a more neutral level over time but because the economy appears stronger than previously thought it can move more cautiously in Q&A at a New York Times DealBook Summit.
- Nevertheless, projected rate cuts into early 2025 continued to gain, current levels vs. this morning's (*) as follows: Dec'24 cumulative -18.9bp (-18.5bp), Jan'25 -25.3bp (-24.4bp), Mar'25 -41.3bp (-39.0bp), May'25 -51.5bp (-47.8bp).
November's ISM Services index saw its biggest drop since June, falling unexpectedly to a 3-month low 52.1 from 56.0 (a more modest dip to 55.7 had been expected). - ADP employment was broadly as expected in November at 146k (cons 150k). It followed a solid downward revision to 184k from what was 233k, attributed by ADP to the latest QECEW data. “Our annual benchmarking of the full data series will occur with the January 2025 NER release.”
OVERNIGHT DATA
MNI US DATA: ISM Services Still In Solid Shape Despite Unexpectedly Large Pullback
November's ISM Services index saw its biggest drop since June, falling unexpectedly to a 3-month low 52.1 from 56.0 (a more modest dip to 55.7 had been expected). The standout subcomponents were stagflationary in direction: while Employment (51.5, vs 53.0 expected/prior) and New Orders (53.7, vs 56.6 expected and 57.4 prior) fell, Prices Paid unexpectedly rose (58.2 vs 57.0 expected and 58.1 prior). But while the headline index represented a setback after four consecutive gains, and the subcomponents disappointed, overall the report still suggests that the Services sector is in solid shape.
- The Employment pullback will receive outsized attention as estimates for Friday's November Employment Report are fine-tuned, but even with the dip, the 51.5 reading was higher than in any single month in the 12 months before October, suggesting continued resilience in hiring.
- Likewise, the Prices Paid were simply typical of levels seen in over the last several months, rather than any sign of significant inflationary reacceleration.
- Business activity slipped to 53.7 (from 57.2 prior), a 5th month of expansion following June's contraction.
- The New Orders drop reverses the jump to very elevated levels the prior two months (which averaged 58.4) but remain expansionary - though New Export orders were especially weak, falling 2.1 points to a 7-month low 49.6.
- Elsewhere, Inventories contracted (45.9) after 3 months of expansion, order backlogs remained in contraction for a 4th month (47.1), while Supplier Deliveries fell 6.9 points to 49.5 (per ISM: "the index was in contraction territory for the sixth time in 2024 — indicating faster supplier delivery performance").
- The November election and potential tariffs also get an anecdotal mention: "Generally, respondents’ comments were neutral to positive, and both positive and negative impacts were attributed to seasonality. Not surprisingly, election ramifications and tariffs were mentioned often, with cautionary outlooks related to the potential impact on respondents’ specific industries."
MNI: US OCT FACTORY ORDERS +0.2%; EX-TRANSPORT NEW ORDERS +0.1%
- US OCT DURABLE ORDERS +0.3%
- US OCT NONDEFENSE CAP GOODS ORDERS EX AIRCRAFT -0.2%
MNI US DATA: ADP Sees Large Downward Revision, Still A Large Beat Back In Oct
- ADP employment was broadly as expected in November at 146k (cons 150k).
- It followed a solid downward revision to 184k from what was 233k, attributed by ADP to the latest QECEW data. “Our annual benchmarking of the full data series will occur with the January 2025 NER release.”
- That’s still a huge overshoot of the -28k seen for private sector payrolls in October, although the latter could be subject to large revisions this coming Friday considering October saw the lowest initial response rate since 1991.
- The press release notes a healthy overall month for jobs growth but a mixed breakdown. “Manufacturing [-26k] was the weakest we've seen since spring. Financial services and leisure and hospitality were also soft."
- Large firms again lead gains, with those with 500+ employees rising 120k in Nov after 118k. All other sized firms increased just 25k in Nov after 65k in Oct.
- Note that the pay insights section points to some rare acceleration: “Year-over-year pay gains for job-stayers edged up for the first time in 25 months, to 4.8 percent. For jobchangers, pay gains rose to 7.2 percent.”
MNI US DATA: Purchase Mortgage Applications Highest Since January
- MBA composite mortgage applications increased 2.8% (sa) last week after a solid 6.3% in the week prior.
- New purchase applications again boosted the composite (5.6% after 12.4%) as refis lagged (-0.6% after -2.6%).
- New purchase applications are now at their highest since January although still only a little over 60% of 2019 levels.
- Refis have stabilized after heavy declines, more than 50% below late September levels that captured recent lows for the 30Y mortgage rate of ~6.14%.
- The 30Y rate pulled back 17bp last week but is still at 6.69%.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 307.7 points (0.69%) at 45010.96
S&P E-Mini Future up 34.5 points (0.57%) at 6097.5
Nasdaq up 241.1 points (1.2%) at 19721.15
US 10-Yr yield is down 4.1 bps at 4.1839%
US Mar 10-Yr futures are up 7.5/32 at 111-6.5
EURUSD up 0.0003 (0.03%) at 1.0513
USDJPY up 1.04 (0.7%) at 150.64
WTI Crude Oil (front-month) down $1.07 (-1.53%) at $68.87
Gold is up $6.17 (0.23%) at $2649.76
European bourses closing levels:
EuroStoxx 50 up 40.51 points (0.83%) at 4919.02
FTSE 100 down 23.6 points (-0.28%) at 8335.81
German DAX up 215.39 points (1.08%) at 20232.14
French CAC 40 up 47.86 points (0.66%) at 7303.28
US TREASURY FUTURES CLOSE
3M10Y -3.231, -27.816 (L: -28.974 / H: -19.35)
2Y10Y +1.324, 5.623 (L: 4.454 / H: 8.464)
2Y30Y +0.285, 22.3 (L: 21.685 / H: 24.976)
5Y30Y -0.559, 28.168 (L: 27.602 / H: 31.068)
Current futures levels:
Mar 2-Yr futures up 3.125/32 at 103-4.875 (L: 102-31.25 / H: 103-05.625)
Mar 5-Yr futures up 5.25/32 at 107-20.5 (L: 107-07.5 / H: 107-22.25)
Mar 10-Yr futures up 7.5/32 at 111-6.5 (L: 110-18 / H: 111-09)
Mar 30-Yr futures up 17/32 at 119-23 (L: 118-10 / H: 119-28)
Mar Ultra futures up 28/32 at 127-24 (L: 125-20 / H: 128-00)
MNI US 10YR FUTURE TECHS: (H5) Trading Closer To Its Recent Highs
- RES 4: 112-31 High Oct 16 and a key short-term resistance
- RES 3: 111-26 High Oct 22
- RES 2: 111-12+ 50-day EMA
- RES 1: 111-11 High Dec 03
- PRICE: 111-08.5 @ 1445 ET Dec 4
- SUP 1: 110-01/109-20 Low Nov 25 / Low Nov 20/21
- SUP 2: 109-02+ Low Nov 15 and the bear trigger
- SUP 3: 108-28 1.236 proj of the Oct 1 - 14 - 16 price swing
- SUP 4: 108-12+ 1.382 proj of the Oct 1 - 14 - 16 price swing
A bull cycle in Treasuries remains in play and the contract continues to trade closer to its recent highs. Price has recently breached the 20-day EMA, exposing the 50-day EMA, at 111-12+. This EMA marks the next important resistance, a clear break of it would signal scope for a stronger recovery near-term. For bears, a reversal lower would highlight the end of a corrective cycle and open the bear trigger at 109-02+, the Nov 15 low.
SOFR FUTURES CLOSE
Dec 24 +0.008 at 95.598
Mar 25 +0.030 at 95.855
Jun 25 +0.050 at 96.060
Sep 25 +0.060 at 96.190
Red Pack (Dec 25-Sep 26) +0.050 to +0.055
Green Pack (Dec 26-Sep 27) +0.030 to +0.040
Blue Pack (Dec 27-Sep 28) +0.025 to +0.025
Gold Pack (Dec 28-Sep 29) +0.025 to +0.030
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01799 to 4.50740 (-0.02495/wk)
- 3M -0.02761 to 4.44417 (-0.02908/wk)
- 6M -0.04053 to 4.35291 (-0.03068/wk)
- 12M -0.05473 to 4.20612 (-0.04777/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.64% (+0.00), volume: $2.329T
- Broad General Collateral Rate (BGCR): 4.60% (+0.00), volume: $832B
- Tri-Party General Collateral Rate (TGCR): 4.60% (+0.00), volume: $798B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $94B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $248B
FED Reverse Repo Operation
RRP usage inches up to $162.8866B from $161.752B Tuesday, compares to Monday's multi-year low of $135.858B (early May 2021 lows). The number of counterparties steady at 65.
MNI PIPELINE: $1.5B Tapestry 2Pt Launched
- Date $MM Issuer (Priced *, Launch #)
- 12/04 $1.5B #Tapestry $750M +5Y +105, $750M +10Y +132
- 12/04 $1B #Lockheed $600M 7Y +58, $400M 30Y +85
- 12/04 $700M #Santander Mexico 5Y +155
- 12/04 $500M AES Corp 30.5NC5.25 7.375%a
- 12/04 $Benchmark GA Global Funding Trust 7Y +130a
- 12/04 $Benchmark Gruma 10Y +125, 30Y +145
MNI BONDS: EGBs-GILTS CASH CLOSE: Peripheries Outperform
Cash Gilts and Bunds recovered from an early decline to close slightly weaker Wednesday, as periphery/semi-core spreads tightened.
- Core FI softened early aid stronger equities and oil prices. Italian and Spanish Nov PMIs were slightly on the weak side, while Eurozone PMI was in line.
- A downside miss in the US Services ISM saw a nascent afternoon bounce extend into the cash close, with yields finishing near the lows.
- Yields across both the UK and German curves finished 0.5 to 1.7bps higher, with bellies slightly underperforming overall.
- There were no surprises from ECB President Lagarde in her appearance before the EU Parliament - rate cut pricing receded slightly ahead of next week's decision, with a 25bp reduction still fully priced (50bp implied probability down to 8% from 12% prior). BoE implied traded in a wide range (cumulative cuts through 2025 between 79-88bp).
- Dovish extremes in BoE pricing came after slightly misleading newswire headlines referencing an FT interview with Gov Bailey ("four UK interest rate cuts next year" was not his view but referred instead to market pricing, so nothing new).
- Periphery and semi-core EGB spreads closed tighter alongside a rally in global equities, with 10Y BTP/Bund hitting the tightest levels since 2021. OATs also managed to tighten ahead of the result of the no-confidence vote in the government.
- Thursday brings Eurozone manufacturing/industrial data (Germany, France, Spain); in the UK we get the DMP survey and an appearance by BoE's Greene.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1bps at 1.951%, 5-Yr is up 1.4bps at 1.917%, 10-Yr is up 0.7bps at 2.061%, and 30-Yr is up 1bps at 2.287%.
- UK: The 2-Yr yield is up 1.1bps at 4.236%, 5-Yr is up 1.7bps at 4.112%, 10-Yr is up 0.6bps at 4.249%, and 30-Yr is up 0.7bps at 4.775%.
- Italian BTP spread down 3.5bps at 115.5bps / French OAT down 2.1bps at 83bps
MNI FOREX: Softer US Data Weighs on Greenback, AUD Remains Weaker Following GDP
- November's US ISM Services index saw its biggest drop since June, falling unexpectedly to a 3-month low 52.1 from 56.0. In sympathy, the USD index (-0.15%) immediately pared its prior advance and fell into negative territory on the session.
- Despite the US dollar turnaround, the Australian dollar remains the notable underperformer, following the softer-than-expected GDP data overnight and associated dovish repricing for the RBA.
- The trend condition in AUDUSD (-0.75%) remains bearish and today’s fresh cycle low reinforces current conditions. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for a move towards 0.6350 (Aug 5 low) and 0.6339 (Nov 10 2023 low), a key area of support. Strength for the Euro has also seen EURAUD (+1.05%) extend higher towards 1.64, after firmly rejecting the brief slide below 1.6000 two weeks ago.
- JPY volatility continues to be the key feature of currency markets, with reports initially weighing on Wednesday. The potential political reaction to rate hikes is making senior Bank of Japan officials tend towards normalising policy more slowly, and this narrative assisted USDJPY to an impressive 1.75% recovery from the Tuesday lows (151.23 high print).
- However, the softer US data took the wind out of the pair’s sails and USDJPY spot is trading closer to 150.00 as we approach the APAC crossover.
- The drift higher in European equities alongside broader dollar weakness has supported the risk-sensitive Swedish krona today. USDSEK is down 1.00% ahead of tomorrow’s release of flash November CPI in Sweden. Elsewhere, US jobless claims will provide a warm-up to Friday’s NFP release.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 05/12/2024 | 0645/0745 | ** |  CH | Unemployment |
| 05/12/2024 | 0700/0800 | ** |  DE | Manufacturing Orders |
| 05/12/2024 | 0700/0800 |  SE | Flash CPI | |
| 05/12/2024 | 0745/0845 | * |  FR | Industrial Production |
| 05/12/2024 | 0800/0900 | ** |  ES | Industrial Production |
| 05/12/2024 | 0830/0930 | ** |  EU | S&P Global Final Eurozone Construction PMI |
| 05/12/2024 | 0930/0930 | ** |  GB | S&P Global/CIPS Construction PMI |
| 05/12/2024 | 0930/0930 | GB | DMP Data | |
| 05/12/2024 | 1000/1100 | ** | EU | Retail Sales |
| 05/12/2024 | 1330/0830 | *** |  US | Jobless Claims |
| 05/12/2024 | 1330/0830 | ** | US | Trade Balance |
| 05/12/2024 | 1330/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 05/12/2024 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 05/12/2024 | 1500/1000 | * | CA | Ivey PMI |
| 05/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 05/12/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 05/12/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 05/12/2024 | 1700/1700 | GB | BOE's Greene panellist at the FT Boardroom "global economics: what is the path to sustained growth?" | |
| 05/12/2024 | 1715/1215 | US | Richmond Fed's Tom Barkin | |
| 06/12/2024 | 2330/0830 | ** |  JP | average wages (p) |
| 06/12/2024 | 2330/0830 | ** | JP | Household spending |