- MNI Fed Preview: Sept 2024: “Close Call” Tilts To 50bp Cut
- MNI SECURITY: UN Envoy Warns NATO Of Risk Of 'Direct War w/Russia'
- MNI US DATA: Non-Oil Import Prices Surprise Lower In August
- MNI US DATA: Mixed U.Mich Inflation Expectations
US
Fed Preview (MNI): Sept 2024: “Close Call” Tilts To 50bp Cut
Fed leadership has made it abundantly clear that the FOMC will initiate a rate cutting cycle at the September meeting, with pre-blackout developments pointing toward a 25bp reduction as opposed to an outsized 50bp.
- But subsequent media reports that it’s a “close call” have pushed market pricing to imply a split decision vs a 50bp cut, and to MNI’s Markets Team, it suddenly looks more likely than not that Chair Powell will persuade the FOMC to opt for a slightly more front-loaded cutting cycle.
NEWS
SECURITY (MNI): UN Envoy Warns NATO Of Risk Of 'Direct War w/Russia'
Wires carrying comments from Russia's representative to the United Nations Vasily Nebenzya, who tells the Security Council that if the West allows Ukraine to conduct long-range strikes by Ukraine against Russia then NATO states would be 'conducting direct war with Russia'. Nebenzya: 'NATO will be a direct party to hostilities against a nuclear power. I think you shouldn't forget about this and think about the consequences'.
US/UKRAINE (MNI): White House-Don't Look For Change On Long-Range Missiles Today:
White House National Security Adviser John Kirby says "I wouldn't be looking for an announcement today about long-range strike capabilities inside Russia... There's no change to our policy with respect to that."
GERMANY (MNI): SPD Gains On AfD In Latest Brandenburg Polling:
The centre-left Social Democrats (SPD) have shown some signs of catching up with the far-right Alternative for Germany (AfD) in the latest opinion polling ahead of the Brandenburg state election on 22 September.
IRAN (MNI): EU Joins Western Condemnation Of Missiles Supplies To Russia:
EU High Representative for Foreign Affairs and Security Policy Josep Borrell has released a statementregarding accusations that Iran has supplied ballistic missiles to Russia for use in its invasion of Ukraine.
TURKEY (MNI): Russia Pushes Back On Erdogan Crimea Comments Amid BRICS Membership Push:
The Kremlin has saidthat it holds "completely divergent opinions" with Turkey regarding the rightful ownership of Crimea following President Recep Tayyip Erdogan's comments on 11 September
RUSSIA (BBG): Russia Sharing Nuclear Secrets With Iran Fuels US-UK Worries
The US and UK are increasingly concerned that Russia is sharing with Iran secret information and technology that could bring it closer to being able to build nuclear weapons, in exchange for Tehran providing Moscow with ballistic missiles for its war in Ukraine.
US TSYS Great Expectations, For Lower Rates
- Continued speculation over more than an expected 25bp rate cut at next Wednesday's FOMC policy announcement (includes Summary of Economic Projections), buoyed short end rates as curves climbed to the steepest levels since early July 2022 (2s10s 8.816 high) Friday.
- Sep'24 Treasury futures trade +7 at 115-13 after the bell, compared to 115-18.5 overnight high, well inside initial technicals: resistance at 115-23.5 (High Sep 11), support at 114-27.5/13 (Low Sep 10 / 20-day EMA).
- Projected rate hikes through year end firmer vs. late Thursday levels (*) : Sep'24 cumulative -38.1bp (-31.5bp), Nov'24 cumulative -76.6bp (-68.6bp), Dec'24 -117.4bp (-107.5bp).
- Treasury futures held inside a narrow session range after UofM data showed a slight increase in sentiment, a dip in 1Y inflation expectations vs. a slight increase in 5-10Y expectations. 1Y inflation: 2.7% (cons 2.8) after 2.8% in Aug to dip to its lowest since Dec 2020. For what it’s worth, three of the four latest preliminary reports have been revised down in the final release as well.
- Import prices were softer than expected in August at -0.3% M/M (cons -0.2), and more notably import prices ex-petroleum at -0.1% M/M (cons 0.2).
- Slow start to the week ahead with Empire Manufacturing early Monday, Tuesday Retail Sales precedes Wednesday's FOMC annc at 1400ET.
OVERNIGHT DATA
US DATA (MNI): Mixed U.Mich Inflation Expectations
U.Mich inflation expectations were softer than expected 1Y out but stronger for 5-10Y in the preliminary September report. 1Y: 2.7% (cons 2.8) after 2.8% in Aug to dip to its lowest since Dec 2020. For what it’s worth, three of the four latest preliminary reports have been revised down in the final release as well.
- 5-10Y: 3.1% (cons 3.0) after 3.0% in Aug. It remains in the 2.9-3.1% range it’s mostly held since Aug-2021 although it was last finalized at 3.1% in May’23 (note it did print two 3.1 preliminary readings in May and June this year).
US DATA (MNI): U.Mich Labor Expectations Also On The Mixed Side
U.Mich consumer sentiment improved by more than expected in the preliminary September report. The labor details were mixed with more expecting broader unemployment to increase but no real change in consumer’s own job loss prospects.
- The share expecting unemployment to increase one year out increased from 37% to 39% for its highest since Jun’23. It peaked at 45% in late 2022 whilst it averaged 28% in 2019, 25% in 2015-19).
- The perceived probability of a respondent losing their job within the next five years ticked a tenth higher to 19% although it continues to broadly trend sideways and is much closer to the 17% averaged in 2019 or 18% in 2015-19).
US DATA (MNI): Non-Oil Import Prices Surprise Lower In August
Import prices were softer than expected in August at -0.3% M/M (cons -0.2), and more notably import prices ex-petroleum at -0.1% M/M (cons 0.2). This ex-oil category came after a downward revised 0.1% in July but it was offset by an upward revised 0.2% in June (the latter albeit obscured by rounding).
MARKETS SNAPSHOT
- Key market levels of markets in late NY trade:
- DJIA up 286.26 points (0.7%) at 41382.44
- S&P E-Mini Future up 25.75 points (0.46%) at 5628.25
- Nasdaq up 109.5 points (0.6%) at 17679.98
- US 10-Yr yield is down 2.1 bps at 3.6532%
- US Dec 10-Yr futures are up 6/32 at 115-12
- EURUSD up 0.0004 (0.04%) at 1.1078
- USDJPY down 0.89 (-0.63%) at 140.93
- WTI Crude Oil (front-month) up $0.1 (0.15%) at $69.07
- Gold is up $23.6 (0.92%) at $2581.43
- European bourses closing levels:
- EuroStoxx 50 up 29.91 points (0.62%) at 4843.99
- FTSE 100 up 32.12 points (0.39%) at 8273.09
- German DAX up 181.01 points (0.98%) at 18699.4
- French CAC 40 up 30.18 points (0.41%) at 7465.25
US TREASURY FUTURES CLOSE
- 3M10Y +6.242, -124.39 (L: -134.74 / H: -124.203)
- 2Y10Y +4.018, 7.08 (L: 3.739 / H: 8.516)
- 2Y30Y +5.307, 39.794 (L: 35.774 / H: 41.954)
- 5Y30Y +2.682, 54.914 (L: 53.152 / H: 56.485)
- Current futures levels:
- Dec 2-Yr futures up 3.25/32 at 104-12.75 (L: 104-09.625 / H: 104-14.25)
- Dec 5-Yr futures up 4/32 at 110-20 (L: 110-15.75 / H: 110-24.25)
- Dec 10-Yr futures up 6/32 at 115-12 (L: 115-07 / H: 115-18.5)
- Dec 30-Yr futures up 8/32 at 126-19 (L: 126-09 / H: 127-03)
- Dec Ultra futures up 8/32 at 136-19 (L: 136-03 / H: 137-10)
US 10YR FUTURE TECHS: (Z4) Trend Needle Points North
- RES 4: 116-07 1.764 proj of the Aug 8 - 21 - Sep 3
- RES 3: 116-00 Round number resistance
- RES 2: 115-31 1.618 proj of the Aug 8 - 21 - Sep 3
- RES 1: 115-23+ High Sep 11
- PRICE: 115-12+ @ 11:26 BST Sep 13
- SUP 1: 114-27+/13 Low Sep 10 / 20-day EMA
- SUP 2: 114-00+ Low Sep 4
- SUP 3: 113-12 Low Sep 3
- SUP 4: 113-06+ 50-day EMA
The trend needle in Treasuries points north and the latest pullback is considered corrective. Wednesday’s initial rally resulted in a print above key resistance and the bull trigger at 115-19, the Aug 5 high. The move higher confirms a resumption of the uptrend and paves the way for a climb towards the 116.00 handle. MA studies remain in a bull-mode position, highlighting a clear M/T uptrend. Firm support is seen at 114-13, the 20-day EMA.
SOFR FUTURES CLOSE
- Sep 24 +0.050 at 95.143
- Dec 24 +0.075 at 95.960
- Mar 25 +0.085 at 96.620
- Jun 25 +0.070 at 96.965
- Red Pack (Sep 25-Jun 26) +0.005 to +0.045
- Green Pack (Sep 26-Jun 27) steady to +0.005
- Blue Pack (Sep 27-Jun 28) +0.005 to +0.010
- Gold Pack (Sep 28-Jun 29) +0.005 to +0.010
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01378 to 5.08273 (-0.02711/wk)
- 3M -0.00546 to 4.94118 (-0.01346/wk)
- 6M +0.00844 to 4.57892 (-0.01307/wk)
- 12M +0.01942 to 3.99185 (-0.06175/wk)
- Secured Overnight Financing Rate (SOFR): 5.33% (+0.01), volume: $2.087T
- Broad General Collateral Rate (BGCR): 5.31% (+0.00), volume: $820B
- Tri-Party General Collateral Rate (TGCR): 5.31% (+0.00), volume: $785B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $111B
- Daily Overnight Bank Funding Rate: 5.33% (+0.00), volume: $265B
FED Reverse Repo Operation
NY Federal Reserve/MNI
RRP usage slips up to $284.951B from $294.464B on Thursday. Compares to Wednesday's multi-year low of $279.215B (early May 2021 levels). Number of counterparties at 62 from 58 on Thursday.
BONDS: EGBs-GILTS CASH CLOSE: Yields Dip On Outsized Fed Cut Speculation
European yields fell slightly Friday, partially reversing some of Thursday's rise.
- The main driver of Friday's gains was rising speculation over an outsized 50bp cut by the Federal Reserve next week following media reports after the European bond cash close Thursday.
- With Bund and Gilt futures having gapped higher on the re-open, gains were pared fairly steadily over the rest of the session, with the long end lagging overall as equities gained.
- Friday's session included plenty of ECB speakers following Thursday's decision, with hawk Holzmann expressing an openness to cut rates once more this year (likely in December).
- The German and UK curves bull steepened. Periphery EGB spreads tightened, reflecting a rebound in equities. Note Spain and Greece's sovereign ratings are due for review after the market close.
- Next week's Europe event risk is focused on the UK, including CPI data on Wednesday and the BoE decision Thursday, though of course the size of next Wednesday's expected Fed rate cut will be a major global driver.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.4bps at 2.211%, 5-Yr is down 0.5bps at 2.02%, 10-Yr is down 0.2bps at 2.148%, and 30-Yr is up 0.6bps at 2.431%.
- UK: The 2-Yr yield is down 1.8bps at 3.8%, 5-Yr is down 1.8bps at 3.622%, 10-Yr is down 1.3bps at 3.768%, and 30-Yr is down 1.7bps at 4.359%.
- Italian BTP spread down 3bps at 136.2bps / Greek down 2.2bps at 97bps
FOREX: USDJPY Remains Weaker on Session, Key Support Holds For Now
- The USD index has been consolidating near session lows across the US session and while USDJPY (-0.75%) trades with an offered tone overall, key support at 140.25 continues to hold as we approach the weekend close, with the pair rising around 40 pips in recent trade.
- A breach of 140.25 would see spot at the lowest level since July 2023, and further momentum through the psychological 140.00 mark will be closely monitored next week.
- USDJPY’s weakness today has been yield driven, however the elevated levels for major equity benchmarks appear to have provided just enough support to cross/JPY. Furthermore, there may be limited appetite for such significant technical breaks so close to the weekend close.
- As noted earlier, the next two supports of note are at 139.87 and 139.00, the 1.236 and 1.382 Fibonacci projections of the Aug 15 - 26 - Sep 3 price swing. Initial resistance remains much higher at 143.04.
- Strength for the low yielders has also boosted the Swiss Franc, with USDCHF down 0.35%, although it is worth noting the pair remain around 50 pips higher on the week.
- Despite the aforementioned equity strength, both AUD and NZD are around 0.3% weaker on Friday, while EUR and GBP reside in moderate positive territory.
- China activity data is expected on Saturday and it’s worth noting that both Japan and China have national holidays on Monday. Inflation data in Canada and the UK should play second fiddle to Wednesday’s FOMC decision.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 16/09/2024 | 0800/1000 | ** |  | Italy Final HICP |
| 16/09/2024 | 0810/1010 |  | ECB's De Guindos at VII Foro Banca event | |
| 16/09/2024 | 0900/1100 | * | | Trade Balance |
| 16/09/2024 | 1200/1400 | | ECB's Lane Speech at European Investment Bank Chief Economists' Meeting | |
| 16/09/2024 | 1230/0830 | ** |  | Monthly Survey of Manufacturing |
| 16/09/2024 | 1230/0830 | ** |  | Empire State Manufacturing Survey |
| 16/09/2024 | 1300/0900 | * | | CREA Existing Home Sales |
| 16/09/2024 | 1530/1130 | * | | US Treasury Auction Result for 13 Week Bill |
| 16/09/2024 | 1530/1130 | * | | US Treasury Auction Result for 26 Week Bill |