US TSYS: Soft Start To The Week, Though Waller Caution Fails To Weigh
Treasury futures pulled back Monday in generally risk-on but holiday-thinned trade.
- Early trade saw a continuation of recent reflationary trends, with TY futures weakening as the S&P hit all-time highs (cash was closed for holidays).
- Details of Chinese fiscal stimulus helped fuel that trade further mid-morning, with Treasuries coming off lows on geopolitical headlines (sirens sounding across Israel).
- With no US data on the calendar, Fed speakers took center-stage: while Minneapolis's Kashkari added little new to previous comments, Fed Gov Waller triggered an initial hawkish reaction with his call for "more caution" on the pace of rate cuts in contrast to his relative dovishness last month.
- The reaction was short-lived, however: Tsy futures soon rebounded, though the catalyst for the reversal was unclear: he spoke of multiple scenarios that could play out which basically didn't preclude any potential paths forward, and overall he noted "Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year."
- Dec 10-Yr futures (TY) last down 8/32 at 112-0 (L: 111-23 / H: 112-04); Dec 2-Yr futures (TU) down 2.375/32 at 103-12.875 (L: 103-10.5 / H: 103-14.5)
- Fed speakers Tuesday include SF's Daly, Gov Kugler, and Atlanta's Bostic.
- Tuesday's data docket is thin, with Oct Empire Manufacturing and NY Fed inflation expectations.
NEWS
FED (MNI): Federal Reserve Governor Chris Waller said Monday recent strong economic data mean the central bank can proceed more cautiously after kicking off the easing cycle with a 50 basis point rate cut in September. “While we do not want to overreact to this data or look through it, I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” Waller said in prepared remarks to the Hoover Institution. “I will be watching to see whether data, due out before our next meeting, on inflation, the labor market and economic activity confirms or undercuts my inclination to be more cautious about loosening monetary policy.”
CHINA (CAIXIN): China may raise an additional 6 trillion yuan from treasury bonds over three years as part of its efforts to buttress the slowing economy through fiscal stimulus, multiple sources with knowledge of the matter told Caixin. The funds will be partly used to help local governments resolve their off-the-books debts, according to the sources. Speculation about the size of China’s new fiscal stimulus has been rife since the Ministry of Finance pledged at a press briefing Saturday to help local governments relieve debt pressure without specifying the amount.
ECB (MNI MARKETS): Following the weaker-than-expected PMI and inflation data, the market and many on the Governing Council have rallied behind an October cut, which appears to be the most likely outcome. However, communicating the motivation for such a move will not be straight forward.
UK (MNI MARKETS): It’s another month where both of the biggest UK data releases coincide with inflation data is due for release on Wednesday following labour market data on Tuesday. The MPC will watch the data closely – particularly following Governor Bailey’s comments that the BOE could be “a bit more activist” if inflation good news continues.
UK (BBC): The prime minister has appeared to dismiss suggestions the government could raise capital gains tax (CGT) as high as 39% in this month's Budget. Sir Keir Starmer said such speculation was "wide of the mark", although he did not elaborate further. For higher earners, the levy is currently 24% on gains from selling additional property, or 20% on profits from other assets like shares.
CANADA (MNI MARKETS): The September CPI report is released Tuesday, Oct 15, at 0830ET and should receive little cross-market interference with only the Empire manufacturing survey scheduled for then in the US. Consensus sees headline CPI easing two tenths to 1.8% Y/Y having returned in August to the target midpoint for the first time since early 2021. This is the last major release before next week’s October BoC decision and will likely be pivotal in guiding broader expectations. It’s hard to argue with the 38-39bp of cuts priced with two-way sensitivity to the data.
OVERNIGHT DATA
- No U.S. / Canada data releases due to holidays
MARKETS SNAPSHOT
Below gives key levels of markets in afternoon NY trade:
- DJIA up 257.75 points (0.6%) at 43129.46
- S&P E-Mini Future up 56 points (0.96%) at 5917.25
- Nasdaq up 199 points (1.1%) at 18544.83
- US 10-Yr yield is unchanged 0 bps at 4.1003%
- US Dec 10-Yr futures (TY) are down 8.5/32 at 111-31.5
- EURUSD down 0.0033 (-0.3%) at 1.0904
- USDJPY up 0.64 (0.43%) at 149.78
- WTI Crude Oil (front-month) down $1.78 (-2.36%) at $73.78
- Gold is down $4.67 (-0.18%) at $2651.51
Prior European bourses closing levels:
- EuroStoxx 50 up 37.09 points (0.74%) at 5041.01
- FTSE 100 up 39.01 points (0.47%) at 8292.66
- German DAX up 134.46 points (0.69%) at 19508.29
- French CAC 40 up 24.17 points (0.32%) at 7602.06
US TREASURY FUTURES CLOSE (from spreadsheet)
Current futures levels:
- Dec 2-Yr futures (TU) down 2.5/32 at 103-12.75 (L: 103-10.5 / H: 103-14.5)
- Dec 5-Yr futures (FV) down 6.25/32 at 108-9.75 (L: 108-5.5 / H: 108-13.3)
- Dec 10-Yr futures (TY) down 9/32 at 111-31 (L: 111-23 / H: 112-04)
- Dec 30-Yr futures (US) down 12/32 at 120-0 (L: 119-14 / H: 120-4)
- Dec Ultra futures (WN) down 16/32 at 127-8 (L: 126-15 / H: 127-10)
US 10YR FUTURE TECHS: (Z4) Bear Threat Remains Present
- RES 4: 115-00+ High Oct 1
- RES 3: 114-14+ High Oct 3
- RES 2: 113-19 50-day EMA
- RES 1: 112-21/113-12 High Oct 21 / Low Sep 3
- PRICE: 111-30 @ 11:43 BST Oct 14
- SUP 1: 111-22 Low Oct 10
- SUP 2: 111-14 50.0% retracement of the Apr - Sep bull cycle (cont)
- SUP 3: 110-29 2.0% 10-dma envelope
- SUP 4: 111-00 Low Jul 22
A bear threat in Treasuries remains present and the contract is trading just ahead of last week’s lows. The latest sell-off resulted in a break of not only the 50-day EMA, but also the 112-00 handle. The move undermines the prior bullish theme and instead highlights potential for a continuation lower. Sights are on 111-14, the 50% retracement for the Apr - Sep bull leg. 113-12, the Sep 3 low, is the first key resistance.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
- No rate fixes/reference rate releases due to holidays
EGBs-GILTS CASH CLOSE: Modest Core Weakness As UK Data, ECB Loom
Core European yields rose modestly Monday, ahead of UK data and the ECB decision later in the week.
- In a session with limited drivers (and a US cash bond holiday), the afternoon saw opposing forces buffeting core FI in the form of China stimulus details (negative Gilts/Bunds) and Israel conflict flare-up (positive).
- Markets continue to price in well over 90% probability of a 25bp cut from the ECB this week - however, as our preview out today points out, communicating the motivation for such a move will not be straightforward (PDF here).
- On the day, the German curve bear flattened while the UK's bear steepened - both in relatively modest fashion versus the large swings in recent weeks.
- While French yields were little changed after Fitch lowered its rating to Negative from Stable after Friday's close, allowing for 1+bp spread narrowing to Bunds, Belgium underperformed on Moody's revision likewise to Negative (OLOs closed flat to Bund).
- EGB periphery spreads tightened, with BTPs and PGBs outperforming.
- The highlight early Tuesday will be UK labour market data (MNI preview here, including our outlook for Wednesday's CPI release which also looms large).
Closing Yields / 10-Yr Periphery EGB Spreads To Germany:
- Germany: The 2-Yr yield is up 2.2bps at 2.257%, 5-Yr is up 1.8bps at 2.137%, 10-Yr is up 1bps at 2.275%, and 30-Yr is up 0.2bps at 2.561%.
- UK: The 2-Yr yield is up 0.8bps at 4.179%, 5-Yr is up 1.2bps at 4.084%, 10-Yr is up 3.1bps at 4.238%, and 30-Yr is up 2.9bps at 4.778%.
- Italian BTP spread down 2.4bps at 127.1bps / Portuguese down 1.8bps at 49.3bps
FOREX: USD Index Extends Recovery, Reaches Fresh 2-Month High
- Amid holiday thinned trade, the greenback has remained on the front-foot Monday, evidenced by the USD index rising 0.35% to fresh two-month highs, where we have been consolidating as we approach the APAC crossover.
- Latest CFTC data, indicative of currency positioning, has shown a reduction in dollar shorts and the DXY continues to be supported by less aggressive pricing for the terminal point of the Fed’s easing cycle. Dollar strength has been broad based, and most notable against the Swiss Franc and Japanese Yen.
- USDJPY broke above 149.50 mid session and has been steadily grinding towards 150.00. Recent gains resulted in a break of the 50-day EMA, a bullish development that undermines a recent bearish theme and highlights a stronger reversal. Sights are on 150.76, the 50% retracement of the Jul 3 - Sep 16 bear leg.
- While AUDUSD (-0.47%) has also been on the back foot, near-term momentum in positioning has actually bucked the trend and improved and weakness in xxx/AUD crosses could shield the pair from further sharp losses. EUR/AUD will print a death cross at today's close (50-dma < 200-dma), signalling S/T downside momentum in the price, assisted by the ongoing strength for major equity benchmarks.
- EURUSD has slipped below 1.0900 in late session trade, keeping the pairs bearish momentum intact, albeit at a slow pace. Further weakness below initial support at 1.0881 could signal scope for a deeper retracement towards 1.0778, the Aug 1 low and a key support.
- GBP (-0.11%) has proved more resilient ahead of key labour market data tomorrow and CPI figures Wednesday. Canada will also report their inflation data for September on Tuesday.
| Date | GMT/Local | Impact | Country | Event |
| 14/10/2024 | 2100/1700 |  US | Minneapolis Fed's Neel Kashkari | |
| 15/10/2024 | 0430/1330 | ** |  JP | Industrial Production |
| 15/10/2024 | 0600/0800 | *** |  SE | Inflation Report |
| 15/10/2024 | 0600/0700 | *** |  GB | Labour Market Survey |
| 15/10/2024 | 0645/0845 | *** |  FR | HICP (f) |
| 15/10/2024 | 0700/0900 | *** |  ES | HICP (f) |
| 15/10/2024 | 0800/1000 | ** |  EU | ECB Bank Lending Survey |
| 15/10/2024 | 0900/1100 | *** |  DE | ZEW Current Conditions Index |
| 15/10/2024 | 0900/1100 | *** | DE | ZEW Current Expectations Index |
| 15/10/2024 | 0900/1100 | ** | EU | Industrial Production |
| 15/10/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 15/10/2024 | 1230/0830 | *** |  CA | CPI |
| 15/10/2024 | 1230/0830 | ** | CA | Wholesale Trade |
| 15/10/2024 | 1230/0830 | ** | US | Empire State Manufacturing Survey |
| 15/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 15/10/2024 | 1300/0900 | * | CA | CREA Existing Home Sales |
| 15/10/2024 | 1500/1100 | ** | US | NY Fed Survey of Consumer Expectations |
| 15/10/2024 | 1530/1130 | US | San Francisco Fed's Mary Daly | |
| 15/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 15/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 15/10/2024 | 1700/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 15/10/2024 | 1700/1300 | US | Fed Governor Adriana Kugler | |
| 16/10/2024 | 2145/1045 | *** |  NZ | CPI inflation quarterly |
| 15/10/2024 | 2300/1900 | US | Atlanta Fed's Raphael Bostic | |
| 16/10/2024 | 2350/0850 | * | JP | Machinery orders |