EXECUTIVE SUMMARY
- MNI FED: Fed's Bowman Expects Continued Economic Strength
- MNI FED: Richmond's Barkin OK To Dial Back Restraint "Somewhat" In Two Phases
- MNI US: White House Faces Difficult Decision Over Potential Port Strike
- MNI US DATA: Inflation Pullback Underpinning Solid Real Consumption Dynamics In Q3
US
MNI BRIEF: Fed's Bowman Expects Continued Economic Strength
Federal Reserve Governor Michelle Bowman said Friday recent data show the economy holding up and the labor market is strong. The U.S. unemployment rate at 4.2% is "well below" her estimate of full employment, she said, noting it is also below the Congressional Budget Office's estimate of 4.4%. She said her contacts say the labor market is strong. The Fed governor also expressed dismay at significant recent data revisions and added she sees value in speaking with her contacts to get a better sense of the outlook in the economy. She was the lone dissenting vote against the FOMC's 50 bp rate cut last week. "I'm honestly very interested in making sure we bring inflation back down to the 2% goal and that we have a strong economy," she said in Q&A at an event with the Alabama Bankers Association. "I don't know that we will reach our goals. Right now, the data tells me that we're going to see strength going forward."
FED: Richmond's Barkin: OK To Dial Back Restraint "Somewhat" In Two Phases
In an interview with the AP published overnight, Richmond Fed President Barkin appears more cautious on future rate cuts than some of his FOMC colleagues: He notes "with inflation and unemployment being so close to normal levels, it’s okay to dial back the level of restraint, somewhat...I’m not yet ready to declare victory on inflation. And so I wouldn’t dial it back all the way” to neutral. Of course Barkin is a 2024 FOMC voter and didn't dissent to the 50bp cut in September, and the AP notes "Barkin said a key factor in his support was the relatively modest path of rate reductions the Fed forecast for the rest of this year and through 2025", i.e. the Dot Plot which Barkin said showed a "very measured" rate cutting cycle that took into account a "reasonably positive view on the economy" without "panic".
NEWS
US: White House Faces Difficult Decision Over Potential Port Strike
CNN reports that a looming port strike, “could become the most disruptive strike to the US economy in decades,” with workers at East Coast and Gulf of Mexico ports set to down tools on Tuesday.
- CNN reports: “If those union members walk out, as is widely expected, the strike will shut down three dozen locations at 14 port authorities... a strike could mean shortages of consumer and industrial goods, possibly driving up prices again... In addition, the halt of supplies of parts needed by US factories could disrupt those plants’ operations and even lead to temporary layoffs.”
SECURITY: IDF Says Hezbollah Leader Nasrallah Was Target Of Beirut Strike, Axios
Axios reports that, according to an Israeli source, Hezbollah leader Hassan Nasrallah was the "primary target," of a massive airstrike, reportedly carried out with 2,000 pound 'bunker buster' munitions, that destroyed multiple residential buildings in Beirut today.
- Axios notes: "Israeli officials say senior Hezbollah officials were at the headquarters at the time of the attack. There has been no official response as yet from Hezbollah on the attack or on Nasrallah's status."
JAPAN: Incoming PM Hints At Early Election But No Set Date
Incoming PM Shigeru Ishiba speaking at a press conference following his election as president of the governing conservative Liberal Democratic Party (LDP). Says that he plans to hold elections to the House of Representatives at an 'early timing', but gives no indication of when this might be, saying that he needs to 'consider appropriate' date. Will form new cabinet on 1 Oct when he officially takes office.
US TSYS: Curves Bounce as Projected Cuts Gain Momentum Post-PCE
- Treasuries are higher after the bell, trading sideways through the second half after marking session high affter noon. Dec'24 10Y Tsy futures are currently +10.5 at 114-23.5 vs. 114-25 high with initial technical resistance at 115-02.5 (Sep 19 high).
- Curves recovered some ground after Thu's flattening as morning data underscored a rise in projected rate cuts into early 2025 gained vs. pre-data levels (*): Nov'24 cumulative -38.5bp (-37.2bp), Dec'24 -76.8bp (-73.9bp), Jan'25 -109.5bp (-104.5bp).
- Personal income and spending were a little softer than expected in August on a nominal basis, but in "real" terms this was a solid report and data going back to the start of the year were largely revised in a stronger direction.
- Core PCE inflation confirmed trend rates very similar to what Fed Governor Waller had indicated last week. That leaves inflation over the latest four months a little below the 2% PCE target and “supercore” inflation almost at target (although both a little stronger more recently).
- UofM inflation expectations: 1Y: 2.7% (cons 2.7, prelim 2.7) after 2.8% in Aug to confirm a dip to its lowest since Dec 2020. 5-10Y: 3.1% (cons 3.0, prelim 3.1) after 3.0% in Aug.
- Looking ahead: relatively quiet start to next week with MNI Chicago PMI on Monday, ISMs Tuesday, ADP private employment data Wednesday and the September jobs report headlining next week Friday.
OVERNIGHT DATA
US DATA: Inflation Pullback Underpinning Solid Real Consumption Dynamics In Q3
Personal income and spending were a little softer than expected in August on a nominal basis, but in "real" terms this was a solid report and data going back to the start of the year were largely revised in a stronger direction. Overall, income and spending appear to have been on a cooling trajectory in nominal terms since early 2024, but the simultaneous pullback in inflation means they remain solid on a historic basis in real terms.
- Nominal incomes rose by 0.2% M/M in August, half the 0.4% expected and a deceleration from 0.3% in July. Likewise, nominal spending rose 0.2% vs 0.3% expected (and 0.5% prior). But at least some of the miss was due to a lower set of inflation prints than widely expected: core PCE at 0.1% (vs 0.2% exp.), headline 0.1% (as expected).
US DATA: Core PCE Inflation Maintains Low Bar For Further Front-Loading Of Cuts
Core PCE inflation confirmed trend rates very similar to what Fed Governor Waller had indicated last week. That leaves inflation over the latest four months a little below the 2% PCE target and “supercore” inflation almost at target (although both a little stronger more recently). Whilst it shouldn’t be a massive surprise, it does at the very least keep the bar low, and possibly lower it still, for continued front-loaded cuts from the Fed on any even marginally dovish surprises in upcoming labor data.
- Core PCE inflation at 0.13% M/M was very close to the 0.14% that the Fed’s Waller had anticipated last week.
- It looks like a larger miss to the rounded 0.2 median estimate in the Bloomberg survey although as we’d noted the average of unrounded estimates we’d seen prior were 0.16 so it’s only a small miss more broadly.
- July was essentially unrevised (0.158% M/M vs 0.161 initially), following an upward revised 0.22% M/M (initial 0.16) in June that was partly offset by a downward revision to a particularly soft 0.08% (initial 0.10) in May.
US DATA: Surprise Confirmation Of 5-10Y Inflation Expectations at 3.1%
- 1Y: 2.7% (cons 2.7, prelim 2.7) after 2.8% in Aug to confirm a dip to its lowest since Dec 2020.
- 5-10Y: 3.1% (cons 3.0, prelim 3.1) 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. (It had printed two 3.1 preliminary readings in May and June this year as well but they were revised lower).
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
- DJIA up 162.63 points (0.39%) at 42339.16
- S&P E-Mini Future down 9.5 points (-0.16%) at 5795
- Nasdaq down 77.5 points (-0.4%) at 18113.27
- US 10-Yr yield is down 4.6 bps at 3.7506%
- US Dec 10-Yr futures are up 9/32 at 114-22
- EURUSD down 0.0012 (-0.11%) at 1.1165
- USDJPY down 2.72 (-1.88%) at 142.1
- WTI Crude Oil (front-month) up $0.7 (1.03%) at $68.36
- Gold is down $21.47 (-0.8%) at $2651.09
- European bourses closing levels:
- EuroStoxx 50 up 34.86 points (0.69%) at 5067.45
- FTSE 100 up 35.85 points (0.43%) at 8320.76
- German DAX up 235.27 points (1.22%) at 19473.63
- French CAC 40 up 49.7 points (0.64%) at 7791.79
US TREASURY FUTURES CLOSE
- 3M10Y -4.393, -87.213 (L: -88.35 / H: -81.508)
- 2Y10Y +1.973, 18.526 (L: 15.228 / H: 18.73)
- 2Y30Y +3.662, 53.67 (L: 48.417 / H: 53.784)
- 5Y30Y +3.141, 59.342 (L: 55.32 / H: 59.499)
- Current futures levels:
- Dec 2-Yr futures up 3.5/32 at 104-9.75 (L: 104-04.75 / H: 104-10.125)
- Dec 5-Yr futures up 7.5/32 at 110-7.25 (L: 109-28.5 / H: 110-08.75)
- Dec 10-Yr futures up 9.5/32 at 114-22.5 (L: 114-08 / H: 114-25)
- Dec 30-Yr futures up 14/32 at 124-25 (L: 124-01 / H: 125-00)
- Dec Ultra futures up 16/32 at 133-26 (L: 132-29 / H: 134-05)
US 10YR FUTURE TECHS: (Z4) Corrective Cycle
- 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: 115-02+/23+ High Sep 19 / 11 and the bull trigger
- PRICE: 114-15+ @ 15:56 BST Sep 27
- SUP 1: 114-07 Low Sep 26
- SUP 2: 114-00+ Low Sep 4
- SUP 3: 113-26+ 50-day EMA
- SUP 4: 113-12 Low Sep 3 and a key support
Treasuries maintain a bullish theme, with Wednesday’s pullback failing to trouble intraday support. This confirms the corrective nature of the latest pullback. The contract has traded through the 20-day EMA, at 114-23. A clear break of it would signal scope for a deeper retracement, potentially towards 113-26+, the 50-day EMA. For bulls, a resumption of gains would refocus attention on 115-24+, the Sep 11 high and a bull trigger. A break would resume the uptrend.
SOFR FUTURES CLOSE
- Dec 24 +0.040 at 96.045
- Mar 25 +0.065 at 96.610
- Jun 25 +0.070 at 96.920
- Sep 25 +0.065 at 97.050
- Red Pack (Dec 25-Sep 26) +0.055 to +0.065
- Green Pack (Dec 26-Sep 27) +0.040 to +0.050
- Blue Pack (Dec 27-Sep 28) +0.035 to +0.040
- Gold Pack (Dec 28-Sep 29) +0.025 to +0.030
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00134 to 4.84410 (-0.01312/wk)
- 3M -0.01032 to 4.59335 (-0.09790/wk)
- 6M +0.01665 to 4.26185 (-0.08954/wk)
- 12M +0.03824 to 3.78308 (-0.04841/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.83% (-0.01), volume: $2.329T
- Broad General Collateral Rate (BGCR): 4.83% (+0.00), volume: $782B
- Tri-Party General Collateral Rate (TGCR): 4.83% (+0.00), volume: $747B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $100B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $256B
STIR: FED Reverse Repo Operation
RRP usage climbs to $436.518B this afternoon from $424.916B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties at 59 from 70 prior.
PIPELINE: Corporate Debt Issuance Roundup
$8.3B Priced Thursday, $57.22B total for the week:
- Date $MM Issuer (Priced *, Launch #)
- 9/26 $5B *Broadcom $875M +3Y +65, $1.5B +5Y +83, $875M +7Y +93, $1.75B +10Y +103
- 9/26 $1.2B *Niagra Energy 10Y +195
- 9/26 $1B *Lloyds Banking Grp PerpNC7 6.75%
- 9/26 $600M *Nordic Inv Bank 3Y SOFR+29a
- 9/26 $500M *AerCap 5Y Sukuk +110
BONDS: EGBs-GILTS CASH CLOSE: Soft Inflation Makes ECB October Cut The Base Case
European yields fell Friday as global inflation data proved softer-than-expected.
- French flash September HICP came in 0.4pp below consensus at 1.5% Y/Y, with the M/M CPI print of -1.2% the lowest since the series began in 1990 as services prices softened sharply. Spanish core CPI came in 0.4pp below expected at 2.4% Y/Y, with headline HICP 0.2pp below survey at 1.9%.
- US August PCE price data surprised on the downside as well, helping maintain positive momentum in Global FI in European afternoon trade.
- A 25bp rate cut at the October ECB meeting is now 80% market-implied, vs around 60% coming into the day and 20% coming into the week. Multiple sell-side analysts revised their ECB calls to include an October cut.
- The German curve leaned bull steeper on the day, with the UK's bull flattening. Periphery EGB spreads widened moderately; OATs outperformed with spreads in 1+bp vs Bunds, mitigating some of the week's prior underperformance.
- Given the dovish implications of today's country-level data, the German and Italian inflation prints will be in close focus Monday for corroboration on the Eurozone-wide print.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 4.6bps at 2.084%, 5-Yr is down 4.6bps at 1.961%, 10-Yr is down 4.4bps at 2.139%, and 30-Yr is down 3.2bps at 2.47%.
- UK: The 2-Yr yield is down 1.4bps at 3.949%, 5-Yr is down 1.7bps at 3.834%, 10-Yr is down 2.2bps at 3.988%, and 30-Yr is down 1.5bps at 4.585%.
- Italian BTP spread up 1.4bps at 131.4bps / Spanish up 0.9bps at 79.1bps
FOREX
The greenback erased mid-week losses to head through Friday broadly flat, but a softer-than-expected set of Personal income/spending and PCE numbers put the dollar on the backfoot through to the Friday close. This countered mid-week month-end tied corporate demand which, once faded, leaves support at the 100.215 level exposed. Next week's ISM numbers and the NFP report should prove key for short-term momentum.
MONDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 30/09/2024 | 0945 | *** | Sep | MNI Chicago PMI | 46.1 | 46.4 | |
| 30/09/2024 | 1030 | ** | Sep | Dallas Fed manufacturing index | -9.7 | -10.6 | |
| 30/09/2024 | 1130 | * | 04-Oct | Bid to Cover Ratio | -- | -- | |
| 30/09/2024 | 1130 | * | 04-Oct | Bid to Cover Ratio | -- | -- | |
| 30/09/2024 | 1200 | ** | 16/17 | All Wheat | -- | -- | (m) |
| 30/09/2024 | 1200 | ** | 16/17 | Cornstocks | -- | -- | (m) |
| 30/09/2024 | 1200 | ** | 16/17 | Soybeans | -- | -- | (m) |