EXECUTIVE SUMMARY
- MNI US: Harris Closes Gap To Trump On Dealing With Inflation
- MNI MIDEAST: Biden Says US & Israel Discussing Strikes On Iranian Oil Facilities
- MNI SECURITY: Tehran Promises "Unconventional Response" If Israel Attacks Iran
- MNI US DATA: Further Healthy Jobless Claims Data
- US DATA: ISM Services Jumps To Early 2023 Levels But Employment Sours
A new Cook Political Report swing state survey shows Harris leading or tied with Trump in all but one of the seven battleground states and with a lead of 49% to 48% in a two-way matchup. Cook notes: “Underneath the topline numbers, though, there have been some significant shifts, most notably Trump’s slipping advantage on his two strongest issues — inflation and immigration. However, Harris has seen some slippage of her own: as her lead among independent voters has shrunk from eight points this summer to two points in September.”
NEWS
MIDEAST: Biden Says US & Israel Discussing Strikes On Iranian Oil Facilities
US President Joe Biden, when questioned by reporters about the possibility of the US supporting Israeli strikes on Iranian oil facilities, says , "We’re discussing that." Comes after his comments on 2 Oct suggesting that Israeli strikes on Iranian nuclear sites in retaliation to the 1 Oct missile barrage directed at Israel would be a step too far.
SECURITY: Tehran Promises "Unconventional Response" If Israel Attacks Iran
Roi Kais at KAN reports on X that a senior Iranian official told Al Jazeera: "We sent a message to the US through Qatar that any Israeli attack would be met with an unconventional response that would also include infrastructure. The phase of unilateral restraint is over." Follows comments from Iranian President Masoud Pezeshkian yesterday: “We don't seek war but if Israel acts against us we will respond.” NYT reports: "Israel seems ready to respond in a much more forceful and public way with Iran after Tehran launched its second massive missile attack on Israel this year, analysts and officials say."
MIDEAST: Direct Confrontation Escalates As IDF Incursion Into Lebanon Grows
In a statement, Hezbollah has claimed that its fighters have 'confronted an attempt' by Israeli forces to advance into Lebanon at the Fatima Gate, a border crossing point at the northern tip of Israel. The land on the Israeli side of the border has been closed off by the military in preparation for a ground incursion. Amid the ongoing incursion by Israeli troops into southern Lebanon, and Hezbollah's continued rocket and drone attacks on Israel, the region remains in a state of nervous expectation as it awaits Israel's response to Iran's missile barrage unleashed earlier in the week.
MIDEAST: Israeli Airstrikes On Syria Close To Russian Base
As mentioned in an earlier bullet (see 'MIDEAST: Direct Confrontation Escalates As IDF Incursion Into Lebanon Grows', 0955BST) in the early hours Israel appears to have launched an airstrike on warehouses in western Syria close to the Russian air base at Hmeimim (also spelt Khmeimim). Initially, there were reports that the base had suffered direct hits, but Yaroslav Trofimov at WSJ posts on X "Israel reportedly struck a warehouse of Iranian and Syrian weapons ... in the town of Jableh near the main Russian base of Hmeimim in Syria. The base itself has not been touched, per Russian accounts, and the Russians apparently tried to shoot down Israeli missiles."
CHINA-EU: Hungary Threatens EV Tariff Veto Despite Only QMV Being Needed
(MNI) London - Wires carrying comments from Hungarian Foreign Minister Péter Szijjártó regarding tomorrow's EU vote on imposing permanent tariffs on Chinese-made electric vehicles. Szijjarto says that the tariff plans are "harmful and dangerous", and could "ritually kill European competitiveness". Claims that the tariffs would go against the interest of European car makers. Hungary has become one of the most vocal cheerleaders for China in the EU, running counter to Brussels' efforts to 'de-risk' its economy and supply chains by shifting focus away from trade and investment with Beijing.
US TSYS: Near One Month Lows Ahead September Jobs Report
- Treasuries are trading near late session lows -- levels that have not been seen since early September in the lead up to Friday's headline jobs report. The TYZ4 10y futures contract is currently trading -15 at 113-30.5, below technical support of 114-00.5 (Sep 4 low) with next level at 113-29.5 (50-day EMA).
- Rates have been under pressure since this morning's mixed data: Initial jobless claims increased to 225k (sa, cons 221k) in the week to Sep 28 after a slightly upward revised 219k (initial 218k). No sign of an impact from Hurricane Helene, which made landfall on the Florida Gulf Coast in the evening of Sep 26 to leave very little time to show in this week’s data. Florida NSA claims for example fell 1.1k to 6.45k.
- ISM Services were clearly stronger than expected with some genuinely strong readings for both prices paid and new orders but the decline in employment back into contractionary territory takes some of the gloss off an otherwise strong report. ISM Services: 54.9 (cons 51.7) in Sep after 51.5 in Aug and 51.4 in Jul for its highest since Feb’23. Prices paid: 59.4 (cons 56.0) after 57.3 – highest since Jan and back to the 59.3 averaged in 2023. Employment: 48.1 (cons 50.0) after 50.2 for what had been two months above 50. It returns close to the 47.7 averaged in a disappointing string of readings through 1H24.
- Focus on Friday's headline nonfarm payrolls where growth is seen accelerating marginally to 150k in September after the weaker than expected 142k in August, although some analysts look for an upward revision to August owing to a strong tendency to initially undercount in that month.
OVERNIGHT DATA
US DATA: ISM Services Jumps To Early 2023 Levels But Employment Sours
ISM Services were clearly stronger than expected with some genuinely strong readings for both prices paid and new orders but the decline in employment back into contractionary territory takes some of the gloss off an otherwise strong report.
- ISM Services: 54.9 (cons 51.7) in Sep after 51.5 in Aug and 51.4 in Jul for its highest since Feb’23.
- Prices paid: 59.4 (cons 56.0) after 57.3 – highest since Jan and back to the 59.3 averaged in 2023. It’s corroborated by PMI services input cost inflation at the joint-fastest in the past year and output price inflation at six-month highs.
- New orders: Particularly strong at 59.4 (cons 52.5) after 53.0 for the highest since Feb’23 for an impressive turnaround from the 47.3 of June.
- Employment: 48.1 (cons 50.0) after 50.2 for what had been two months above 50. It returns close to the 47.7 averaged in a disappointing string of readings through 1H24.
- Note the low Bloomberg survey responses for individual components (5 for prices paid and 3 for employment and new orders vs 59 for the headline index) so we focus on latest changes rather than surprises for those categories.
US DATA: Manufacturing Continues To Stagnate, In Contrast To Services
August factory orders data confirmed ongoing weakness in the US manufacturing sector, as widely flagged by contractionary survey data (ISM Manufacturing, MNI Chicago PMI). Headline factory orders contracted by 0.2% M/M (vs expectations of 0.1% growth; +4.9% prior rev down 0.1pp), with ex-transportation orders likewise unexpectedly contracting (by 0.1%, vs +0.2% expected and +0.3% prior rev down 0.1pp).
- A pullback was largely to be expected after such a strong July, which in turn was due to outsized aircraft orders (ex-transport factory orders merely moderated by comparison). But this was the 3rd contraction for factory orders in the past 4 months, with the 3M/3M annualized rate remaining in contractionary territory at -1.7%. Overall factory orders are only modestly little higher than they were this time a year earlier on a seasonally-adjusted basis.
- The Durable/Capital goods portion of the report largely confirmed the preliminary prints in the final reading (though core capital goods orders were nudged up 0.1pp to +0.3% M/M) - they too are largely flatlining overall.
- In short, nothing in today's data suggests that a re-acceleration in manufacturing activity is underway. The strong ISM Services reading that came out alongside served as a reminder that it's non-manufacturing sectors - particularly services consumption/production - that have been underpinning growth for most of this year.
US DATA: Final Service PMIs Revised Lower But Growth Still Solid
Downward revisions to the final S&P Global US services/composite PMI for September don’t materially alter readings that continue to imply solid economic growth whilst revealing firmer price pressures, although confidence dropped markedly. Full press release here. Services PMI: 55.2 (cons & prelim 55.4) in Sept after 55.7 in Aug; Composite PMI: 54.0 (cons & prelim 54.4) after 54.6.
US DATA: Further Healthy Jobless Claims Data
- Initial jobless claims increased to 225k (sa, cons 221k) in the week to Sep 28 after a slightly upward revised 219k (initial 218k).
- No sign of an impact from Hurricane Helene, which made landfall on the Florida Gulf Coast in the evening of Sep 26 to leave very little time to show in this week’s data. Florida NSA claims for example fell 1.1k to 6.45k.
- The four-week average actually dipped another 1k to 224k for a fresh low since May. It is close to the 218k averaged in 2019.
- Continuing claims meanwhile inched lower to 1826k (sa, cons 1830k) in the week to Sep 21 for healthy consolidation after a downward revised 1827k (initial 1834k). It extends a reasonable pull back away from recent highs of 1871k that had been the highest since Nov 2021.
- The prior week’s downward revision meant 1827k compared more favorably still to the 1860k for the payrolls reference period for Aug and 1844k for July.
US DATA: Challenger Hiring Announcements Underwhelm In Key Month
- Challenger hiring announcements for September also tally with dovish implications from the layoff data.
- September is by far the most important month for hiring announcements in these non-seasonally adjusted, and whilst the 404k sounds huge compared to 6k in Aug and the 80k accumulated through Jan-Aug, it disappoints compared to the 590k of Sep ’23 (-32% Y/Y).
- It surpasses the 380k of Sep’22 although that was an unusual month which was followed by an uncharacteristically large 237k in October suggesting slightly different seasonal announcements that year.
- For a pre-pandemic comparison, it’s smaller than the 460k of Sep’19 and 596k of Sep’18.
CANADA DATA: Services PMI Slips Further To Contradict Mfg Improvement
- "*CANADA S&P GLOBAL SEPT. SERVICES PMI AT 46.4 VS 47.8 PRIOR
- *CANADA S&P GLOBAL SEPT. COMPOSITE PMI AT 47 VS 47.8 PRIOR" - bbg
- The press release details the extent of deteriorating performance: "The performance of Canada’s services economy continued to deteriorate during September, with activity and new business declining at accelerated rates. Weak underlying demand was reported as clients remained reticent to commit to new contracts given geopolitical uncertainty and expectations of lower interest rates. Amid further evidence of spare capacity in the sector, employment declined at an accelerated rate.”
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 231.92 points (-0.55%) at 41964.22
S&P E-Mini Future down 17.25 points (-0.3%) at 5742.75
Nasdaq down 34.3 points (-0.2%) at 17890.1
US 10-Yr yield is up 6.3 bps at 3.8439%
US Dec 10-Yr futures are down 14.5/32 at 113-31
EURUSD down 0.0015 (-0.14%) at 1.103
USDJPY up 0.33 (0.23%) at 146.8
WTI Crude Oil (front-month) up $3.77 (5.38%) at $73.88
Gold is down $0.4 (-0.02%) at $2658.22
European bourses closing levels:
EuroStoxx 50 down 41.96 points (-0.85%) at 4921.33
FTSE 100 down 8.34 points (-0.1%) at 8282.52
German DAX down 149.34 points (-0.78%) at 19015.41
French CAC 40 down 99.81 points (-1.32%) at 7477.78
US TREASURY FUTURES CLOSE
3M10Y +6.616, -74.981 (L: -82.184 / H: -74.406)
2Y10Y +0.313, 13.851 (L: 12.717 / H: 15.601)
2Y30Y -1.086, 47.35 (L: 45.791 / H: 49.957)
5Y30Y -2.188, 55.293 (L: 54.286 / H: 57.842)
Current futures levels:
Dec 2-Yr futures down 4.375/32 at 104-0 (L: 103-31.25 / H: 104-04.25)
Dec 5-Yr futures down 10.25/32 at 109-21 (L: 109-19.25 / H: 109-31.25)
Dec 10-Yr futures down 15/32 at 113-30.5 (L: 113-28.5 / H: 114-14.5)
Dec 30-Yr futures down 25/32 at 123-16 (L: 123-13 / H: 124-11)
Dec Ultra futures down 1-01/32 at 132-1 (L: 131-31 / H: 133-04)
US 10YR FUTURE TECHS: (Z4) Corrective Cycle Remains In Play
- 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: 114-07+ @ 11:12 BST Oct 3
- SUP 1: 114-07 Low Sep 26 & Oct 2
- SUP 2: 114-00+ Low Sep 4
- SUP 3: 113-29+ 50-day EMA
- SUP 4: 113-12 Low Sep 3 and a key support
Treasuries are trading just above their recent lows. The corrective cycle that started Sep 11, remains in play suggesting potential for an extension lower near-term. Sights are on the next key support at 113-29+, the 50-day EMA. Clearance of this EMA would expose 113-12, the Sep 3 low. The overarching trend condition is bullish and MA studies are in a bull-mode set-up. A resumption of gains would refocus attention on 115-24+, the Sep 11 high.
SOFR FUTURES CLOSE
Dec 24 -0.035 at 95.930
Mar 25 -0.080 at 96.40
Jun 25 -0.10 at 96.685
Sep 25 -0.090 at 96.850
Red Pack (Dec 25-Sep 26) -0.075 to -0.07
Green Pack (Dec 26-Sep 27) -0.075 to -0.07
Blue Pack (Dec 27-Sep 28) -0.07 to -0.065
Gold Pack (Dec 28-Sep 29) -0.07 to -0.06
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00578 to 4.85077 (+0.00667/wk)
- 3M -0.00852 to 4.58972 (-0.00363/wk)
- 6M -0.00900 to 4.27362(+0.01177/wk)
- 12M +0.01546 to 3.83337 (+0.05029/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.92% (-0.13), volume: $2.426T
- Broad General Collateral Rate (BGCR): 4.87% (-0.05), volume: $816B
- Tri-Party General Collateral Rate (TGCR): 4.87% (-0.05), volume: $777B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $81B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $204B
FED Reverse Repo Operation
RRP usage falls to $341.248B this afternoon from $383.398B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties at 57 from 67 prior.
PIPELINE
Corporate Issuance Roundup: $5.1B To Price Thursday
- Date $MM Issuer (Priced *, Launch #)
- 10/03 $1.5B #National Bank of Canada 5Y +92
- 10/03 $1.5B #Kazakhstan +10Y +88
- 10/03 $600M #Athene Global Funding 5Y +110
- 10/03 $500M #Apollo Global 30NC10 6%
- 10/03 $500M #McCormick & Co WNG 10Y +90
- 10/03 $500M Ooredoo Int Finance WNG 10Y +95
EGBS
BONDS: EGBs-GILTS CASH CLOSE: Bailey Dovishness Spurs UK Steepening
Gilts outperformed EGBs Thursday in a steepening move on the UK curve.
- The session started on a very dovish note for the UK short end as BoE Gov Bailey said in an interview that the bank could be a "bit more aggressive" and a "bit more activist" on rate cuts.
- Bailey's comments added to perceived potential for back-to-back cuts in Nov and Dec, and there are now ~44bp of reductions priced through the latter meeting vs ~37bp at Wednesday's close. (In contrast, ECB pricing was relatively unchanged.) DMP data, while it didn't garner nearly the same degree of market reaction, was notable for showing softening in realised UK employment growth. It's unlikely to signal panic on the MPC at this stage though.
- While Gilt gains would pull back from extremes, particularly in mid-afternoon on a much stronger than expected US ISM Services report, they would bounce again toward the cash close and easily outperformed EGBs on the day.
- Indeed, EGBs performed poorly with renewed OAT spread widening (10Y/Bund +2.5bp) amid heavy French and Spanish supply. The belly underperformed on the German curve, with yields up around 4-5bp throughout; periphery EGB spreads tightened slightly.
- The focus of Friday's schedule will be a morning appearance by BoE's Pill, eyed for any corroboration of Bailey's perceived dovishness. We also get some Eurozone industrial production data, and Italian retail sales/budget readings, as well as multiple ECB speakers (incl Villeroy).
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 4.1bps at 2.081%, 5-Yr is up 5.3bps at 1.974%, 10-Yr is up 5.2bps at 2.144%, and 30-Yr is up 4.7bps at 2.463%.
- UK: The 2-Yr yield is down 4.8bps at 3.969%, 5-Yr is down 3bps at 3.865%, 10-Yr is down 0.9bps at 4.016%, and 30-Yr is up 0.4bps at 4.598%.
- Italian BTP spread up 1bps at 133.9bps / Spanish down 0.5bps at 78.8bps
FRIDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 04/10/2024 | 0830 | *** | Sep | Average Hourly Earnings y/y, current month | 3.8 | 3.7 | % |
| 04/10/2024 | 0830 | *** | Sep | Average Hourly Earnings, m/m | 0.4 | 0.3 | % |
| 04/10/2024 | 0830 | *** | Sep | Average Workweek, All Workers | 34.3 | 34.3 | hrs |
| 04/10/2024 | 0830 | *** | Sep | Nonfarm Payrolls | 142.0 | 130.0 | (k) |
| 04/10/2024 | 0830 | *** | Sep | Prev Nonfarm Payrolls, Rev | -- | -- | (k) |
| 04/10/2024 | 0830 | *** | Sep | Private Payrolls | 118.0 | 110.0 | (k) |
| 04/10/2024 | 0830 | *** | Sep | Unemployment Rate | 4.2 | 4.2 | % |