EXECUTIVE SUMMARY
- MNI: Fed's Musalem Says Upside Inflation Risks Have Risen
- MNI BRIEF: Larger Deficits Could Mean Higher Fed Rates-Schmid
- MNI: Fed Should Proceed Cautiously Toward Neutral Rate - Logan
- MNI US DATA: Housing Ticks Up, But Supercore Weighed By Volatile Category Downside
- MNI US DATA: In-Line CPI Doesn't Appear To Sway PCE Much, PPI Awaited
US
MNI: Fed's Musalem Says Upside Inflation Risks Have Risen
St. Louis Fed President Alberto Musalem said Wednesday he supports further interest rate cuts if inflation keeps falling, but added the risks that it doesn't have risen even as the labor market stays healthy. "Further easing toward a neutral policy stance will be appropriate to support employment if inflation continues to converge toward 2%," Musalem said in describing his base case scenario. However, "recent information suggests to me that the risk of inflation ceasing to converge toward 2%, or moving higher, has risen, while the risk of an unwelcome deterioration in the labor market has remained unchanged or possibly fallen."
MNI BRIEF: Larger Deficits Could Mean Higher Fed Rates-Schmid
Kansas City Fed President Jeff Schmid on Wednesday repeated that even as the supply of government debt has jumped and is expected to continue growing at a very rapid rate it will not be inflationary because the central bank will achieve its 2% inflation objective. "As I said in May, large fiscal deficits will not be inflationary because the Fed will do its job and achieve its inflation objective, though in doing so, the outcome could be persistently higher interest rates," Schmid said in prepared remarks.
MNI: Fed Should Proceed Cautiously Toward Neutral Rate - Logan
Federal Reserve Bank of Dallas President Lorie Logan on Wednesday said the central bank will most likely need more rate cuts to finish the journey to sustainably deliver both maximum employment and stable prices, but it’s difficult to be sure how many cuts may be needed and how soon they may need to happen. The FOMC "has made a great deal of progress bringing down inflation and restoring balance to the economy," she said in prepared remarks noting her support for recent interest rates cuts.
NEWS
MNI US-CHINA: Biden To Meet Xi On Margins Of APEC Summit In Peru
US President Joe Biden will meet Chinese President Xi Jinping on the margins of the APEC summit in Peru on Saturday, Nov. 14, according to a senior Biden administration official. The official didn't elaborate on what Biden might discuss with Xi but relations with Russia and bilateral efforts to reduce narcotics trafficking are likely to be high on the agenda. The meeting is likely to be the last between the pair before US President-elect Donald Trump assumes office on January 20, 2025.
MNI US: Thune Elected Republican Senate Leader
Senator John Thune (R-SD) has been elected leader of the Senate Republican caucus, defeating senators Rick Scott (R-FL) and John Cornyn (R-TX) in two rounds of secret ballot voting. In January 2025, when lawmakers return to Washington for the 119th Congress, Thune will assume the role of Senate Majority Leader. He will be tasked with rallying support for President-elect Trump's legislative agenda in the upper chamber and setting the agenda for executive and judicial branch nominations.
US TSYS
MNI US TSYS: Curves Reverse Course After In-Line October CPI, Supercore Softer
Treasuries reversed course early Wednesday as in-line October CPI inflation data rekindled dovish policy expectations into early 2025. Curves twisted steeper, 2s10s bouncing off early low of 5.586 to 16.573 (+8.254) in late trade. Tsy Dec'24 10Y futures are currently steady at 109-13.5 in late trade after initially climbing to 109-30.5 high this morning. Short end rates outperformed as projected rate cuts into early 2025 gained vs. early Wednesday levels (*) : Dec'24 cumulative -20.6bp (-15.5bp), Jan'25 -29.1bp (-23.0bp), Mar'25 -43.5bp (-35.1bp), May'25 -50.4bp (-41.3bp).
- Core CPI was exactly as expected at 0.35%, and basically unchanged from September (0.35%). However, supercore (core services ex housing) came in on the soft side at 0.31% vs 0.39% expected, 0.40% prior. While most of the contributions to PCE come from the CPI report, the bulk of the remainder (including healthcare services, airfares, and portfolio mgmt) will come from Thu's PPI report.
- More Fed speak: St. Louis Fed President Alberto Musalem said Wednesday he supports further interest rate cuts if inflation keeps falling, but added the risks that it doesn't have risen even as the labor market stays healthy.
- Dallas Fed Logan on said the central bank will most likely need more rate cuts to finish the journey to sustainably deliver both maximum employment and stable prices, but it’s difficult to be sure how many cuts may be needed and how soon they may need to happen.
DATA
MNI US DATA: In-Line CPI Doesn't Appear To Sway PCE Much, PPI Awaited
We'll update on analysts' revised expectations for October's PCE price release following today's CPI inputs. Coming into today, October core PCE looked to come in the mid-0.20s (MNI median 0.24%). As far as the detail of the CPI release is concerned, it's unlikely to change many minds on the PCE outcome, and core PCE M/M looks very likely to print below core CPI (0.28%) for the 3rd consecutive month and 10th in the last 13. Recall that while most of the contributions to PCE come from the CPI report, the bulk of the remainder (including healthcare services, airfares, and portfolio management) will come in Thursday's PPI report.
MNI US DATA: Housing Ticks Up, But Supercore Weighed By Volatile Category Downside
For services, core was exactly as expected at 0.35%, and basically unchanged from September (0.35%). However, supercore (core services ex housing) came in on the soft side at 0.31% vs 0.39% expected, 0.40% prior. The key factors that help explain the in-line services but the softer supercore:
- Owners' Equivalent Rents and Primary Rents came in above expected, at 0.40% (0.33% expected, 0.33% prior) and 0.30% (0.28% expected, 0.28% prior) respectively. The magnitude of these surprises is not significant although overall it seems these categories are steadying out in the 0.3-0.4% M/M area.
- The supercore softness was largely down to volatile categories: lodging prices failed to rebound as much as expected (0.4% vs 1+% expected, -1.9% prior), while auto insurance surprisingly deflated (-0.1% vs 0.8% expected, 1.2% prior).
- Airfares unexpectedly accelerated to 3.2% (3.2% prior but a little lower unrounded; 0.7% expected).
- Meanwhile medical care services softened to 0.4% from 0.7% in September. Some had seen an acceleration in October, also helping explain part of the softness in supercore versus expectations.
- Health insurance was non-volatile despite the the semi-annual data benchmarking taking place this month - rising 0.5% M/M vs 0.4% prior.
MNI US DATA: Core Goods CPI Unexpectedly Decelerates On Apparel, New Cars
Looking more closely at the core categories, the big surprise here is that core goods CPI failed to accelerate as much as had been expected, coming in at 0.05% M/M (vs expectations of 0.23% and a deceleration from September's 0.17% reading).
- That's despite Used Cars - one of the closely watched categories this month - coming in much higher than expected at 2.7% (vs 2.3% median, 0.3% prior).
- The category appears to have been dragged down by new vehicles (just below zero, vs 0.2% in September), and apparel (more than reversing September's 1.1% spike, with a -1.5% drop). Household furnishing looks to have been a factor as well (-0.1%)
- These are all volatile categories so shouldn't unduly influence the reading of the report as a whole. Still, this is the first back-to-back rise in core goods CPI since April-May 2023.
MNI US DATA: Headline CPI Higher Than Expected On Energy; Core Bit Softer vs Survey
October Core CPI comes in a little lower than expected (0.28% M/M vs 0.30% MNI median) with supercore below expected (0.31% M/M vs 0.39% MNI median), but notably headline CPI was if anything a little stronger than expected (0.24% vs 0.20% median).
- The latter is due to energy prices which came in stronger than expected (flat M/M vs -0.6% to -0.9% expected), with gasoline CPI a little higher than anticipated. Food prices were more or less in line at 0.16% M/M. See table.
MNI US DATA: CPI Core & Supercore Latest Trends
Core CPI (SA)
- % M/M: 0.28 in Oct '24 after 0.312 in Sep'24
- % 3mth ar: 3.6 in Oct '24 after 3.1 in Sep'24
- % 6mth ar: 2.6 in Oct '24 after 2.6 in Sep'24
CPI Core Services Non-Housing (SA)
- % M/M: 0.314 in Oct '24 after 0.404 in Sep'24
- % 3mth ar: 4.3 in Oct '24 after 3.8 in Sep'24
- % 6mth ar: 2.4 in Oct '24 after 2.6 in Sep'24
US MBA: MARKET COMPOSITE +0.5% SA THRU NOV 08 WK
US MBA: REFIS -2% SA; PURCH INDEX +2% SA THRU NOV 8 WK
US MBA: UNADJ PURCHASE INDEX +1% VS YEAR-EARLIER LEVEL
US MBA: MARKET COMPOSITE +0.5% SA THRU NOV 08 WK
US MBA: 30-YR CONFORMING MORTGAGE RATE 6.86% VS 6.81% PREV
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 87.14 points (0.2%) at 43997.32
S&P E-Mini Future up 5.75 points (0.1%) at 6018.5
Nasdaq down 26.3 points (-0.1%) at 19254.35
US 10-Yr yield is up 2.2 bps at 4.4492%
US Dec 10-Yr futures are steady at at 109-13.5 at 109-13.5
EURUSD down 0.006 (-0.56%) at 1.0563
USDJPY up 0.96 (0.62%) at 155.57
WTI Crude Oil (front-month) down $0.08 (-0.12%) at $68.03
Gold is down $23.53 (-0.91%) at $2574.94
European bourses closing levels:
EuroStoxx 50 down 4.35 points (-0.09%) at 4740.34
FTSE 100 up 4.56 points (0.06%) at 8030.33
German DAX down 30.53 points (-0.16%) at 19003.11
French CAC 40 down 10.15 points (-0.14%) at 7216.83
US TREASURY FUTURES CLOSE
3M10Y +5.259, -6.148 (L: -21.111 / H: -5.162)
2Y10Y +8.661, 16.98 (L: 5.586 / H: 17.203)
2Y30Y +13.335, 35.634 (L: 17.657 / H: 35.857)
5Y30Y +8.43, 33.631 (L: 21.661 / H: 33.729)
Current futures levels:
Dec 2-Yr futures up 3.375/32 at 102-22.5 (L: 102-17.25 / H: 102-24.625)
Dec 5-Yr futures up 2.75/32 at 106-18.75 (L: 106-12.5 / H: 106-27.75)
Dec 10-Yr futures up 0.5/32 at 109-14 (L: 109-09 / H: 109-30.5)
Dec 30-Yr futures down 14/32 at 115-28 (L: 115-22 / H: 117-11)
Dec Ultra futures down 39/32 at 122-1 (L: 121-28 / H: 124-18)
MNI US 10YR FUTURE TECHS: (Z4) Trend Needle Points South
- RES 4: 112-22 High Oct 16 and a key short-term resistance
- RES 3: 111-29 50-day EMA
- RES 2: 111-14+ High Oct 25
- RES 1: 110-25 20-day EMA
- PRICE: 109-14 @ 11:11 GMT Nov 13
- SUP 1: 109-07 Low Nov 6 and the bear trigger
- SUP 2: 109-05 76.4% retracement of the Apr - Sep bull cycle (cont)
- SUP 3: 109-00 Round number support
- SUP 4: 108-15 2.0% 10-dma envelope
The trend in Treasuries is unchanged and the needle points south with the contract trading closer to its recent lows Furthermore, recent weakness reinforces a bearish condition and note that MA studies are in a bear-mode set-up, highlighting a clear downtrend. Sights are on 109-05 next, the 76.4% retracement of the Apr - Sep bull cycle (cont). The 109-00 handle remains exposed too. Initial firm resistance is seen at 110-25, the 20-day EMA.
SOFR FUTURES CLOSE
Dec 24 +0.060 at 95.615
Mar 25 +0.095 at 95.850
Jun 25 +0.110 at 96.020
Sep 25 +0.095 at 96.10
Red Pack (Dec 25-Sep 26) +0.030 to +0.075
Green Pack (Dec 26-Sep 27) -0.005 to +0.015
Blue Pack (Dec 27-Sep 28) -0.015 to -0.005
Gold Pack (Dec 28-Sep 29) -0.025 to -0.015
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00879 to 4.60769 (-0.03552 total last wk)
- 3M +0.00063 to 4.51680 (-0.03812 total last wk)
- 6M +0.01153 to 4.41260 (-0.01091 total last wk)
- 12M +0.02088 to 4.23960 (+0.02768 total last wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.60% (+0.00), volume: $2.298T
- Broad General Collateral Rate (BGCR): 4.58% (+0.01), volume: $822B
- Tri-Party General Collateral Rate (TGCR): 4.58% (+0.01), volume: $788B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $101B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $294B
FED Reverse Repo Operation
RRP usage climbs back over $200B to $238.106B from $178.814B Tuesday. Compares to $144.243B on Tuesday, November 5 -- the lowest since May 6, 2021. The number of counterparties rises to 66 from 59 prior.
MNI PIPELINE: $2B China 2Pt US$ Debt Issuance Launched
- Date $MM Issuer (Priced *, Launch #)
- 11/13 $2B #People's Republic of China $1.25B 3Y +1, $750M 5Y +3
- 11/13 $Benchmark BP Capital PerpNC10 6.375%a
- 11/13 $Benchmark Swedbank 5Y +90a, 5Y SOFR
- 11/13 $Benchmark BNY Mellon 11NC10 +100a
- 11/13 $Benchmark Bank of NY Mellon 11NC10 +100a
- 11/13 $Benchmark Huntington Ingalls Industries 5Y +140a, 10Y +165a
- 11/13 $Benchmark Gilead 5Y +75a, +10Y +95a, 30Y +115a, 40Y +125a
- 11/13 $Benchmark Cardinal Health 2Y +65a, 5Y +90a, 10Y +120a, 30Y +140a
MNI BONDS: EGBs-GILTS CASH CLOSE: Bunds Underperform Gilts, UK Short End Gains
Bunds underperformed Gilts Wednesday, with periphery EGB spreads tightening.
- Core EGBs traded with little clear direction in the morning session. Gilts and Bunds jumped alongside Treasuries in the early European afternoon on a slightly softer-than-expected US CPI report.
- But that would mark the high point of the day, with European yields rising again as the US dollar gained ground on speculation president-elect Trump would install a more pro-tariff Treasury Secretary than had previously been anticipated. Bund and Gilt futures hit session lows after the cash close.
- The UK short-end was a notable outperformer across the curves, with about 1-2bp of BOE cuts added to the path over the next year, despite BoE hawk Mann earlier stressing that inflation has not been vanquished.
- ECB speakers Nagel and Villeroy noted the negative impact US tariffs would have on Eurozone growth.
- The German curve leaned bear flatter, with underperformance in the belly; the UK curve twist steepened. Periphery EGB spreads tightened led by BTPs, as equities regained ground late in the session.
- Thursday's calendar includes the second reading of Eurozone Q3 GDP (including productivity data), with appearances by BoE's Bailey and Mann, and ECB's Guindos and Schnabel, along with the accounts of the ECB's October meeting.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 3.3bps at 2.165%, 5-Yr is up 3.5bps at 2.219%, 10-Yr is up 2.8bps at 2.39%, and 30-Yr is unchanged at 2.573%.
- UK: The 2-Yr yield is down 1.2bps at 4.486%, 5-Yr is up 0.6bps at 4.411%, 10-Yr is up 2.1bps at 4.52%, and 30-Yr is down 0.2bps at 4.911%.
- Italian BTP spread down 3.9bps at 124bps / Spanish down 2.7bps at 72.6bps.
MNI FOREX: Greenback Shrugs Off Weak US Supercore CPI, USD Index at 2024 Highs
- Despite the softer-than-expected US supercore inflation data and front-end treasury yields declining, weakness for the greenback was extremely short-lived. The underlying dollar optimism continues to prevail and has resulted in the USD index rising to the highest levels of the year around 106.50.
- For EURUSD (-0.58%), this translated in a sharp move lower through the 1.06 handle, extending as low as 1.0553 and continuing to signal scope for a more protracted move lower towards 1.0448, the 2023 lows.
- While we would not rule out EURCHF following suit on broader Eurozone growth concerns and tariff risks, we would highlight that areas between 0.9250-0.9350 might attract the attention of the SNB. Therefore, with the EURCHF downside potentially capped, USDCHF could well be a better way to capture the next leg higher in the dollar.
- USDCHF has rallied above an influential pivot point at 0.8820, the most notable short-term target and exponential moving average indicators highlight a bull trend. Medium-term attention now turns to 0.9050 and the key resistance zone between 0.9224/44.
- Similarly, USDJPY (+0.56%) eventually joined the broader greenback reversal and has printed the highest level since July in the process, reaching a fresh recovery peak of 155.43. Clearance of 155.27 (Fibonacci projection) bolsters this theme and signals scope for a more substantial move to 156.67 and 157.86, the Jul 19 high. BoJ policy and the FX approach of the Japanese authorities becomes key here, with markets re-entering levels at which the Japanese authorities intervened in currency markets.
- USDCAD rose above the 2022 highs of 1.3977, briefly printing a new four and half year high of 1.3999. Today’s appreciation represents a breach of a key medium-term resistance point with eyes now on next Tuesday’s October inflation report as the next important input for the Bank of Canada.
- Potential comments from RBA Governor Bullock and Australian employment data will headline the APAC calendar on Thursday. Focus then turns to jobless claims and PPI data in the US.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 14/11/2024 | 0700/0800 | *** |  SE | Inflation Report |
| 14/11/2024 | 0800/0900 | *** |  ES | HICP (f) |
| 14/11/2024 | 0830/0930 |  EU | ECB's De Guindos remarks at event organised by ABC and Deloitte | |
| 14/11/2024 | 1000/1100 | *** | EU | GDP (p) |
| 14/11/2024 | 1000/1100 | ** | EU | Industrial Production |
| 14/11/2024 | 1200/0700 |  US | Fed Governor Adriana Kugler | |
| 14/11/2024 | 1230/1330 | EU | Publication of the ECB MonPol meeting account | |
| 14/11/2024 | - |  GB | Rachel Reeves’ debut Mansion House dinner speech as chancellor | |
| 14/11/2024 | 1300/1300 | GB | BOE's Mann at Revitalising the global economy event | |
| 14/11/2024 | 1330/0830 | *** | US | Jobless Claims |
| 14/11/2024 | 1330/0830 | *** | US | PPI |
| 14/11/2024 | 1415/0915 | US | Richmond Fed's Tom Barkin | |
| 14/11/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 14/11/2024 | 1600/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 14/11/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 14/11/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 14/11/2024 | 1830/1930 | EU | ECB's Schnabel in panel on "Reassessing policy tools" | |
| 14/11/2024 | 1900/1400 | *** |  MX | Mexico Interest Rate |
| 14/11/2024 | 2000/1500 | US | Fed Chair Jerome Powell | |
| 14/11/2024 | 2100/2100 | GB | BOE's Bailey speech at Mansion House | |
| 14/11/2024 | 2115/1615 | US | New York Fed's John Williams | |
| 15/11/2024 | 2350/0850 | *** |  JP | Japan GDP 1st Estimate |
| 15/11/2024 | 0200/1000 | *** |  CN | Fixed-Asset Investment |
| 15/11/2024 | 0200/1000 | *** | CN | Retail Sales |
| 15/11/2024 | 0200/1000 | *** | CN | Industrial Output |
| 15/11/2024 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |
| 15/11/2024 | 0430/1330 | ** | JP | Industrial Production |