EXECUTIVE SUMMARY
- MNI FED: KC's Schmid: Current Rates Aren't "Overly Restrictive"
- MNI: Higher Productivity, Deficits Boost Rates - Fed's Schmid
- MNI US DATA: Signs Of Storm Disruption In October State Payrolls Data
- MNI US DATA: Housing Starts See Q4 GDPNow Tick Up To Highest Since Nonfarm Payrolls
- MNI US DATA: 29 States Saw Payrolls Decline In October, But With Another Caveat
US
MNI FED: KC's Schmid: Current Rates Aren't "Overly Restrictive"
KC Fed President Schmid - one of the more hawkish members of the FOMC - delivered a speech with the same content as last week's ("Longer-term Considerations for Growth and Monetary Policy" - PDF link) and as the title implies, limited specifics about near-term monetary policy. He repeats: "While now is the time to begin dialing back the restrictiveness of monetary policy, it remains to be seen how much further interest rates will decline or where they might eventually settle."
- In Q&A he notes (per wires) that short-term rates are not currently "overly restrictive", and it's not his expectation that pre-pandemic rates will return.
- Schmid also notes that to the extent that they impact employment and inflation, changes in tariff and immigration policies will be relevant to the Fed - though until policy is enacted, it's not important to the Fed's discussions. (In his speeches this month he'd noted that larger fiscal deficits in general could translate into higher interest rates).
- While Schmid is considered a hawk, he doesn't sound particularly predisposed to a "skip" in December - though note that he is a 2025 Voter and is probably eyeing a neutral rate closer to 4% than to 3%.
- The highlights of the week's remaining Fedspeak include Gov Cook Wednesday, and Schmid's fellow 2025 voter (and likely hawk) Cleveland Fed Pres Hammack on Thursday.
MNI: Higher Productivity, Deficits Boost Rates - Fed's Schmid
Faster productivity growth and expanding federal deficits boost interest rates over time, while an aging U.S. population exerts a downward force on borrowing costs, creating uncertainty over where the Federal Reserve should set rates over the longer term, Kansas City Fed President Jeff Schmid said Tuesday. The FOMC has lowered its benchmark fed funds rate 75 bps from its post-Covid peak this year as it's grown confident that inflation is on a path back to 2%, he noted, but officials are uncertain where rates will settle in the long run.
NEWS
MNI US: No Changes In Core Leadership Team Expected In House Democrat Elections
House Democrats will hold internal leadership elections today, with little change expected to the core leadership team. House Minority Leader Hakeem Jeffries (D-NY), Minority Whip Katherine Clark (D-MA), and Caucus Chair Pete Aguilar (D-NY) are all running unopposed despite Democrats' failure to recapture control of the House.
MNI SECURITY: US Off.-Russia Has Been 'Signalling Nuclear Intentions' For Some Time
For the first time, some comments emerging from the US side regarding the escalating rhetoric after Russian President Vladimir Putin confirmed changes to his country's 'nuclear doctrine', setting out the parameters for the use of nuclear weapons. Wires reported an unnamed Biden administration official saying that the 'US is not surprised by Russia's nuclear announcement', says 'Russia has been signalling [its] nuclear intentions [for some time]' and that it is 'more of the same irresponsible Russian rhetoric'.
MNI US-RUSSIA: US Will Not Adjust Its Nuclear Posture In Response To Russian Change
US State Department Spokesperson Matthew Miller has told reporters that the US has "seen no reason" to adjust its nuclear posture following Russian President Vladimir Putin's move to revise Russia's nuclear doctrine; a response to US President Joe Biden's decision to allow Ukraine to use US-supplied long-range missiles to strike targets within the Russian Federation. Miller says that the US is not surprised by the new nuclear doctrine and calls on Russia to, "stop bellicose and irresponsible rhetoric."
MNI ITALY: Blow To PM As Centre-Right Loses Control Of Umbria
PM Giorgia Meloni's centre-right/right coalition suffered a rare electoral setback on 18 Nov with the loss of control of the central region of Umbria. Parties supportive of Meloni also lost ground in the northern region of Emilia-Romagna, although this is less of a blow given the region's long-standing links to Italy's left-wing parties.
MNI IRAN: IAEA-Iran Agrees To Stop Producing Near-Weapons Grade Uranium
Wires reporting that the International Atomic Energy Agency (IAEA) has said Iran has agreed to halt production of near-weapons grade uranium, as well as allowing 'experienced inspectors' from the UN body to verify these promises. IAEA claims that it verified on 16 Nov that Iran has already started preparatory measures to stop the increase of its 60% enriched uranium stockpile. As Bloomberg reports, "That material could quickly be upgraded to the 90% level typically used in nuclear weapons, prompting concern across Europe and the U.S."
US TSYS
MNI US TSYS: Projected Rate Cut Pricing Cools, Geopol Tension Buoys Bonds
- Treasuries looked to finish higher Tuesday, off early session highs, curves bull flattening (2s10s -2.160 at 10.995) with bonds outperforming.
- Heightened geopolitical tensions lent to an early bid in EGBs, Treasuries in tow after Ukraine launched US made long range missiles into Russia. The Kremlin have formally approved a further tweak to their nuclear doctrine, allowing for use of nuclear weaponry in the case of long-range missiles used to strike inside Russian territory.
- Risk-off support moderated as the session wore on, US State Department Spokesperson Matthew Miller told reporters that the US has "seen no reason" to adjust its nuclear posture following Russian President Vladimir Putin's move to revise Russia's nuclear doctrine.
- Short end rates receded in the second half, tempering projected rate cuts pricing into early 2025, KC Fed Schmid said "now is the time to dial back restrictiveness of policy". Schmid repeated "While now is the time to begin dialing back the restrictiveness of monetary policy, it remains to be seen how much further interest rates will decline or where they might eventually settle."
- As curves bull flattened, projected rate cuts into early 2025 receded vs. early morning levels (*) : Dec'24 cumulative -14.8bp (-15.4bp), Jan'25 -21.7bp (-24.0bp), Mar'25 -36.0bp (-39.5bp), May'25 -43.9bp (-48.2bp).
OVERNIGHT DATA
MNI US DATA: 29 States Saw Payrolls Decline In October, But With Another Caveat
The number of states seeing negative payrolls growth in October jumped to 29 from 14 in September and a three-month average of 20, for its highest share since July 2023.
- It suggests the surprisingly weak October print (12k vs cons 100k) was more than just a larger than expected weather impact (with six states most heavily affected), although this metric can be noisy having seen 24 states with negative jobs growth in July.
- However, only two states saw statistically significant declines on the month according to the BLS (Florida with -38k and Washington -35.9k, owing to weather and strike activity), which further advises caution in reading too much into this increase.
- Within the state-level release, the share of states that have triggered individual Sahm rules continues to broadly flatline, supporting the advice of fading its initial push higher late last year into early 2024.
MNI US DATA: Signs Of Storm Disruption In October State Payrolls Data
Clear signs of storm disruption in the state payrolls figures. As noted beforehand, beware adding the states up but multiple negative readings for those impacted by Helene & Milton, especially Florida at -38k.
MNI US DATA: Housing Starts See Q4 GDPNow Tick Up To Highest Since Nonfarm Payrolls
The October New Residential Construction report has counterintuitively pushed the Atlanta Fed's GDPNow estimate for residential investment in Q4 into positive territory.
- Real residential investment is now seen rising by 0.1% Q/Q annualized, vs -1.2% prior to the data (which showed starts falling more than expected, by -3.1%, at 1416k vs 1435k survey). Looking at the internal details, the Atlanta Fed model appears to expect a decreased drag from real private new housing construction over the quarter, with positive contribution from other factors including construction of manufactured homes and dormitories.
- That would mean a flat contribution to real GDP in Q4, after consecutive drags in Q2 (-0.1pp) and Q3 (-0.2pp).
- It also means the highest estimate for Q4 growth (2.6%) since the initial nowcast (2.7%) was dragged down (to 2.3%) by the below-expected October nonfarm payrolls data on Nov 1.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 127.83 points (-0.29%) at 43263.99
S&P E-Mini Future up 20 points (0.34%) at 5941
Nasdaq up 194.3 points (1%) at 18990.11
US 10-Yr yield is down 2.4 bps at 4.3903%
US Dec 10-Yr futures are up 5/32 at 109-25
EURUSD down 0.0001 (-0.01%) at 1.0596
USDJPY up 0.01 (0.01%) at 154.68
WTI Crude Oil (front-month) up $0.37 (0.54%) at $69.53
Gold is up $22.56 (0.86%) at $2634.26
European bourses closing levels:
EuroStoxx 50 down 39.1 points (-0.82%) at 4751.23
FTSE 100 down 10.3 points (-0.13%) at 8099.02
German DAX down 128.88 points (-0.67%) at 19060.31
French CAC 40 down 48.59 points (-0.67%) at 7229.64
US TRASURY FUTURES CLOSE
3M10Y -3.412, -14.172 (L: -19.652 / H: -12.51)
2Y10Y -1.948, 11.207 (L: 10.077 / H: 14.452)
2Y30Y -2.716, 30.073 (L: 28.805 / H: 34.773)
5Y30Y -0.998, 32.177 (L: 30.931 / H: 35.233)
Current futures levels:
Dec 2-Yr futures steady at 102-21.625 (L: 102-21.375 / H: 102-25.875)
Dec 5-Yr futures up 2.5/32 at 106-23.75 (L: 106-21 / H: 106-31.75)
Dec 10-Yr futures up 4.5/32 at 109-24.5 (L: 109-19 / H: 110-04.5)
Dec 30-Yr futures up 12/32 at 116-22 (L: 116-08 / H: 117-13)
Dec Ultra futures up 18/32 at 123-0 (L: 122-13 / H: 124-00)
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: 111-17+ 50-day EMA
- RES 2: 111-14+ High Oct 25
- RES 1: 110-12 20-day EMA
- PRICE: 109-30+ @ 11:21 GMT Nov 19
- SUP 1: 108-18+ 1.236 proj of the Oct 1 - 10 - 16 price swing
- SUP 2: 108-03 1.382 proj of the Oct 1 - 10 - 16 price swing
- SUP 3: 108-00 Round number support
- SUP 4: 107-19 2.0% 10-dma envelope
The trend outlook in Treasuries is unchanged, it remains bearish and the latest recovery appears corrective. Moving average studies are in a bear-mode set-up, highlighting a clear downtrend and bearish market sentiment. Sights are on 108-18+ next, a Fibonacci projection. Further out, the focus is on the 108-00 handle. Initial firm resistance is unchanged at the 20-day EMA. The average is at 110-12.
SOFR FUTURES CLOSE
Dec 24 -0.008 at 95.535
Mar 25 -0.015 at 95.770
Jun 25 -0.020 at 95.960
Sep 25 steady00 at 96.080
Red Pack (Dec 25-Sep 26) +0.015 to +0.030
Green Pack (Dec 26-Sep 27) +0.025 to +0.030
Blue Pack (Dec 27-Sep 28) +0.020 to +0.020
Gold Pack (Dec 28-Sep 29) +0.020 to +0.025
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00696 to 4.59921 (-0.01124/wk)
- 3M -0.00086 to 4.52014 (+0.02901/wk)
- 6M -0.00105 to 4.43045 (+0.03854/wk)
- 12M -0.00436 to 4.28399 (+0.04156/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.57% (+0.00), volume: $2.297T
- Broad General Collateral Rate (BGCR): 4.56% (+0.00), volume: $811B
- Tri-Party General Collateral Rate (TGCR): 4.56% (+0.00), volume: $783B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $103B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $281B
FED Reverse Repo Operation
RRP usage inches up to $200.664B this afternoon from $200.030B Monday. Compares to $144.243B on Tuesday, November 5 -- the lowest since May 6, 2021. The number of counterparties rises to 62 from 59 prior.
MNI PIPELINE: $2.65B Alibaba 3Pt Debt Launched
- Date $MM Issuer (Priced *, Launch #)
- 11/19 $3B #Lloyds $1.25B 4NC3 +85, $750M 4NC3 SOFR+106, $1B 11NC10 +120
- 11/19 $2.65B #Alibaba $1B 5.5Y +65, $1.15B 10.5Y +90, $500M 30Y +105
- 11/19 $2.5B #Republic of Turkiye +5Y Sukuk 6.55%
- 11/19 $1.75B #National Australian Bank (NAB) $1B -3Y +38, $750M -3Y SOFR+60
- 11/19 $1.25B #Vistra Operations $500M 2Y +80, $750M 10Y +133
- 11/19 $600N #Corebridge Financial 40NC5 6.375%
- 11/19 $500M *Emirates NBD WNG 5Y Reg S +90
MNI BONDS: EGBs-GILTS CASH CLOSE: Geopol Risk Bid Fades
European yields pulled back Tuesday, with geopolitical risk at the fore.
- Core global FI rose in European morning trade amid an escalation of Russia/Ukraine tensions and a change to Russia's nuclear doctrine in response to Ukraine firing US-made missiles into their territory.
- Yields hit the session's lows around 0900 London time. From there, Bunds and Gilts weakened fairly steadily as risk-off sentiment faded, with Russian foreign Minister Lavrov saying "a nuclear war will not happen."
- While 10Y Bunds / Gilts closed up 7bp / 6bp respectively from their lows, German and UK curves both bull steepened on the day, with EGB spreads modestly wider.
- ECB's Panetta called for clearer forward guidance on future rate cuts, instead of the current meeting-by-meeting approach.
- BOE's Bailey and Lombardelli said they both see risks to inflation as broadly balanced - but see greater consequences if UK inflation becomes more entrenched.
- On that note, Wednesday's scheduled highlight is UK CPI - MNI's preview is here (PDF). As we write in the preview, we think there is potential for a bigger market reaction to a downside services surprise (vs an upside surprise).
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 4.2bps at 2.139%, 5-Yr is down 3.2bps at 2.171%, 10-Yr is down 3.5bps at 2.338%, and 30-Yr is down 3.8bps at 2.541%.
- UK: The 2-Yr yield is down 0.8bps at 4.409%, 5-Yr is down 1.6bps at 4.32%, 10-Yr is down 2.3bps at 4.442%, and 30-Yr is down 4.3bps at 4.869%.
- Italian BTP spread up 1.8bps at 121.4bps / Spanish up 1bps at 70.7bps
MNI FOREX: EURJPY Posts Strong Reversal Higher amid Equities Bounce
- With Punchbowl reporting that Cantor Fitzgerald CEO Howard Lutnick is to be nominated as President-Elect Trump's Commerce Secretary, he is considered to be out of the running for the higher-profile and more influential position of Treasury Secretary.
- The US dollar index extended losses to session lows (and lowest levels since last Wednesday) on the back of the news, continuing a correlation we pointed out last week between Lutnick's Treasury nomination odds and the USD.
- Overall, however, the ICE Dollar index remains close to unchanged on the session as we approach the APAC crossover, with the moderate pull lower in recent sessions generally seen as corrective amid the broader dollar positive trend.
- The early theme on Tuesday was one of Euro weakness and JPY strength amid an upturn in geopolitical risk and escalated tensions between Russia and the West. The Kremlin have formally approved a further tweak to their nuclear doctrine, allowing for use of nuclear weaponry in the case of long-range missiles used to strike inside Russian territory.
- EURJPY's risk-off triggered slide made light work of yesterday's lows on the headlines, putting the cross at the lowest level since mid-October around 161.50. However, the late bounce for equities has assisted an impressive 200 pip reversal into the close.
- EURUSD’s inability to recapture the 1.06 handle is now bolstering the relative weakness for EUR crosses, with the likes of EURAUD (-0.38%) and EURCAD (-0.46%) pressing towards fresh session lows in recent trade.
- Canadian dollar outperformance comes in the wake of the firmer-than-expected inflation data in Canada, somewhat bolstering the chances of the BOC stepping the easing pace down to just 25bp in December.
- UK inflation data headlines the Wednesday docket, as markets then turn their focus to Eurozone flash PMIs on Friday.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 20/11/2024 | 0700/0800 | ** |  DE | PPI |
| 20/11/2024 | 0700/0700 | *** |  GB | Consumer inflation report |
| 20/11/2024 | 0700/0700 | *** | GB | Producer Prices |
| 20/11/2024 | 1000/1100 | ** |  EU | Construction Production |
| 20/11/2024 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 20/11/2024 | 1300/1400 | EU | ECB's Lagarde address on financial stability | |
| 20/11/2024 | 1500/1000 | US | Fed Vice Chair Michael Barr | |
| 20/11/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 20/11/2024 | 1600/1600 | GB | BOE's Ramsden speech on monetary policy | |
| 20/11/2024 | 1600/1100 | US | Fed Governor Lisa Cook | |
| 20/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 20/11/2024 | 1715/1215 | US | Fed Governor Michelle Bowman | |
| 20/11/2024 | 1800/1900 | EU | ECB's De Guindos speech on financial stability | |
| 20/11/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 20/11/2024 | 2100/1600 | US | Boston Fed's Susan Collins |