EXECUTIVE SUMMARY
- MNI FED: Some FOMC Members Sought Smaller 25BP Cut in Sept - Minutes
- MNI: Logan Argues For Gradual Fed Cuts, Citing Inflation Risks
- MNI US OUTLOOK/OPINION: Core Goods Prices Seen Rising For First Time Since Feb
- MNI US OUTLOOK/OPINION: Supercore CPI Seen Modestly Easing Slightly
US
MNI FED: Some FOMC Members Sought Smaller 25BP Cut in Sept - Minutes
Federal Reserve officials were divided on how much to cut interest rates last month, with some participants preferring to cut by a more modest quarter point rather than the 50 basis points that was ultimately delivered, minutes of the September meeting showed Wednesday. "Noting that inflation was still somewhat elevated while economic growth remained solid and unemployment remained low, some participants observed that they would have preferred a 25 basis point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision," the report said.
MNI FED: Logan Argues For Gradual Fed Cuts, Citing Inflation Risks
Federal Reserve Bank of Dallas President Lorie Logan said Wednesday she supports "a more gradual" approach to lowering interest rates after the jumbo size cut last month, because inflation could still get stuck above 2%. "Following last month’s half-percentage-point cut in the fed funds rate, a more gradual path back to a normal policy stance will likely be appropriate from here to best balance the risks to our dual-mandate goals," she said in remarks prepared for a Houston energy conference.
NEWS
MNI SECURITY: Israeli Response To Iran Likely To Focus On Military Targets
Lazar Berman at the Times of Israel reports on X that Israel’s response to Iran’s ballistic missile attack, "will likely focus on military targets, but that could still change," according to an Israeli source who said the US, "wants to make sure the response doesn't lead to more escalation.”
(BBG) Alphabet Shares Fall as US DOJ Weighs Breaking Up Google
Alphabet shares fall 0.91% in premarket trading after the US Justice Department told a federal judge it’s considering recommending that Google be forced to sell off parts of its operations. The DoJ’s rationale is that a breakup of the search giant will alleviate the harm caused by its monopolization of the online search market.
(BBG) Boeing Withdraws Contract Offer as Union Talks Break Down
The crisis engulfing Boeing Co. took a dramatic turn after negotiations to resolve an almost monthlong strike collapsed and S&P Global Ratings warned it may cut the planemaker’s credit grade to junk.
US TSYS
MNI US TSYS: Holding Near Lows After FOMC Minutes 25Bp Debate
- Treasuries are near late session lows after Wednesday's FOMC minutes showed "some" voting members failed to sway the 50bp cut majority at the September policy meeting.
- "Noting that inflation was still somewhat elevated while economic growth remained solid and unemployment remained low, some participants observed that they would have preferred a 25 basis point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision," the report said.
- Muted reaction to a small tail at the Tsy 10Y auction reopen (4.066% high yield vs. 4.061% WI). The Dec'24 10Y futures trade -9 at 112-06 after the bell vs. 112-04.5 low and above round number technical support of 112-00. Curves have flattened mildly after the bell, 2s10s -.230 at 4.933, 5s30s -1.552 at 43.017. Moderate volumes (TYZ4 1.4M) as market focus turned towards Thursday morning's CPI inflation measures for September.
- Core non-housing service CPI inflation is expected to ease modestly in September from the 0.33% in August, with seven analysts eyeing an average 0.27% M/M from a range of 0.20-0.34.
- Weekly Jobless claims, a few more Fed speakers (Cook, Barkin and Williams) and the 30Y Bond auction re-open are also on tap.
OVERNIGHT DATA
MNI:US AUG WHOLESALE INV 0.1%; SALES -0.1%
MNI US DATA: Mortgage Refi Applications See Early Sensitivity To Higher Rates
- MBA composite mortgage applications unsurprisingly fell back last week as refis showed some early sensitivity to higher rates.
- Overall applications were -5.1% last week (sa) to build on the -1.3% the week prior after two particularly strong refi-driven increases of 11% and 14.2%.
- Refis were -9.3% but are still almost 90% above early July levels, whilst new purchase applications were broadly flat (-0.1%) after six weekly increases worth a cumulative 14%.
- The 30Y conforming mortgage rate increased 22bps to 6.36% after three weeks averaging 6.14%, rates that had been 115bp lower than the April recent high of 7.29%.
- A smaller 14bp increase in the jumbo loan rate to 6.64% saw some reversal of relative tightening, with the regular to jumbo spread increasing to -28bps after the prior week’s -36bps was the lowest since Jun 2020.
MNI US OUTLOOK/OPINION: Supercore CPI Seen Modestly Easing Slightly
- Core non-housing service CPI inflation is expected to ease modestly in September from the 0.33% in August, with seven analysts eyeing an average 0.27% M/M from a range of 0.20-0.34.
- If realized, two months more meaningfully above a rate consistent with 2% inflation should continue to be seen in the context of recently following two extremely soft months averaging -0.05% M/M in May and June.
- A readthrough to supercore PCE is hard to do in advance of CPI and PPI inputs, with some volatile CPI-specific categories having an outsized impact on the narrower basket (see earlier section on the expected main sequential drivers). Supercore PCE has generally seen less volatility though, at 0.16% M/M in August and having averaged 2.5% annualized over the latest three months.
MNI US OUTLOOK/OPINION: Core Goods Prices Seen Rising For First Time Since Feb
- Core goods CPI prices should see a rare monthly increase in September, the first since February and before that May 2023.
- Used car prices play a large role in expectations here, seen increasing circa 0.9% M/M after a string of heavy declines including -1.0% in August. Wholesale used vehicle prices indicate potential for a further increase in October but gains could slow after that.
- Core goods ex-used cars are again worth watching, after another -0.1% M/M decline in August despite higher input costs amidst a relative tightening in supply chain pressures.
- The NY Fed’s global supply chain pressures index has eased a touch since August, falling from 0.20 to 0.13, but that’s still meaningfully tighter than the 0.45 standard deviations below historical averages seen through 1H24.
- With core PPI readings also mostly running hotter than core goods, an acceleration beyond used cars would support the anecdotal evidence of firmer price pressures (latest S&P Global US PMI comments on the next page) whilst on the flip side a further deceleration here would be a dovish sign for pricing power.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 458.12 points (1.09%) at 42538.32
S&P E-Mini Future up 43.75 points (0.75%) at 5844
Nasdaq up 113.7 points (0.6%) at 18296.44
US 10-Yr yield is up 5.5 bps at 4.0667%
US Dec 10-Yr futures are down 9/32 at 112-6
EURUSD down 0.0041 (-0.37%) at 1.0939
USDJPY up 1.11 (0.75%) at 149.31
WTI Crude Oil (front-month) down $0.04 (-0.05%) at $73.53
Gold is down $12.47 (-0.48%) at $2609.36
European bourses closing levels:
EuroStoxx 50 up 33.57 points (0.68%) at 4982.57
FTSE 100 up 53.13 points (0.65%) at 8243.74
German DAX up 188.46 points (0.99%) at 19254.93
French CAC 40 up 38.77 points (0.52%) at 7560.09
US TREASURY FUTURES CLOSE
3M10Y +3.457, -59.5 (L: -64.906 / H: -58.197)
2Y10Y -0.23, 4.933 (L: 4.177 / H: 7.672)
2Y30Y -0.985, 32.342 (L: 31.536 / H: 36.607)
5Y30Y -1.457, 43.112 (L: 42.651 / H: 46.35)
Current futures levels:
Dec 2-Yr futures down 2.875/32 at 103-11 (L: 103-10.75 / H: 103-16)
Dec 5-Yr futures down 6.25/32 at 108-11.25 (L: 108-10.75 / H: 108-21.75)
Dec 10-Yr futures down 8.5/32 at 112-6.5 (L: 112-04.5 / H: 112-21)
Dec 30-Yr futures down 12/32 at 120-24 (L: 120-17 / H: 121-16)
Dec Ultra futures down 13/32 at 128-19 (L: 128-11 / H: 129-20)
MNI US 10YR FUTURE TECHS: (Z4) Bear Threat Remains Present
- RES 4: 115-00+ High Oct 1
- RES 3: 114-01+ 20-day EMA
- RES 2: 113-25 50-day EMA
- RES 1: 113-12 Low Sep 3 and a recent breakout level
- PRICE: 112-10+ @ 16:46 BST Oct 9
- SUP 1: 112-10 Low Oct 8/9
- SUP 2: 112-00 Round number support
- SUP 3: 111-14 50.0% retracement of the Apr - Sep bull cycle (cont)
- SUP 4: 111-00 Low Jul 22
A bear threat in Treasuries remains present and the contract is trading at its recent lows. The latest sell-off has resulted in a break of the 50-day EMA and this has been followed by a breach of 113-12, the Sep 3 low. The move undermines the recent bullish theme and instead highlights potential for a continuation lower. Sights are on the 112-00 handle next. 113-12, the Sep 3 low, is the first resistance.
SOFR FUTURES CLOSE
Dec 24 -0.050 at 95.660
Mar 25 -0.060 at 96.030
Jun 25 -0.060 at 96.285
Sep 25 -0.055 at 96.450
Red Pack (Dec 25-Sep 26) -0.05 to -0.04
Green Pack (Dec 26-Sep 27) -0.04 to -0.035
Blue Pack (Dec 27-Sep 28) -0.04 to -0.035
Gold Pack (Dec 28-Sep 29) -0.035 to -0.03
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00055 to 4.82299 (-0.02259/wk)
- 3M -0.01767 to 4.65828 (+0.07430/ wk)
- 6M -0.02239 to 4.44581 (+0.16482/wk)
- 12M -0.03181 to 4.12794 (+0.26212/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.84% (+0.01), volume: $2.166T
- Broad General Collateral Rate (BGCR): 4.83% (+0.01), volume: $807B
- Tri-Party General Collateral Rate (TGCR): 4.83% (+0.01), volume: $771B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $90B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $226B
FED Reverse Repo Operation
RRP usage climbs to $343.448B this afternoon from $325.355B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties up to 71 from 65 prior.
PIPELINE
PIPELINE: $1.25B Rabobank 2Pt US$ Debt Issuance Launched
- Date $MM Issuer (Priced *, Launch #)
- 10/09 $1.8B *Cleveland-Cliffs $900M 5NC2 6.875%, $900M 8.5NC3.5 7.375%
- 10/09 $1.25B #Rabobank $750M 5Y +60, $500M 5Y SOFR+89
- 10/09 $1B #Navoi Mining WNG $500M 4Y 6.7%, $500M 7Y 6.95%
- 10/09 $850M #Braskem 10Y 8%
- 10/09 $750M #Ares Mngmt 30Y +130
- 10/09 $500M *Dubai Islamic Bnk PerpNC6 5.25
- 10/09 $500M Jefferies Finance 7NC3 6.625%a
- 10/09 $Benchmark Kexim (Imp/Exp Bank of Korea) 3Y +60a
EGBS
MNI BONDS: EGBs-GILTS CASH CLOSE: Gilts Modestly Outperform With US CPI Awaited
Gilts gained marginally as Bunds weakened Wednesday.
- After a constructive start, yields rose in afternoon trade, led by a continuation of the post-nonfarm payrolls sell-off in US Treasuries and strengthening equities, rather than any European-centric factors.
- Gilts softened from session highs in morning trade after a tail in the 10Y Gilt auction, but the move faded, and all segments on the UK curve would end up outperforming their German counterparts. Some of the outperformance was seen as reflecting an apparent dilution of some of the UK government's more controversial fiscal proposals.
- ECB's Wunsch and Kazimir unsurprisingly cast a hawkish tone ahead of next week's meeting, but the latter said he could not rule out an October cut and that outcome remains over 90% implied in rate futures.
- In a limited data slate, the German trade surplus rose more than expected, driven by a fall in imports.
- On the day, the UK curve twist steepened, with Germany's bear flattening. Periphery EGB spreads closed mixed, with Spain and Portugal modestly underperforming Italy and Greece; 10Y OAT/Bund was flat.
- Thursday's calendar is highlighted by US inflation data - we also get German retail sales, Italian industrial production, and the accounts of the September ECB meeting.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 3.2bps at 2.26%, 5-Yr is up 2.2bps at 2.125%, 10-Yr is up 1.4bps at 2.257%, and 30-Yr is up 0.4bps at 2.542%.
- UK: The 2-Yr yield is down 0.5bps at 4.189%, 5-Yr is down 0.8bps at 4.064%, 10-Yr is down 0.4bps at 4.18%, and 30-Yr is up 0.2bps at 4.718%.
- Italian BTP spread down 0.1bps at 130bps / Spanish up 0.6bps at 75.5bps
FOREX
MNI FOREX: USD Index Premium Over 50-dma Largest Since April
Greenback strength continues to play out after the strong start to the European session - EUR/USD now through the earlier lows and USD/JPY is nearing 149.13 - the Monday high. Clearance here resumes the bounce off the mid-September low, and a revisit of the US 10y yield to Tuesday's 4.055% would likely be a sufficient catalyst.
- The USD Index has already printed a new multi-month high at 102.764 today - opening the largest gap between spot and the 50-dma since April, thereby underscoring the strength of near-term momentum.
- Comments from Fed's Logan argue further in favour of a gradual approach from the Fed, stopping well short of endorsing another 50bps step at the November meeting - particularly as Logan flags the "meaningful risk" that inflation could stick above 2%.
Figure 1: USD Index premium over 50-dma highest since April
THURSDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 10/10/2024 | 0830 | *** | 05-Oct | Continuing Claims | 1826 | -- | (k) |
| 10/10/2024 | 0830 | *** | 05-Oct | Initial Jobless Claims | 225 | -- | (k) |
| 10/10/2024 | 0830 | *** | 05-Oct | Prev Continuing Claims, Rev | -- | -- | (k) |
| 10/10/2024 | 0830 | *** | 05-Oct | Prev Initial Jobless Claims, Rev | -- | -- | (k) |
| 10/10/2024 | 0830 | ** | 03-Oct | Corn Net Sales | -- | -- | MT (k) |
| 10/10/2024 | 0830 | ** | 03-Oct | Corn Weekly Exports | -- | -- | MT (k) |
| 10/10/2024 | 0830 | ** | 03-Oct | Soy Net Sales | -- | -- | MT (k) |
| 10/10/2024 | 0830 | ** | 03-Oct | Soy Weekly Exports | -- | -- | MT (k) |
| 10/10/2024 | 0830 | ** | 03-Oct | Wheat Net Sales | -- | -- | MT (k) |
| 10/10/2024 | 0830 | ** | 03-Oct | Wheat Weekly Exports | -- | -- | MT (k) |
| 10/10/2024 | 0830 | *** | Sep | CPI Ex Food and Energy m/m (1 dp) | 0.3 | 0.2 | % |
| 10/10/2024 | 0830 | *** | Sep | CPI Ex Food and Energy m/m (3 dp) | 0.281 | -- | % |
| 10/10/2024 | 0830 | *** | Sep | CPI Ex Food and Energy y/y (core nsa) | 3.2 | 3.2 | % |
| 10/10/2024 | 0830 | *** | Sep | CPI Supercore m/m (3 dp) | -- | -- | % |
| 10/10/2024 | 0830 | *** | Sep | CPI m/m (1 dp) | 0.2 | 0.1 | % |
| 10/10/2024 | 0830 | *** | Sep | CPI m/m (3 dp) | 0.187 | -- | % |
| 10/10/2024 | 0830 | *** | Sep | CPI y/y (nsa) | 2.5 | 2.3 | % |
| 10/10/2024 | 1030 | ** | 04-Oct | Natural Gas Stocks w/w | -- | -- | Bcf |
| 10/10/2024 | 1130 | ** | 11-Oct | Bid to Cover Ratio | -- | -- | |
| 10/10/2024 | 1130 | * | 11-Oct | Bid to Cover Ratio | -- | -- | |
| 10/10/2024 | 1300 | *** | Oct | Bid to Cover Ratio | -- | -- | |
| 10/10/2024 | 1400 | ** | Sep | Treasury Budget Balance | -380.1 | -- | USD (b) |