EXECUTIVE SUMMARY
- MNI: Fed's Hammack Says Near Or At Time To Slow Rate Cuts
- MNI FED: Chicago's Goolsbee Continues To See Rates Heading A "Fair Bit Lower"
- MNI FED: Bowman Eyes Upside Inflation Risks, But Probably Wouldn't Oppose Dec Cut
- MNI US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Dec 2024
- MNI US TSYS: Sentiment Buoyed After Mixed November Jobs Data
- MNI US DATA: Inflation Concerns See Consumers Eye Earlier Purchases
- MNI US DATA: Payrolls Wrap: December Pause Looks Off The Table
US
MNI: Fed's Hammack Says Near Or At Time To Slow Rate Cuts
The time is near or perhaps now to slow the pace of interest rate cuts because it's unclear how restrictive monetary policy actually is and the neutral rate could be higher, Cleveland Fed President Beth Hammack said Friday. "I believe we are at or near the point where it makes sense to slow the pace of rate reductions. Moving slowly will allow us to calibrate policy to the appropriately restrictive level over time given the underlying strength in the economy," she said in prepared remarks. "Indeed, since my initial foray into forecasting in the September Summary of Economic Projections, inflation, growth, and the labor market have all been stronger than I and the SEP median had expected. To me, this situation calls for a slower pace of rate cuts relative to my September forecast."
MNI FED: Chicago's Goolsbee Continues To See Rates Heading A "Fair Bit Lower"
Chicago Fed Pres Goolsbee (2025 FOMC voter) won't pre-commit on his view of the December rate decision ("everything's always on the table") in a Q&A that's still ongoing, as he says he first wants to see upcoming data and hear the rest of the Committee's deliberations. That being said, he's probably the biggest dove on the FOMC and it's a pretty good bet he will be siding with a rate cut, mentioning that current rates are far above the (September SEP) 2025 end-year rate median projection of 3.4%.
MNI FED: Bowman Eyes Upside Inflation Risks, But Probably Wouldn't Oppose Dec Cut
Fed Gov Bowman (hawk, permanent voter) maintains her concern over stubborn inflation, saying at an event Friday that lowering rates too quickly could reignite inflation, and as such she prefers to ease "cautiously" and "gradually". She doesn't provide a steer on her December meeting decision preference, but emphasized that inflation is her biggest priority - suggesting a typically hawkish approach, pending next week's CPI/PPI data.
MNI US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Dec 2024
Throughout November’s policy and market volatility, though, Treasury auctions largely impressed, with 5 of 7 nominal coupon sales trading through.
- Auction Results: November’s nominal coupon auctions were generally strong, with five out of seven auctions trading-through, of which four saw a positive reading on MNI’s Relative Strength Indicator (RSI). The remaining two auctions; 3 and 20-year auctions tailed. See page 2.
- Upcoming Supply: Issuance resumes next week with sales of $58B in 3Y Note, $39B in 10Y Note (reopen), and $22B in 30Y Bond (reopen). December is set to see $15B in nominal Treasury coupon sales, in addition to $22B in 5Y TIPS and $28B FRN for a total of $365B – slightly below the Oct and Nov totals of $369B which were joint-highest since Oct 2021.
- MNI's review includes a calendar of upcoming auctions and buyback operations.
NEWS
MNI US: Speaker Johnson Likely To Hold Vote On Govt Funding CR Week Of December 16
House Speaker Mike Johnson (R-LA) told reporters yesterday that he intends to wrap negotiations on short-term a government funding package this weekend, teeing up a vote on the House floor around December 16, after which it will be passed to the Senate. A stop-gap appropriations bill must be passed by midnight on December 20 to avoid a partial government shutdown.
MNI SECURITY: Putin May Supply Belarus With 'Oreshnik' Missiles
Russian President Vladimir Putin has indicated openness to deploying Oreshnik missiles to Belarus. The Oreshnik, a new intermediate-range ballistic missile system capable of delivering a nuclear payload, was combat-tested in Ukraine last month, raising concerns over an escalation of the war. IFX reports that Putin said it's "possible to deploy Oreshnik in Belarus in the second half of 2025."
MNI GLOBAL POLITICAL RISK: EU-Mercosur Deal Could Widen Rift Between France/Germany
The EU and five South American countries that comprise the Mercosur bloc have concluded decades-long negotiations to drop tariffs on more than 90% of goods to a market of around 700 million people. The deal's signing, coming amid a major domestic political crisis in France, is likely to deepen a rift between Berlin and Paris. The latter vehemently opposed the deal amid concerns that cheap agricultural imports would undercut its farmers.
MNI FRANCE: PS Ldr.- Need Change Of Political Direction Only PM From Left Can Bring
Speaking ahead of his meeting with President Emmanuel Macron, First Secretary of the centre-left Socialist Party Olivier Faure says to reports that the PS is "ready to contribute to breaking the political gridlock, but we need a change of political direction". Says "Our priorities include changing the pensions system [Macron's flagship policy]."
MNI US TSYS: Sentiment Buoyed After Mixed November Jobs Data
- Treasuries look to finish near early session highs, curves steeper (2s10s +2.126 at 5.135) with short end rates outperforming after this morning's better than expected jobs gain (+227k vs. 220k est) even as the unemployment rate inched up to 4.2% from 4.1%. On net, the data reinforced the view of a resilient labor market despite gradual cooling - which in turn supported expectations of more rate cuts by the Federal Reserve.
- Steeper post-data curves buoyed projected rate cuts into early 2025 vs. pre-data (*) as follows: Dec'24 cumulative -22.2bp (-17.1bp), Jan'25 -29.7bp (-24.0bp), Mar'25 -46.6bp (-38.6bp), May'25 -56.4bp (-48.1bp).
- Meanwhile, the preliminary U.Mich consumer survey for December saw sentiment firm a little more than expected at 74.0 (cons 73.3) after 71.8. Components were mixed though, with a much stronger than expected increase in current conditions (77.7 vs cons 65.2 after 63.9) at the expense of expectations (71.6 vs cons 77.7 after 76.9).
- Reminder, the Federal Reserve enters their self-imposed blackout at midnight tonight through December 19, the day after the final FOMC policy announcement for 2024. Focus turns to next week's CPI and PPI inflation data on Wednesday and Thursday respectively.
OVERNIGHT DATA
MNI US DATA: Payrolls Wrap: December Pause Looks Off The Table
The payrolls report was very close to expectations for November alone, rising 227k vs consensus 220k and a primary dealer analyst median of 225k. Two-month revisions were at least positive at +56k after the heavy -112k revisions in the October report, but only +24k of that upward revision came in October which could have underwhelmed expectations.
- The average of the last two months as a crude estimate of underlying trend sees nonfarm payrolls growth of 132k and private at 96k.
- A dovish angle can be made as the seasonal factors were particularly beneficial again this month. By our calculations, October would have seen -50k vs +36k if the Oct’23 factor was used instead of Oct’24, whilst November would have seen +147k vs +227k on the same basis.
- The household survey was clearly weaker than the establishment survey, with obvious signs of softness/loosening in labor market conditions. The unemployment rate increased to a 4-month high at 4.246% (+0.1pp, cons 4.15%) and the U-6 rate also ticked up 0.1pp to a 4-month high 7.8%.
- The prime age category drove this increase, rising from 3.53% to 3.68% by our calculations to nudge above 3.65% in July for technically its highest since Nov 2021.
- Whilst the unemployment rate was more dovish than expected, the data leave it continuing to track below the 4.4% the median FOMC member forecast for Q4 back in the September SEP. In Governor Bowman’s words, the unemployment rate remains at a historically low level.
- Indeed, averaging 4.20% in Oct-Nov, it’s currently only just meeting the lowest estimates (from presumably the most hawkish FOMC members) with an entire FOMC range of 4.2-4.5%.
- Nevertheless, there don’t look to be enough signs of strength here to warrant a pause later this month and accordingly Fed Funds futures has jumped to pricing 22.5bp of cuts vs 18bp prior. CPI will have to be extremely strong on Wednesday to see a pause back on the table along with a blackout period steer.
MNI US DATA: Inflation Concerns See Consumers Eye Earlier Purchases
The preliminary U.Mich consumer survey for December saw sentiment firm a little more than expected at 74.0 (cons 73.3) after 71.8. Components were mixed though, with a much stronger than expected increase in current conditions (77.7 vs cons 65.2 after 63.9) at the expense of expectations (71.6 vs cons 77.7 after 76.9).
- From the press release: "A surge in buying conditions for durables led Current Economic Conditions to soar more than 20%. Rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases"
- "The expectations index continued the post-election re-calibration that began last month, climbing for Republicans and declining for Democrats in December"
- Reflecting this, 1Y inflation expectations were stronger than expected at 2.9% (cons 2.7) after 2.6% in November was the lowest since Dec 2020.
- The 5-10Y inflation expectations meanwhile dipped a tenth to 3.1% as expected for back into their more typical 2.9-3.1% range. The 3.2% in Nov was a joint high with Nov’23 at levels last seen in 2011.
MNI US DATA: Consumer Credit Potentially Turning From Headwind To Tailwind
Consumer credit grew more quickly than anticipated in October, rising by $19.2B ($9B more than expected) from a downwardly revised $3.2B in September. The rise in revolving (eg credit cards) credit was particularly impressive at 13.9% annualized ($15.7B of the total), the fastest growth since 2022, with non-revolving (eg auto loans and student loans)up 1.1% ($3.5B).
- The impressive resilience in consumption has been driven more by incomes and fiscal transfers than consumer credit growth, but after a weak stretch of growth through most of 2024, consumer credit actually looks to be stabilizing and perhaps even picking up slightly.
- This could be a result of the Fed starting to cut rates including by 50bp in September, but overall it looks like the positive impulse to growth from consumer credit is becoming increasingly positive after being a drag through most of the past 2 years as short-end rates rose.
- Although delinquencies have been rising per most Fed data, key leading indicators including the latest Senior Loan Officer Survey have seen a loosening in standards and stronger demand for consumer loans since early 2023. And with strong economic growth, credit as a % of GDP has remained steady at around 17% over the past 3 years, and is below the 18.7% level seen just before the pandemic.
- Overall there are no recessionary signs in the credit data - and there is an argument that it's turning into a tailwind instead of a headwind for growth, particularly if the Fed continues to cut rates.
MNI CANADA DATA: Canada Nov Jobless Rate +6.8%, Highest Since 2017 Ex-Pandemic
Canada unemployment rate +6.8% in November, above consensus for +6.6%. Jobless rate +1.7pp since April 2023. Employment +50.5K, above consensus for +20K. Labour force +137.8K in November, highest gain since September 2021.
- Average hourly wages +4.1% YOY after +4.9% in October.
- Also signalling slack in the labour market, the number of unemployed +22% YOY.
- Hours worked -0.2% MOM, +1.9% YOY.
- The Jobs Report is the last major release before the BoC's interest-rate decision on Dec. 11 where the bank is expected to cut rates for the fifth meeting in a row.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 130.85 points (-0.29%) at 44634.55
S&P E-Mini Future up 7.5 points (0.12%) at 6096
Nasdaq up 132.9 points (0.7%) at 19833.44
US 10-Yr yield is down 2.9 bps at 4.1471%
US Mar 10-Yr futures are up 8.5/32 at 111-15
EURUSD down 0.0029 (-0.27%) at 1.0557
USDJPY down 0.11 (-0.07%) at 150
WTI Crude Oil (front-month) down $1.19 (-1.74%) at $67.10
Gold is up $2.78 (0.11%) at $2634.45
European bourses closing levels:
EuroStoxx 50 up 26.2 points (0.53%) at 4977.78
FTSE 100 down 40.77 points (-0.49%) at 8308.61
German DAX up 25.81 points (0.13%) at 20384.61
French CAC 40 up 96.34 points (1.31%) at 7426.88
US TREASURY FUTURES CLOSE
3M10Y +0.886, -26.614 (L: -31.785 / H: -24.432)
2Y10Y +2.141, 5.15 (L: -0.22 / H: 7.077)
2Y30Y +4.371, 23.174 (L: 14.873 / H: 25.222)
5Y30Y +4.092, 29.734 (L: 21.871 / H: 30.745)
Current futures levels:
Mar 2-Yr futures up 2.875/32 at 103-6.375 (L: 103-00 / H: 103-08.375)
Mar 5-Yr futures up 6/32 at 107-25.25 (L: 107-12 / H: 107-28.75)
Mar 10-Yr futures up 8.5/32 at 111-15 (L: 110-28.5 / H: 111-20.5)
Mar 30-Yr futures up 9/32 at 120-5 (L: 119-17 / H: 120-18)
Mar Ultra futures up 2/32 at 128-5 (L: 127-20 / H: 128-26)
MNI US 10YR FUTURE TECHS: (H5) Clears The 50-Day EMA
- RES 4: 112-18 50.0% retracement of the Sep 11 - Nov 15 bear leg
- RES 3: 112-02 Low Oct 14
- RES 2: 111-24 38.2% retracement of the Sep 11 - Nov 15 bear leg
- RES 1: 111-20+ Intraday high
- PRICE: 111-10+ @ 16:25 GMT Dec 6
- SUP 1: 110-18 Low Dec 4
- SUP 2: 110-01/109-20 Low Nov 25 / Low Nov 20/21
- SUP 3: 109-02+ Low Nov 15 and the bear trigger
- SUP 4: 108-28 1.236 proj of the Oct 1 - 14 - 16 price swing
A bull cycle in Treasuries remains in play and Friday’s gains reinforce current bullish conditions. The contract has traded through resistance at the 50-day EMA, at 111-12. A clear break of this average would strengthen a bullish theme and signal scope for a stronger recovery. Sights are on 111-24 next, a Fibonacci retracement. For bears, a reversal lower would highlight the end of the bull cycle and open the key support at 109-02+, the Nov 15 low.
SOFR FUTURES CLOSE
Dec 24 +0.035 at 95.633
Mar 25 +0.055 at 95.90
Jun 25 +0.055 at 96.095
Sep 25 +0.060 at 96.215
Red Pack (Dec 25-Sep 26) +0.040 to +0.055
Green Pack (Dec 26-Sep 27) +0.035 to +0.040
Blue Pack (Dec 27-Sep 28) +0.040 to +0.045
Gold Pack (Dec 28-Sep 29) +0.040 to +0.045
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00522 to 4.47730 (-0.05505/wk)
- 3M -0.00172 to 4.42672 (-0.04653/wk)
- 6M -0.00102 to 4.32942 (-0.05417/wk)
- 12M +0.00295 to 4.18079 (-0.07310/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.59% (+0.00), volume: $2.325T
- Broad General Collateral Rate (BGCR): 4.57% (-0.01), volume: $853B
- Tri-Party General Collateral Rate (TGCR): 4.57% (-0.01), volume: $822B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $109B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $280B
FED Reverse Repo Operation
RRP usage slips to a new multi-year low of $130.014B (May 3 2021 low of $129.724B) this afternoon from $131.964B on Thursday. The number of counterparties slips to 50 from 53 prior.
MNI BONDS: EGBs-GILTS CASH CLOSE: Modest Steepening, Tracking Treasuries
European yields moved in a fairly wide range but closed little changed Friday.
- Gilts and Bunds weakened in morning trade, with equities bid, and the space generally following the lead of US Treasuries for a second consecutive session.
- Core European FI rallied as the highly anticipated US employment report was taken favourably by rates markets, with aggregate payroll gains in line with expectations, but the unemployment rate moving a little higher than foreseen. But the move faded toward the cash close, again mirroring a modest pullback in Treasuries.
- The German curve marginally twist steepened on the day, with the UK's modestly bull steepening.
- After opening tighter to Bunds, OAT spreads retraced move of the initial move, widening throughout the session on continued political uncertainty after this week's government collapse. Periphery EGB spreads followed a similar path, finishing little changed on the day.
- Next week's highlight is the ECB meeting (a 25bp cut remains fully priced, little changed Friday) - we also get UK monthly activity data and an appearance by BoE's Ramsden.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.7bps at 2.001%, 5-Yr is down 1.7bps at 1.969%, 10-Yr is down 0.3bps at 2.108%, and 30-Yr is up 0.5bps at 2.316%.
- UK: The 2-Yr yield is down 1.3bps at 4.261%, 5-Yr is down 1.2bps at 4.133%, 10-Yr is down 0.6bps at 4.275%, and 30-Yr is down 0.3bps at 4.808%.
- Italian BTP spread down 0.2bps at 108.5bps / French OAT down 0.6bps at 76.8bps
MNI FOREX: US Dollar Ending Higher Following Mixed US Employment Report
- The greenback initially traded weaker as markets reacted to the higher-than-expected US unemployment rate, bolstering the case for the Federal Reserve cutting rates at its December meeting. However, while ignoring the lower front-end US yields, currency markets reversed course, and the USD index looks set to close the session with 0.35% gains.
- The short-term EURUSD bounce reached a three-week high of 1.0630 before substantially reversing course. Price action represents the fourth attempt above 1.0600, the prior breakdown point for the pair, and we are yet to have a daily close above this level, potentially bolstering the medium-term trend direction, which remains down.
- Markets will also be eyeing a false break of the 20-day EMA, having slipped back below the average in recent trade. Key levels on the downside are well established at 1.0461, the Dec 2 low and 1.0335, the Nov 22 low and the bear trigger.
- Antipodean FX is notably underperforming on the session with both AUD and NZD down comfortably over 1%. There was an element of concern that the appointment of David Perdue by Trump as the Ambassador to China is a strong signal of hawkish intent toward China under the Trump admin next year - which is certainly negative for both AUD and NZD. Resilience for both EURAUD and EURNZD over the French political developments may also be enhancing this dynamic.
- In Canada, a poor breakdown of full-time versus part time jobs created and a higher than expected unemployment rate has boosted USDCAD, as market participants see a second 50bp BOC cut firmly in their sights. The pair resides around 1.4150 ahead of the weekend close, near to cycle highs.
- Chinese inflation data crosses Monday before Wednesday’s release of US CPI. Several central banks have rate decisions, including the RBA, BOC, SNB and ECB.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 09/12/2024 | 1300/1300 |  GB | BOE's Ramsden speech at OMFIF "Financial stability and the Bank of England's toolkit" | |
| 09/12/2024 | - |  JP | Economy Watchers Survey | |
| 09/12/2024 | - |  EU | ECB's Cipollone in Eurogroup meeting | |
| 09/12/2024 | 1500/1000 | ** |  US | Wholesale Trade |
| 09/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 09/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 10/12/2024 | 0330/1430 | *** |  AU | RBA Rate Decision |