MNI ASIA OPEN: Oil And Stocks Stabilize Ahead Of ECB
EXECUTIVE SUMMARY
- MNI Markets ECB Preview-October 2024: First Back-To-Back Cut
- US DATA: Mortgage Applications Slide By Most Since Apr 2020 As Rates Rise
- US DATA: Import Price Details Offer Upside For Core PCE Tracking
- MNI: Little Progress Likely In China-EU EV Dispute- EU Sources
- MNI INTERVIEW: UK To Ease Debt Target, Avoid Net Worth Target
US TSYS: Solid Session, As Underperformance Vs Global Peers Continues
The Treasury curve bull flattened moderately Wednesday, with US instruments underperforming global peers.
- European core bonds, led by Gilts, had rallied sharply overnight after UK inflation came in softer than expected - Treasuries faintly echoed the move but the EGB/Gilt rally meant US yields continued to gain versus global counterparts.
- This was especially pronounced at the short end of the curve, with 2Y yields vs Germany at the widest levels since July (nearing 177bp) ahead of Thursday's ECB decision.
- Continued softness in crude oil prices helped support the space, with a late-morning fall in WTI to session lows below $70/bbl coinciding with a move to session highs for TYs (112-22), but both moves faded in early afternoon while equities gained.
- In data, September import prices pointed toward a little more upside to September PCE estimates via international airfares, but this was not a market mover. Earlier, MBA weekly data showed mortgage applications dropped by the most since April 2020 as rates rebounded.
- Corporate supply was highlighted by Goldman Sachs $5.5B 2-parter and Morgan Stanley $5.75B 3-parter, coming on the heels of favorable earnings reports.
- Dec 10-Yr futures (TY) last up 3/32 at 112-17 (L: 112-13 / H: 112-22), In cash, the 2-Yr yield is down 1.2bps at 3.9334%, 5-Yr is down 1.2bps at 3.8421%, 10-Yr is down 1.8bps at 4.0141%, and 30-Yr is down 2.1bps at 4.2992%.
- VP Harris is interviewed on Fox after the close (1800ET). Data flow picks up Thursday, with two key reports: weekly jobless claims (following up from the previous week's hurricane-impacted upside surprise) and retail sales. Chicago Fed Pres Goolsbee also makes an appearance at a careers event so unlikely to be a market-mover.
NEWS
ECB: MNI Markets ECB Preview-October 2024: First Back-To-Back Cut: Following the weaker-than-expected PMI and inflation data, the market and many on the Governing Council have rallied behind an October cut, which appears to be the most likely outcome. However, communicating the motivation for such a move will not be straight forward.
EU-CHINA (MNI) Progress on a solution to the European Union-China electric vehicle dispute looks difficult following intense negotiations between the two sides in the days since EU states backed the Commission’s proposed tariffs on Oct 4, EU trade sources told MNI. "There is no progress and it’s unlikely there will be any,” one source following talks said. Public comments from the Commission suggest little narrowing of the differences between the sides, stressing only that discussions are “ongoing” and that it remains “open” to a solution if all its red lines are met.
UK (MNI INTERVIEW) There is a strong case for the UK Treasury to exclude the new National Wealth Fund and British Business Bank from its debt target if as expected it replaces its current rules in the Oct 30 Budget, former senior Treasury and Office for Budget Responsibility official Andy King, told MNI. The Treasury aims to boost lending and other activities by the BBB and NWF, and King, now at Flint Global, said that the best approach would be to keep them on balance sheet but outside any new fiscal rule.
EU-CHINA (MNI) The European Commission said Wednesday that the ball is firmly in China's court when it comes to finding a solution to their dispute over electric vehicle imports. "It's not up to the European Union to provide a solution it is up to the Chinese side to provide such a solution...," Trade Spokesperson Olof Gill said. Any solution would have to WTO compatible, address any injury caused to the EU domestic EV industry and be enforceable and monitorable, Gill reiterated. Gill said that negotiations are otherwise "ongoing" and that the EU remained "open" to a negotiated solution. EU tariffs on China-made EVs will come into force at the end of this month if no solution is found.
BOC (MNI) The Bank of Canada is expected to lower borrowing costs by half a point next Wednesday as weakening inflation, growth and labor demand steer policymakers' concerns away from sticky wages and housing costs and towards undershooting their target for price growth. Thirteen of 17 economists surveyed by MNI see the overnight rate declining to 3.75% from 4.25% in a decision due at 945am EST, and five of them predict the stage will be set for another jumbo move in December. Officials had hiked borrowing costs to the highest since 2001 at 5% before three quarter-point reductions that started in June ahead of Canada's G7 peers.
ITALY (MNI)Rome has announced an “extraordinary” tax on banks and insurance companies along with a 5% cut on state administration costs to keep the budget in line with the 3.3% deficit for 2025, Finance minister Giancarlo Giorgetti announced Wednesday. The 2025 budget will confirm tax cuts on salaries through the fiscal wedge that will be extended to those earning from EUR 35,000 to 40,000 per year and will become structural and “not a one off” as cuts are maintained in the medium term plan, he added.
OVERNIGHT DATA
US DATA: Mortgage Applications Slide By Most Since Apr 2020 As Rates Rise
- MNI: US MBA: MARKET COMPOSITE -17.0% SA THRU OCT 11 WK
- US MBA: REFIS -26% SA; PURCH INDEX -7% SA THRU OCT 11 WK
- Mortgage rates pushing higher saw MBA composite mortgage applications tumble a seasonally adjusted -17% last week after -5% the week prior. It’s the largest single weekly decline since Apr 2020.
- It was led by refis (-26% after -9%) although that only leaves them at early August levels after what had been strong increases in response to lower rates. New purchases meanwhile also fell -7% after a flat week to eat into what had been a steady trend higher.
- The regular 30Y mortgage rate increased 16bp to 6.52%, building on the prior week’s 22bp increase for a firmer shift away from three weeks averaging 6.14% (115bp below April peaks).
- The pullback in activity appears to have warranted some further increase in the regular-jumbo spread (i.e. a relative easing for large loans), to -24bps from -28bps the previous week and -36bps in late September at what had been fresh recent lows.
US DATA: Import Price Details Offer Upside For Core PCE Tracking
- **MNI: US SEP IMPORT PRICES -0.4%
- Import prices were softer than expected in September as they declined -0.4% M/M (cons -0.3) but with the miss offset by an upward revised -0.2% (initial -0.3%).
- The non-petroleum category meanwhile was more clearly stronger than expected, at 0.2% M/M (cons 0.1) after an upward revised 0.0% (initial -0.1%).
- Within the details, one notable point was import air passenger fares jumping 13.9% M/M (NSA) after a heavy -12.4% M/M in August.
- It’s a noisy volatile series but it sees a firmly stronger increase than the 7.3% averaged in recent years (see chart).
- That should modestly lift tracking for core PCE inflation, which was seen averaging 0.25% M/M for the September across estimates after last week’s CPI and PPI inputs. It will however depend on what analysts had already factored in (last month’s decline lowered some unrounded core estimates by 1bp).
CANADA DATA: Aug Manufacturing Sales Lowest Since Jan 2022
- MNI: CANADIAN AUG MANUFACTURING SALES -1.3% MOM
- CANADA AUG FACTORY INVENTORIES -0.6%; INVENTORY-SALES RATIO 1.75
- Canada manufacturing sales -1.3% in August. That's the lowest level since January 2022 after +1.1% in July.
- August sales came in slightly higher than forecasts and StatsCan flash estimate for -1.5%.
- Decline was led by metal, petroleum and coal.
- Sales volume -0.8% MOM in August.
- Unfilled orders -0.7% in August on lower unfilled orders in aerospace.
- YOY sales -4.4%, according to StatsCan Wednesday.
- Report adds to evidence the economy is lagging BOC projections into the second half of this year.
CANADA DATA: Aug Housing Starts +5% MOM To 223.8K
- Canada seasonally adjusted starts +5% in September to 223,808 units after -23% in August.
- According to Canada Mortgage and Housing Corporation, growth in actual YTD starts has been driven by higher multis and single units in provinces like Quebec. But Ontario and British Columbia have decreased across all housing types.
- "Despite the increase in housing starts in September, we remain well below what is required to restore affordability in Canada's urban centres" said Kevin Hughes, CMHC's Deputy Chief Economist.
MARKETS SNAPSHOT
Below gives key levels of markets in afternoon NY trade:
- DJIA up 357.3 points (0.84%) at 43061.82
- S&P E-Mini Future up 26.25 points (0.45%) at 5886.75
- Nasdaq up 46.3 points (0.3%) at 18362.59
- US 10-Yr yield is down 1.6 bps at 4.0161%
- US Dec 10-Yr futures (TY) are up 2.5/32 at 112-16.5
- EURUSD down 0.0033 (-0.3%) at 1.0857
- USDJPY up 0.55 (0.37%) at 149.77
- WTI Crude Oil (front-month) down $0.07 (-0.1%) at $70.39
- Gold is up $12 (0.45%) at $2674.02
Prior European bourses closing levels:
- EuroStoxx 50 down 38.02 points (-0.77%) at 4908.71
- FTSE 100 up 79.79 points (0.97%) at 8329.07
- German DAX down 53.38 points (-0.27%) at 19432.81
- French CAC 40 down 29.97 points (-0.4%) at 7492
US TREASURY FUTURES CLOSE
Current futures levels:
- Dec 2-Yr futures (TU) up 0.875/32 at 103-15.375 (L: 103-14.5 / H: 103-16.6)
- Dec 5-Yr futures (FV) up 1.5/32 at 108-19 (L: 108-17 / H: 108-22.8)
- Dec 10-Yr futures (TY) up 3/32 at 112-17 (L: 112-13 / H: 112-22)
- Dec 30-Yr futures (US) up 7/32 at 121-09 (L: 120-31 / H: 121-23)
- Dec Ultra futures (WN) up 15/32 at 129-12 (L: 128-26 / H: 130-0)
US 10YR FUTURE TECHS: (Z4) Gains Considered Corrective
- RES 4: 115-00+ High Oct 1
- RES 3: 114-14+ High Oct 3
- RES 2: 113-15+ 50-day EMA
- RES 1: 112-22/113-12 High Oct 16 / Low Sep 3
- PRICE: 112-18 @ 17:07 BST Oct 16
- SUP 1: 111-22 Low Oct 10
- SUP 2: 111-14 50.0% retracement of the Apr - Sep bull cycle (cont)
- SUP 3: 110-21 2.0% 10-dma envelope
- SUP 4: 111-00 Low Jul 22
A bear threat in Treasuries remains present and the latest recovery appears to be a correction - for now. A move higher is allowing a short-term oversold condition to unwind. The recent breach of the 50-day EMA and the 112-00 handle, undermines the prior bullish theme and instead highlights potential for a continuation lower. Sights are on 111-14, the 50% retracement for the Apr - Sep bull leg. 113-12, the Sep 3 low, is the first key resistance.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Spikes, Should Pull Back
SOFR records a sizeable 5bp jump to 4.86% Tuesday vs the previous print for Friday. It's the highest rate since Oct 2, at which point month/quarter-end dynamics were still settling down (SOFR hit 5.05% Oct 1).
- This is probably on the high side of expectations but a rise was expected largely on account of Treasury mid-month coupon settlements Tuesday. It's expected SOFR will subside again as the week goes on, before picking up toward the end of the month.
- Other key repo reference rates also picked up (BGCR and TGCR up 2bp respectively).
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.86%, 0.05%, $2272B
- Broad General Collateral Rate (BGCR): 4.83%, 0.02%, $834B
- Tri-Party General Collateral Rate (TGCR): 4.83%, 0.02%, $795B
O/N Reverse Repo Takeup Declines Further Below $300B
Takeup of the NY Fed's overnight reverse repo facility fell for a 2nd consecutive session Wednesday, to $272.0B vs $286.4B prior.
- Tuesday's fall below $300B (for the first time in a month) had been anticipated due to higher coupon settlements increasing demand for overnight financing.
- No significant pickup in ON RRP usage is seen until toward month-end - see chart for September's pattern.
US: SOFR FIX - 16/10/24 - Source BBG/CME
- 1M 4.78089 -0.00296
- 3M 4.63235 -0.0151
- 6M 4.43182 -0.01084
- 12M 4.11010 -0.0102
BONDS: EGBs-GILTS CASH CLOSE: UK Curve Bull Steepens On Low CPI Surprise
Gilts easily outperformed Bunds in a broad rally for global government bonds Wednesday as UK CPI came in below expectations.
- UK September core and headline Y/Y CPI each came in 0.2pp low vs consensus Services CPI came in 0.58ppt below the BOE's August projections, and while this was largely driven by airfares and hotel prices, even excluding those categories services inflation was still marginally weaker than the BOE's forecast.
- That resulted in about 12bp in BoE cuts added to the profile through September 2025 on the day and set a constructive tone for the session, with a continued pullback in oil prices and European equities following Tuesday's rout helping underpin the fixed income space in the afternoon.
- Both the UK and German curves bull steepened, though the former move was more pronounced as 2Y UK yields saw their biggest drop since early August.
- Periphery EGB spreads mostly tightened, coming in from early wides as ECB cut pricing increased (7bp more priced through the next year).
- The ECB is Thursday's highlight - MNI's preview is here (PDF) - while a 25bp cut is expected and priced in, communicating the motivation for such a move will not be straightforward.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 4.1bps at 2.17%, 5-Yr is down 4.1bps at 2.042%, 10-Yr is down 3.8bps at 2.184%, and 30-Yr is down 3.5bps at 2.479%.
- UK: The 2-Yr yield is down 11.1bps at 4.019%, 5-Yr is down 10.7bps at 3.926%, 10-Yr is down 9.8bps at 4.064%, and 30-Yr is down 8.6bps at 4.592%.
- Italian BTP spread down 1.3bps at 122.6bps / Greek down 1.7bps at 88.6bps
FOREX: Greenback Trades on Firmer Footing, GBP and AUD Underperform
- Latest tariff commentary from former President Trump has continued to weigh on higher beta currencies on Wednesday, with the likes of MXN and AUD suffering most notably, while the USD trades on a firmer footing (USD index up 0.25%).
- For AUDUSD (-0.60%), downside momentum marks an extension of the bear leg that started Sep 30 and price has recently traded through both the 20- and 50-day EMAs. This notably undermines a bullish theme and signals scope for a deeper retracement, initially towards 0.6622, the Sep 11 low and a key support.
- GBP has also weakened, although this was helped lower initially by the softer-than-expected CPI data, prompting GBPUSD to trade back below 1.30 for the first time since mid-August.
- Additionally, fresh pullback lows were made in EURUSD through the London close - with greenback strength continuing to feed through - mainly against JPY and EUR in late trade. A negative close today would be the 12th in the past 14 sessions, with the 200-dma now cracked to the downside for the first time since late July.
- EUR/USD price action keeps the bear cycle intact, with moving average studies now having shifted to a bear-mode position. The recent double top reversal pattern on the daily chart also highlights a bearish theme - compounded by a potential break of 1.0881 Fibonacci support at today's close. 1.0778, the Aug 1 low, the next downside level.
- Tomorrow’s ECB meeting highlight’s the economic calendar, however, Australian employment figures and US retail sales data are also due.
Date | GMT/Local | Impact | Country | Event |
17/10/2024 | - | EU | European Central Bank Meeting | |
17/10/2024 | 2350/0850 | ** | JP | Trade |
17/10/2024 | 0030/1130 | *** | AU | Labor Force Survey |
17/10/2024 | 0900/1100 | *** | EU | HICP (f) |
17/10/2024 | 0900/1100 | * | EU | Trade Balance |
17/10/2024 | 1100/0700 | *** | TR | Turkey Benchmark Rate |
17/10/2024 | 1215/1415 | *** | EU | ECB Deposit Rate |
17/10/2024 | 1215/1415 | *** | EU | ECB Main Refi Rate |
17/10/2024 | 1215/1415 | *** | EU | ECB Marginal Lending Rate |
17/10/2024 | 1230/0830 | *** | US | Jobless Claims |
17/10/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities |
17/10/2024 | 1230/0830 | *** | US | Retail Sales |
17/10/2024 | 1230/0830 | ** | US | Philadelphia Fed Manufacturing Index |
17/10/2024 | 1245/1445 | EU | ECB Monetary Policy Press Conference | |
17/10/2024 | 1315/0915 | *** | US | Industrial Production |
17/10/2024 | 1400/1000 | * | US | Business Inventories |
17/10/2024 | 1400/1000 | ** | US | NAHB Home Builder Index |
17/10/2024 | 1415/1615 | EU | ECB Podcast: Lagarde presents MonPol Decision | |
17/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
17/10/2024 | 1500/1100 | ** | US | DOE Weekly Crude Oil Stocks |
17/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
17/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
17/10/2024 | 2000/1600 | ** | US | TICS |
17/10/2024 | 2000/2100 | GB | BOE's Woods Speech at Mansion House | |
18/10/2024 | 2330/0830 | *** | JP | CPI |
18/10/2024 | 0200/1000 | *** | CN | GDP |
18/10/2024 | 0200/1000 | *** | CN | Fixed-Asset Investment |
18/10/2024 | 0200/1000 | *** | CN | Retail Sales |
18/10/2024 | 0200/1000 | *** | CN | Industrial Output |
18/10/2024 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |