EXECUTIVE SUMMARY
- MNI POLITICAL RISK-US Elections Weekly: Traders Turn On Harris
- MNI POLICY: Fed To Scale Back To 25BP As US Outlook Stays Rosy
- MNI FED: NY Fed To Release Key Reserve Tracker Data With QT Endgame In Mind
- MNI US DATA: Consumer Sentiment Misses Vs Higher Near-Term Inflation Expectations
US
MNI POLICY: Fed To Scale Back To 25BP As US Outlook Stays Rosy
Federal Reserve officials plan to scale back rate cuts to 25-basis-point increments and could even hold at some meetings as the U.S. economy continues to show surprising strength and after the latest employment report dissipated fears of a Fed-induced job market rut. That would mean the aggressive half point start to the rate-cutting cycle appears to have been a one-off for now barring significant and unexpected deterioration in the labor market. Skipping meetings would be up for debate if data keep coming in hot.
MNI FED: NY Fed To Release Key Reserve Tracker Data With QT Endgame In Mind
The New York Fed has announced it will publish monthly updates of its in-house research on "how much the federal funds rate responds to shifts in reserve supply" (press release here). While Fed officials are currently unconcerned with reserve ampleness as QT has proceeded smoothy so far, this promises to be a useful metric to track to see whether and when the end of Fed balance sheet contraction is nearing. Per NY Fed: "This new tool will provide a real-time assessment of the ampleness of reserves in the U.S. banking system to support Federal Reserve balance sheet management and successful monetary policy implementation."
NEWS
MNI POLITICAL RISK-US Elections Weekly: Traders Turn On Harris
Executive Summary: The presidential election race remains poised on a knife edge, but there has been some positive polling movement for Trump on the margins. The most noticeable action has been a surge towards Trump on prediction markets. A set of New York Times/Siena College polls provided more data to suggest that Trump’s electoral college advantage might be less pronounced this year than in previous cycles. The survey also hinted at a systemic error that may impact the accuracy of polling.
MNI US: Trump Retains Lead On Economy And Border Security, WSJ
A new Wall Street Journalsurvey of the seven swing states shows that Trump is "better equipped" than Harris to handle the issues voters care about most - the economy and border security - "yet [voters] are divided about evenly over which candidate should lead the nation.” The Journal notes that the survey, “finds Harris with slim leads in Arizona, Michigan, Wisconsin and Georgia on ballots that include independent and third-party candidates where they will be offered as options. Trump has a narrow edge in Nevada, North Carolina and Pennsylvania. But no lead is greater than 2 percentage points, except for Trump’s 5-point advantage in Nevada, which like the others is within the poll’s margin of error.”
MNI SECURITY: Western Leaders Criticise Israeli Military Action Around UN Facilities
US President Joe Biden, speaking at the White House on the US federal government response to Hurricanes Milton and Helene, has told reporters that he "absolutely, positively," will be telling Israel to avoid military action that could hit United Nations peacekeepers in Lebanon, as a series of Israeli strikes on UNIFL positions on Thursday and Friday pushed relations between Israel and the UN to new lows. Reuters reports that the governments of France, Italy, and Spain released a joint statement a few moments ago saying the, "attacks constitute a serious violation of the obligations of Israel under UN security council resolution 1701 and humanitarian international law."
MNI SECURITY: Israeli Response To Iran May Be More Aggressive Than US Would Want
The Middle East remains braced for an Israeli response to Iran, with an uncharacteristically tight press environment offering limited details on yesterday's Israeli Security Cabinet meeting. Amichai Stein notes on X: "...there was no vote either on the outline of Israeli action in Iran or even on the authorization of [Prime Minister] Netanyahu and [Defense Minister] Gallant to accept the decision."
US TSYS
MNI US TSYS: Curves Bull Steepen After Mixed PPI. UofM Sentiment Miss
Treasuries are trading near session highs after the bell, curves steeper after this morning's mixed PPI results where month-over-month eased vs higher year-over-year metrics. Some of the main PPI categories that feed into core PCE calculations saw an acceleration in M/M terms in September, adding 0.06pps to core PCE vs an upward revised 0.03pp in Aug (had been 0.00pp).
- Upward revisions to August could mean a more notable upside surprise for Y/Y figures though, potentially seeing some upside risk to the recently downward revised median FOMC forecast of 2.6% for core PCE inflation in 4Q24 (lowered from 2.8% in the June SEP).
- Meanwhile, U.Mich consumer sentiment disappointed in the preliminary October release, falling to 68.9 (cons 71.0) after 70.1 in September. It leaves sentiment at one of the lower levels seen this year but well within post-pandemic ranges.
- Treasuries gradually extended highs in the second half, while projected rate cuts have gained slightly vs. this morning's pre-data levels (*): Nov'24 cumulative -22.7bp (-21.4bp), Dec'24 -45.1bp (-44.6bp), Jan'25 -65.4bp (-64.4bp).
OVERNIGHT DATA
MNI US DATA: Consumer Sentiment Misses Vs Higher Near-Term Inflation Expectations
U.Mich consumer sentiment disappointed in the preliminary October release, falling to 68.9 (cons 71.0) after 70.1 in September. It leaves sentiment at one of the lower levels seen this year but well within post-pandemic ranges. Declines and downward surprises were seen in both current conditions and expectations components but were most pronounced for expectations. The preliminary survey period ran until Oct 7 so came before Hurricane Milton made landfall. 1Y: 2.9% (cons 2.7) in Oct prelim after 2.7% in Sept. The surprise increase sees it lift from what was the lowest since Dec 2020. 5-10Y: 3.0% (cons 3.0) in Oct prelim after 3.1% in Sept, falling back more firmly into its typical range.
MNI US DATA: Core PPI Lent Softer In September But After Upward Revisions
As for the main core PPI categories, they lent softer than expected in September alone but did see net upward revisions. With the two main measures at 0.16/0.14% M/M, they were similar to the 0.16% M/M seen for core goods ex used vehicles in yesterday’s CPI report after months of core PPI coming in hotter.
- Final demand ex food & energy nearly surprised lower with 0.16% M/M (cons 0.2) in September. It followed an essentially unrevised 0.31% M/M in Aug but prior upward revisions lifted the level by 0.2%.
- Final demand ex food, energy & trade services did however surprise lower, but this time only just with 0.14% M/M (cons 0.2) although that was smaller net upward revisions. The 0.20% M/M in August was down from initially 0.25%, limiting the net upward revised to just 0.07%.
- The similarity between the two core measures specifically in September came as trade services increased just 0.2% M/M, a particularly volatile imputed measure that was swung around in recent months to drive differences between the two.
MNI US DATA: PPI Details Lean Hawkish On Net But Tracking Uncertain
Some of the main PPI categories that feed into core PCE calculations saw an acceleration in M/M terms in September, adding 0.06pps to core PCE vs an upward revised 0.03pp in Aug (had been 0.00pp). The variety of health care services that we track for it were overall slightly cooler than in Aug (adding 0.03pp vs 0.04pps last month), which is of note considering potential greater stickiness in this category. Instead, the main change came from airline fares (which using the total category for a crude seasonally adjusted approximation added +0.02pps after -0.01pps).
- Airfares increased 1.5% M/M after -1.0% M/M (or 0.5% after -1.9% M/M NSA for domestic), fading the heavy 3.2% M/M and 3.9% M/M increases seen in the CPI series over Sep and Aug respectively.
- That could imply some mild upside surprise to core PCE M/M estimates that post-CPI had looked to be ~0.23% M/M on average
- Note that upward revisions to August could mean a more notable upside surprise for Y/Y figures though, potentially seeing some upside risk to the recently downward revised median FOMC forecast of 2.6% for core PCE inflation in 4Q24 (lowered from 2.8% in the June SEP).
- Exact implications will depend on what analysts had assumed for individual PPI categories, but it looks likely that core PCE will still come in below the 0.31% M/M seen for core CPI yesterday.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 426.01 points (1%) at 42876.25
S&P E-Mini Future up 37.5 points (0.64%) at 5866
Nasdaq up 84.6 points (0.5%) at 18365.67
US 10-Yr yield is up 1.6 bps at 4.0767%
US Dec 10-Yr futures are up 4.5/32 at 112-7
EURUSD up 0.0004 (0.04%) at 1.0939
USDJPY up 0.55 (0.37%) at 149.11
WTI Crude Oil (front-month) down $0.54 (-0.71%) at $75.27
Gold is up $27.45 (1.04%) at $2657.44
European bourses closing levels:
EuroStoxx 50 up 33.58 points (0.68%) at 5003.92
FTSE 100 up 15.92 points (0.19%) at 8253.65
German DAX up 162.93 points (0.85%) at 19373.83
French CAC 40 up 36.3 points (0.48%) at 7577.89
US TREASURY FUTURES CLOSE
3M10Y +2.598, -56.389 (L: -60.416 / H: -52.652)
2Y10Y +3.244, 13.181 (L: 8.863 / H: 14.488)
2Y30Y +4.625, 44.267 (L: 38.148 / H: 45.622)
5Y30Y +3.423, 50.519 (L: 46.213 / H: 50.854)
Current futures levels:
Dec 2-Yr futures up 2.875/32 at 103-15 (L: 103-12.25 / H: 103-15.75)
Dec 5-Yr futures up 5/32 at 108-15.5 (L: 108-09.25 / H: 108-16.75)
Dec 10-Yr futures up 4.5/32 at 112-7 (L: 111-30.5 / H: 112-10)
Dec 30-Yr futures up 4/32 at 120-10 (L: 119-23 / H: 120-23)
Dec Ultra futures down 2/32 at 127-20 (L: 126-30 / H: 128-12)
MNI US 10YR FUTURE TECHS: (Z4) Bear Threat Firms
- RES 4: 115-00+ High Oct 1
- RES 3: 113-22+ 20-day EMA
- RES 2: 113-21 50-day EMA
- RES 1: 113-12 Low Sep 3 and a recent breakout level
- PRICE: 112-05 @ 1150 ET Oct 11
- SUP 1: 111-22 Low Oct 10
- SUP 2: 111-14 50.0% retracement of the Apr - Sep bull cycle (cont)
- SUP 3: 110-28 2.0% 10-dma envelope
- SUP 4: 111-00 Low Jul 22
A bear threat in Treasuries remains present and the contract has traded new pullback lows on the post-CPI / weekly jobs data volatility. The latest sell-off has resulted in a break of not only the 50-day EMA, but also the 112-00 handle. The move undermines the prior bullish theme and instead highlights potential for a continuation lower. Sights are on the 111-14, the 50% retracement for the Apr - Sep bull leg. 113-12, the Sep 3 low, is the first resistance.
SOFR FUTURES CLOSE
Dec 24 +0.020 at 95.675
Mar 25 +0.055 at 96.10
Jun 25 +0.075 at 96.390
Sep 25 +0.075 at 96.550
Red Pack (Dec 25-Sep 26) +0.055 to +0.070
Green Pack (Dec 26-Sep 27) +0.035 to +0.050
Blue Pack (Dec 27-Sep 28) +0.015 to +0.025
Gold Pack (Dec 28-Sep 29) +0.005 to +0.010
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01804 to 4.78592 (-0.05966/wk)
- 3M -0.00860 to 4.64730 (+0.06332/ wk)
- 6M -0.00514 to 4.44358 (+0.16559/wk)
- 12M -0.00768 to 4.13974 (+0.27392/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.82% (-0.01), volume: $2.198T
- Broad General Collateral Rate (BGCR): 4.81% (-0.01), volume: $805B
- Tri-Party General Collateral Rate (TGCR): 4.81% (-0.01), volume: $769B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $98B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $258B
FED Reverse Repo Operation
RRP usage climbs to $331.735B this afternoon from $322.587B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties at 59 from 68 prior.
EGBS
BONDS: EGBs-GILTS CASH CLOSE: Early Losses Reverse, Curves Steepen Again
Core EGBs and Gilts rebounded from early losses to close Friday flat, with periphery spreads coming off early wides.
- Bond futures ticked higher overnight, but the move faded over the course of the European morning.
- UK economic activity came in close to expectations and had little impact. Heavy Italian supply (3/7/15/24-year BTP auctions) helped weigh on the space in the morning.
- The main macro event of the day, US PPI, brought an initially dovish reaction on a soft headline reading but the details were more mixed, and the uptick faded with a move back to the lows.
- But the rest of the session saw an almost uninterrupted rally, with no clear catalyst, mainly tracking Treasuries higher. Curves steepened on the day: the UK's in a bullish fashion, with Germany's bear steepening modestly.
- Overnight reaction to France's fiscal and issuance plans for 2025 released late Wednesday was limited, with OAT/Bund closing Friday unchanged. BTPs underperformed on the periphery, with 10Y spreads to Bunds coming off early wides (4bp) to close about 2bp wider.
- Fitch's review of France features after hours. Next week brings a busier European schedule, with the ECB decision Thursday (our preview will be out early next week), and UK CPI and labour market data.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.2bps at 2.235%, 5-Yr is up 0.7bps at 2.119%, 10-Yr is up 0.9bps at 2.265%, and 30-Yr is up 1.1bps at 2.559%.
- UK: The 2-Yr yield is down 1.6bps at 4.171%, 5-Yr is down 0.9bps at 4.072%, 10-Yr is down 0.3bps at 4.207%, and 30-Yr is down 0.2bps at 4.749%.
- Italian BTP spread up 1.8bps at 129.5bps /Spanish up 1.3bps at 74.9bps
FOREX
MNI FOREX: Record Highs for Equities Underpins Cross JPY Strength
Currency markets traded with a muted tone on Friday, amid a mixed set of US data and potentially reflecting cautiousness ahead of the week’s close and the impending US holiday on Monday. All eyes remain on China stimulus measures, with a key press conference taking place on Saturday from the MOF on fiscal policy. We also have more meetings at the start of next week.
- Fresh record highs for Emini S&P 500 futures weighed on the Japanese yen, with the risk on tone
- Boosting the likes of AUD and NZD, which are the best performers in G10, alongside the Norwegian Krone.
- AUDJPY has risen 0.60% and while it did breach Thursday’s high, the cross remains shy of the October peak which is located around 65 pips above current levels at 101.42.
- The most interesting move was following the stellar jobs report from Canada which momentarily provided the Canadian dollar with a welcome reprieve. USDCAD shed roughly 50 pips from 1.3775 to 1.3725 on the release, however, a steady grind higher since then makes it likely that USDCAD will extend its winning streak to 8 consecutive sessions. This keeps the bull trend firmly intact, and sights are on 1.3800 and 1.3846, the mid-April highs. Canadian CPI is due next Tuesday.
- EURUSD held a very tight 31 pip range, as the pair consolidated its small bounce from 1.0900 lows made this week. Next week will be highlighted by the October ECB rate decision and press conference.
MONDAY-TUESDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 15/10/2024 | 0830 | ** | Oct | Empire Manufacturing Index | -- | -- | |
| 15/10/2024 | 0855 | ** | 12-Oct | Redbook Retail Sales y/y (month) | -- | -- | % |
| 15/10/2024 | 0855 | ** | 12-Oct | Redbook Retail Sales y/y (week) | -- | -- | % |
| 15/10/2024 | 1130 | * | 18-Oct | Bid to Cover Ratio | -- | -- | |
| 15/10/2024 | 1130 | * | 18-Oct | Bid to Cover Ratio | -- | -- | |
| 15/10/2024 | 1300 | * | 18-Oct | Bid to Cover Ratio | -- | -- |