US TSYS: Underperforming Global Peers In Twist Flattening Move
Treasuries closed Friday little changed, underperforming global peers.
- Futures traded within Thursday's ranges, with data having little lasting impact: November flash services PMI was much stronger than expected and the highest since March 2022, though soft employment and output price inflation metrics softened the impact.
- Elevated final November UMichigan survey long-term inflation expectations saw Treasuries hit the worst levels of the day, but the move reversed.
- The limited move in yields stood in contrast to pronounced gains in Europe, where weaker-than-expected PMIs renewed concern over regional growth and boosted ECB rate cut pricing. That helped boost Treasuries in overnight trade, but as noted, the US rate move subsided.
- Futures volumes remained robust (2.4M TYZ4), though again it was largely quarterly roll-related.
- The curve twist flattened on the day, and Friday's moves left 10Y yields just 2bp lower on the week.
- Latest levels: The Dec 24 T-Note future is up 5/32 at 109-21, having traded in a range of 109-16.5 to 109-26.5. 2-Yr yield is up 1.8bps at 4.3665%, 5-Yr is down 0.9bps at 4.2948%, 10-Yr is down 1.8bps at 4.4041%, and 30-Yr is down 1.1bps at 4.5906%.
- MNI's weekly US macro wrap is here (PDF).
- Next week's schedule is condensed by the Thanksgiving holiday, with highlights including FOMC Minutes (MNI Preview here - PDF) and GDP/PCE data.
NEWS
FED (MNI INTERVIEW): Incoming American President Donald Trump's trade and immigration policies will depress growth and increase inflation, forcing the Federal Reserve to keep interest rates higher over the medium term, former Fed vice chair Alan Blinder told MNI. An extension of tax cuts pushes in the other direction on growth but will also be inflationary, he said. The president-elect has promised 60% tariffs on China and 10%-20% tariffs on other trading partners, as well as draconian restrictions on immigration and mass deportations. He might be talked out of some of those ideas, but the "supine" Republican Party may also be content to defer to Trump's wishlist, Blinder said.
FED (MNI): The Federal Reserve will stick to its 2% inflation target as part of its 2025 framework review and focus on the Statement on Longer-Run Goals and Monetary Policy Strategy and its communications tools, according to a statement released Friday. "The review is focused on two specific areas: the Federal Open Market Committee’s Statement on Longer-Run Goals and Monetary Policy Strategy, which articulates the Committee’s approach to monetary policy; and the Committee’s policy communications tools. The Committee’s two percent longer-run inflation goal will not be a focus of the review," the Fed Board statement said. (See: MNI: Fed Review To Rebalance Inflation Targeting-Ex Officials)
US (FT):US retailers stretch out Black Friday deals to lure flagging shoppers. Spending is key driver of US economy but shows signs of slowing as impact of past inflation lingers
US (FT): Donald Trump will trigger a “period of chaos” and sharp price rises if he scraps Joe Biden’s manufacturing tax credits and increases tariffs as planned, the White House’s top economic adviser said. Lael Brainard, director of the National Economic Council, told the Financial Times that Trump’s plan to gut the Inflation Reduction Act and the Chips and Science Act — President Biden’s signature legislation — would harm US manufacturing capacity.
ECB (MNI INTERVIEW): The European Central Bank is debating whether to maintain its commitment to “keep policy rates sufficiently restrictive for as long as necessary” to achieve its inflation target in its December policy statement, Austrian National Bank Governor Robert Holzmann told MNI. “There is currently no unanimity, but there is on balance still a preference for keeping it there, if only because there are still risks from meeting to meeting - some measurable, some perceived - and it makes sense not to tailor the statement to each and every one,” Holzmann told MNI in an interview in Vienna, adding that he sees risks tilted to the upside.
ECB (Ouest-France):European Central Bank policy will develop regardless of what happens at the Federal Reserve, according to Governing Council member Francois Villeroy de Galhau. “The decisions we make at the ECB with Christine Lagarde are independent of those of the Fed,” the French central banker told Ouest-France newspaper. “The proof is that we had started to lower interest rates at the beginning of June, and the Fed only lowered them three months later. With the fall in inflation, we will be able to continue to lower rates.”
ITALY FISCAL (MNI SOURCES): Italy’s 2024 fiscal deficit is likely to be 0.1-0.2 percentage point higher than its target of 3.8% of GDP, and the country’s debt-to-GDP ratio could finish the year two percentage points above the 134.8% forecast by the government in September, as growth comes in below its projections, two sources close to the matter told MNI.
BOC (MNI INTERVIEW): Another jumbo Bank of Canada interest-rate cut is fully justified because a flagging economy means officials need to quickly bring policy to a neutral or stimulative setting according to Ed Devlin, a major bond investor who has presented at central bank policy workshops. “The quicker the better,” Devlin told MNI's FedSpeak podcast. "We need at a minimum a neutral monetary policy if not possibly an accommodative one."
UK (BBG):Keir Starmer said his Labour government would be setting out “radical reforms” in the coming week to tackle the UK’s rising outlays on benefits. Starmer’s Labour is under pressure to balance the country’s spending and boost growth after returning from over a decade out of power. The first set of indicators following its inaugural budget saw private enterprise stagnate and consumer retail spending fall.
DATA
US DATA: Services PMI Surprises With Highest Since Mar 2022, Some Softer Details
The S&P Global US PMI shows a solid improvement in service sector sentiment, at its highest since Mar 2022, yet employment fell further and output price inflation cooled to softest since June 2020.
- Manufacturing PMI: 48.8 (cons 48.9) in Nov prelim after 48.5 in Oct.
- Services PMI: 57.0 (cons 55.0) in Nov prelim after 55.0 in Oct.
- Composite PMI: 55.3 (cons 54.3) after 54.1 in Oct.
- From the press release (in full here):
- “Flash US PMI® survey data signaled a marked upturn in growth of business activity in November to a 31-month high, with output buoyed by the sharpest rise in demand for two-and-a-half years and improved business confidence.
- Firms' expectations of output in the coming year rose to the highest since May 2022, attributed to the prospect of lower interest rates, improved economic growth, and more supportive business policies from the new administration in 2025.
- Employment fell for a fourth successive month, while output price inflation cooled to the lowest since prices began rising in June 2020, with prices charged for services showing an especially modest rise.
- Growth was again driven solely by the service sector, but rising optimism and renewed hiring in manufacturing hinted at the upturn becoming more broad-based in the coming months.”
US DATA: Final UMich Shows Little Change in Current Conditions
From the UMich survey:
- "Post-election interviews were 1.3 points below the pre-election reading, moderating the improvement seen earlier in the month.
- "Overall, the stability of national sentiment this month obscures discordant partisan patterns. In a mirror image of November 2020, the expectations index surged for Republicans and fell for Democrats this month
- "Current conditions saw insignificant changes this month across the political spectrum, consistent with the fact that the resolution of the election exerted little immediate impact on the current state of the economy"
Reversing expectations by self-identified political party here:
US DATA: Consumer 5-10Y Inflation Expectations Tilt Above Range For Cycle Highs
- 5-10Y inflation expectations break out of the typical 2.9-3.1% in the final survey for November, which captures initial fallout from the US election results after the preliminary release only ran up to Nov 4 (final survey went to Nov 18).
- The 5-10Y was revised up a tenth to 3.2% (initial 3.1), its highest since Nov 2023 and before that Mar 2011.
- Countering this impact from a market reaction perspective was the softer than first thought increase in consumer sentiment, up from 70.5 to 71.8 rather than the 73.0 touted in the preliminary survey.
MNI: Canadian Oct Retail Sales Rise For Fourth Straight Month
Canadian retail sales advanced a fourth straight month in October, showing a consistent pickup since the central bank began cutting interest rates in June. Sales climbed 0.7% in September, according to Statistics Canada's flash estimate published Friday from Ottawa. The agency's official reading for September rose 0.4% in line with an economist consensus. The gain was led by food and beverage and building materials. Sales increased in six of nine major categories, and there were declines in gasoline and autos. The volume of sales that strip out price increases and better reflect GDP increased 0.8% in September. Excluding autos, sales rose 0.9%, beating consensus for a 0.5% increase.
MNI:Largest Canada New Home Price Dip Since `09 Led By Toronto
Canadian new home prices saw the biggest decline in October since 2009 during the global financial crisis, led by Toronto and Vancouver. Statistics Canada said Friday that its New Housing Price Index fell 0.4% on a monthly basis, including a 1.2% fall in Toronto and a 0.6% decline in Vancouver. The overall nationwide results were more balanced, with declines in nine of 27 census metropolitan areas, increases in seven areas, and little change in the remaining 11. Builders have reported drags from higher building material and labor costs, and the pinch from the Bank of Canada's past rate increases before officials turned to cuts in June. Earlier this week CMHC reported a monthly rise in housing starts but also a weakening trend over the last two years, foiling government efforts to boost supply and affordability. From a year earlier StatsCan's price index was down 0.2%.
MARKETS SNAPSHOT
Below gives key levels of markets in afternoon NY trade:
- DJIA up 363.33 points (0.83%) at 44238.23
- S&P E-Mini Future up 13.75 points (0.23%) at 5984.75
- Nasdaq up 23.7 points (0.1%) at 18996.6
- US 10-Yr yield is down 1.4 bps at 4.4081%
- US Dec 10-Yr futures (TY) are up 4.5/32 at 109-20.5
- EURUSD down 0.0063 (-0.6%) at 1.0411
- USDJPY up 0.26 (0.17%) at 154.8
- WTI Crude Oil (front-month) up $1.18 (1.68%) at $71.28
- Gold is up $37.93 (1.42%) at $2708.07
Prior European bourses closing levels:
- EuroStoxx 50 up 33.25 points (0.7%) at 4789.08
- FTSE 100 up 112.81 points (1.38%) at 8262.08
- German DAX up 176.42 points (0.92%) at 19322.59
- French CAC 40 up 41.69 points (0.58%) at 7255.01
US TREASURY FUTURES CLOSE
Current futures levels:
Dec 2-Yr futures (TU) down 1/32 at 102-16.75 (L: 102-16.4 / H: 102-19.6)
Dec 5-Yr futures (FV) up 0.75/32 at 106-17.25 (L: 106-15.5 / H: 106-22.5)
Dec 10-Yr futures (TY) up 4.5/32 at 109-20.5 (L: 109-16.5 / H: 109-26.5)
Dec 30-Yr futures (US) up 6/32 at 116-10 (L: 116-2 / H: 116-27)
Dec Ultra futures (WN) up 15/32 at 122-21 (L: 122-6 / H: 123-7)
US 10YR FUTURE TECHS: (Z4) Bear Cycle Remains In Play
- RES 4: 112-22 High Oct 16 and a key short-term resistance
- RES 3: 111-20+ High Oct 22
- RES 2: 111-11 50-day EMA
- RES 1: 110-06 20-day EMA
- PRICE: 109-21 @ 17:08 GMT Nov 22
- SUP 1: 108-30/18+ Low Nov 15 / 1.236 proj of Oct 1 - 10 - 16 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: 107-17 2.0% 10-dma envelope
The trend condition in Treasuries is unchanged, bears remain in the driver’s seat and the recent 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 110.06.
STIR: Current End-2025 Implied Pricing Above All But 1 September FOMC Dot
This week has seen a further shift higher in the expected Fed funds path through 2025, with futures-implied effective rates seen remaining above 4% through to the September 2025 FOMC - 7 meetings from now. See below. A December cut is barely seen at higher probability than a coin flip. See table below.
- Since last Friday, futures markets have priced out cuts by a further 10bp through that period, leaving fully-implied cuts at just 2x 25bp through the July 2025 FOMC, and a cumulative 65bp of cuts from now through end-2025.
- To put this into perspective, the FOMC's September projections foresaw a median end-2025 rate of 3.375% - only 1 of 19 submissions saw rates above where markets are currently priced by end-2025 (1 at 4.125%; there was 1 at 3.875% and all others at 3.625% and below; vs 3.92% FF implied).
- Some analysts have begun forecasting even more cautious paths: this week saw Deutsche eliminate any 2025 Fed cuts from its baseline, and even the 25bp it expects in December is a close call.
| Meeting | Current FF Implieds (%), LH | Cumulative Change From Current Rate (bp) | Incremental Chg (bp) | End of Last Week (Nov 15) | Chg Since Then (bp) |
| Dec 18 2024 | 4.45 | -13.4 | -13.5 | 4.43 | 1.3 |
| Jan 29 2025 | 4.39 | -18.8 | -5.4 | 4.35 | 4.4 |
| Mar 19 2025 | 4.27 | -31.1 | -12.3 | 4.20 | 6.6 |
| May 07 2025 | 4.20 | -37.6 | -6.5 | 4.13 | 7.8 |
| Jun 18 2025 | 4.11 | -47.5 | -9.9 | 4.02 | 8.9 |
| Jul 30 2025 | 4.05 | -52.8 | -5.3 | 3.95 | 10.2 |
| Sep 17 2025 | 4.00 | -58.0 | -5.2 | 3.90 | 10.4 |
| Oct 29 2025 | 3.96 | -62.3 | -4.3 | 3.86 | 9.7 |
| Dec 10 2025 | 3.92 | -65.8 | -3.5 | 3.83 | 8.9 |
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: SOFR Ticks Up In Line With Bill Settles
As broadly anticipated, SOFR ticked up Thursday by 1bp to 4.57% - this is likely attributable to unusually large bill settlements (including $50B cash management bill in addition to the usual bills). Secured rates are roughly expected to remain around current levels or slightly higher through most of the rest of the month. Effective Fed Funds remains steady as ever, at 4.58%.
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.57%, 0.01%, $2291B
- Broad General Collateral Rate (BGCR): 4.56%, no change, $798B
- Tri-Party General Collateral Rate (TGCR): 4.56%, no change, $771B
New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 4.58%, no change, volume: $101B
- Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $281B
US TSYS/OVERNIGHT REPO: Partial Bounceback In ON RRP Takeup
Takeup of the Fed's overnight reverse repo facility partially rebounded Friday from Thursday's drop, rising $15.7B to $204.3B after a prior $29.2B fall.
- The latter was likely induced by flows out of ON RRP into bills Thursday amid unusually large bill settlements.
- ON RRP takeup is expected to remain relatively steady until picking up at end-month.
EGBs-GILTS CASH CLOSE: Yields Hit Month's Lows On Weak PMIs
EGBs and Gilts rallied sharply Friday after PMI data heightened concern over Eurozone growth.
- EGB curves bull steepened after November flash Eurozone PMIs came in weaker than expected, particularly in services - helping fuel bets on an outsized 50bp cut at the December meeting of the ECB, which has been increasingly focused on downside growth risks.
- UK PMIs were likewise weak but Gilt reaction was comparatively limited outside of the spillover from the Euro move (softer than expected UK retail sales were shrugged off).
- ECB December cut pricing jumped to ~12% of a 50bp cut to around 60% in the immediate PMI aftermath. Bund and Gilt yields hit fresh November lows, with periphery and some semi-core EGBs unable to keep pace.
- Notably OATs remained under pressure, with the 10Y spread to Bunds 1.9bp wider and closing above the 80bp mark amid continued political/fiscal concerns (and potential rating deterioration, with S&P potentially placing the sovereign on negative outlook next week).
- Speaking of ratings, Moody’s are set to review Italy’s after the cash close Friday, with its current Baa3 (Outlook Stable) one notch below that of S&P and Fitch (both BBB, last reviewed on Oct 18). An outlook upgrade is seen as possible.
- Next week brings the November round of preliminary Euro HICP, which could prove decisive for the December rate decision.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 11.7bps at 1.991%, 5-Yr is down 8.4bps at 2.057%, 10-Yr is down 7.6bps at 2.242%, and 30-Yr is down 4.4bps at 2.496%.
- UK: The 2-Yr yield is down 5.8bps at 4.325%, 5-Yr is down 5.8bps at 4.239%, 10-Yr is down 5.7bps at 4.386%, and 30-Yr is down 5.6bps at 4.855%.
- Italian BTP spread up 0.7bps at 126bps / Spanish up 0.6bps at 73.1bps
FOREX: EURUSD Sinks to a 1.0335 Low Before Stabilising, USDCHF Soars
- Friday's prelim Eurozone PMI numbers were seen as critical for near-term Euro sentiment and the particularly soft releases for both France and Germany weighed heavily across the single currency during the European session.
- The fallout took EUR/USD to trade fresh pullback lows at 1.0335 – and despite stabilising, we remain 0.55% lower on the session, just above the 1.04 handle. This would represent the lowest weekly close since November 2022 and this week’s extension reinforces the bearish trend condition.
- Moving average studies continue to highlight a dominant downtrend, suggesting scope for a continuation near-term and beyond today’s low print of 1.0335, immediate sights are on 1.0311, a Fibonacci projection. Below here, a previous low print at 1.0223 and 1.0201 (61.8% retracement of the Sep 28 - Juk 18 bull leg), represent an important area of support.
- While bearish Euro price action was broad based on Friday, there was a notable turnaround for the Swiss Franc, with EURCHF actually seen higher on the session and USDCHF the best performing major pair, up 0.8%. The moves came as SNB Chairman Schlegel reiterated the central bank board cannot rule out going back to negative rates. Sight deposits data on Monday will also be of high importance to see if the SNB may have intervened at all to curb CHF strength.
- USDCHF rose to a fresh post-election high of 0.8957 and exponential moving average indicators continue to highlight a bull trend. Medium-term attention now turns to 0.9050 and the key resistance zone between 0.9224/44.
- German IFO data crosses Monday before Tuesday’s release of the FOMC minutes. On Wednesday focus will turn to Australian CPI and the RBNZ decision.
DATA/EVENTS CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 25/11/2024 | 0800/0900 | ** |  ES | PPI |
| 25/11/2024 | 0900/1000 | *** |  DE | IFO Business Climate Index |
| 25/11/2024 | 0900/0900 |  GB | BOE's Lombardelli At Watchers' Conference | |
| 25/11/2024 | 1030/1030 | GB | BOE's Dhingra At Watchers' Conference | |
| 25/11/2024 | 1330/0830 | * |  CA | Quarterly financial statistics for enterprises |
| 25/11/2024 | 1400/1500 | ** |  BE | BNB Business Sentiment |
| 25/11/2024 | 1530/1030 | ** |  US | Dallas Fed manufacturing survey |
| 25/11/2024 | 1630/1730 |  EU | ECB's Lane at BoE Watchers' Conference | |
| 25/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 25/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 25/11/2024 | 1800/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 25/11/2024 | 1800/1300 | * | US | US Treasury Auction Result for 2 Year Note |
| 26/11/2024 | 0001/0001 | * | GB | BRC Monthly Shop Price Index |
| 26/11/2024 | 0700/0800 | ** |  SE | PPI |
| 26/11/2024 | 1100/1100 | ** | GB | CBI Distributive Trades |
| 26/11/2024 | 1305/0805 | CA | BOC Deputy Mendes speech in PEI. | |
| 26/11/2024 | 1330/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
| 26/11/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 26/11/2024 | 1400/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 26/11/2024 | 1400/0900 | ** | US | FHFA Home Price Index |
| 26/11/2024 | 1400/0900 | ** | US | FHFA Home Price Index |
| 26/11/2024 | 1400/0900 | ** | US | FHFA Quarterly Price Index |
| 26/11/2024 | 1400/0900 | ** | US | FHFA Quarterly Price Index |
| 26/11/2024 | 1500/1000 | *** | US | New Home Sales |
| 26/11/2024 | 1500/1000 | *** | US | Conference Board Consumer Confidence |
| 26/11/2024 | 1500/1000 | ** | US | Richmond Fed Survey |
| 26/11/2024 | 1530/1030 | ** | US | Dallas Fed Services Survey |
| 26/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 26/11/2024 | 1630/1130 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 26/11/2024 | 1800/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 26/11/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 26/11/2024 | 1900/1400 | *** | US | FOMC Minutes |
| 27/11/2024 | - |  NZ | Reserve Bank of New Zealand Meeting | |
| 27/11/2024 | 0030/1130 | *** |  AU | Quarterly construction work done |
| 27/11/2024 | 0030/1130 | *** | AU | CPI Inflation Monthly |
| 27/11/2024 | 0100/1400 | *** | NZ | RBNZ official cash rate decision |