EXECUTIVE SUMMARY
- MNI POLITICAL RISK - US Election Preview
- MNI UK FISCAL: Top Ten Budget Takeaways
- US DATA: Pending Home Sales Rise More Firmly Off Series Lows
- MNI US DATA: Q3 GDP Report Another Win For Atlanta Fed’s GDPNow
- MNI US DATA: ADP Points To Large Upside Scope For NFPs, But With Disruption Asterisk
MNI US TSYS: October ADP Jobs Gain Surprise Saps Short End Support
- Treasuries look to finish mostly lower Wednesday, curves flatter with Bonds outperforming after a volatile first half.
- Treasuries opened higher on the back of strong overnight support in Gilts ahead this morning’s eagerly awaited UK Budget statement. Rates gapped lower following a much better than expected ADP jobs gain for October at 233k (cons 111k) for its strongest monthly print since Jul’23, followed by an upward revised prior to 159k (initial 143k).
- Treasury futures bounced off post-ADP lows, mirroring a bounce in Bunds and Gilts as markets digested the UK Budget statement. Mixed US data dropped at the same time with stronger than expected Core PCE inflation and Real GDP growth in the Q3 advance report technically below expected at 2.8% annualized. Comments from former Fed VC Brainard that Friday’s employment data will likely be lower due to “disruptive hurricanes, strike activity” contributed to the bounce in intermediate to long end Tsys.
- The midmorning drive to session highs was short lived, however, support evaporated as details regarding a huge increase in gilt issuance over 5 years spurred heavy selling in EGBs. Meanwhile, pending home sales stronger than expected the best single monthly increase since June 2020 while the Quarterly Refunding Announcement came out in line with estimates at $125B: $58B 3Y notes, $42B 10Y notes and $25B 30Y Bonds.
- After the bell, the Dec'24 10Y contract is trading -6 at 110-18 vs. 110-17 low, 10Y yield at 4.2823 (+.0282). Curves are flatter: 2s10s -4.377 at 10.998 (-9.646 low), 5s30s -7.240 at 34.296.
- Focus turns to Thursday’s weekly claims, personal income/spending and MNI’s Chicago PMI data, not to mention Friday's October employment data and next Tuesday's Presidential Election.
NEWS
MNI POLITICAL RISK - US Election Preview
Executive Summary: On November 5 the United States will hold elections for the country’s presidency, 34 seats in the United States Senate, the entirety of the House of Representatives, and a plethora of state and local-level offices. The presidential race between Democratic Party nominee, Vice President Kamala Harris, and Republican Party nominee, Donald Trump, is poised on a knife edge after President Joe Biden withdrew from the race in July.
- Since the switch at the top of the Democrat ticket, the race has seen some of the tightest polling in modern US history with the seven states most likely to determine the Electoral College result – the so-called ‘swing states’ - consistently polling within the margin of error.
- As polling falls within the margin of error in the key swing states, a polling miss could result in a comfortable win for either candidate, depending on the direction of the miss.
- Republicans running on a map that offers few pickup opportunities for Democrats are favoured to win the Senate. The House of Representatives is a 'toss-up' that may fall to the party that wins the White House.
- Inside: MNI's scenario analysis for the presidential race, the Senate, and the House of Representatives. A rundown of the electoral system, a guide to policies proposed by Harris and Trump, detailed analysis on the cases for both candidates, election wildcards, and a chartpack of polling. Full PDF article: US Election Preview
MNI SECURITY: US Has 'Conversations' W/Israel About Ceasefire In Lebanon, State Dept
US State Department Spokesperson Matthew Miller has told reporters that the US, "has ongoing conversations with Israel about what a diplomatic resolution in Lebanon can and should look like." Miller noted that the US, "supports Israel's right to go after legitimate Hezbollah targets in Lebanon," but stressed that, "it's critical that Israel does so in a way that doesn't threaten the lives of civilians, and significant cultural heritage sites are protected."
MNI UK FISCAL: Top Ten Budget Takeaways
- Pressure on services inflation from minimum wage increases.
- Employer NI reformed with a smaller rate increase than expected - but will increase for the average salaried worker and low paid workers more than expected. A chunk of that will be passed on, particularly in lower paid service sectors.
- Investment double the level expected over 5 years (GBP100bln) - that is likely to be inflationary too in the medium term.
- Gilt remit up just under GBP20bln this year - broadly in line with expectations at GBP296.9bln.
- But CGNCR (the main driver of gilt issuance) over the following four fiscal years up a combined GBP91.3bln.
- So net-net over 4.5 years that is just over GBP110bln of additional gilt issuance - that is a huge number for the market to digest.
- The higher rate of the main capital gains tax (CGT) increased just 4ppt from 20% to 24%, with the lower rate of CGT cut (expected in the 30s).
- But there was also a 4ppt increase in CGT on carried interest to 32% (which was discussed initially but expectations had dampened).
- The non-dom tax regime has been replaced by a "residence based scheme"
- Pensions to be included in estates for inheritance tax purposes from April 2027.
MNI UK FISCAL: Chancellor Confirms GBP40B In Tax Hikes In Budget
Chancellor of the Exchequer Rachel Reeves "Together, the black hole in our public finances this year, which recurs every year[...] means this budget raises taxes by £40bn. Any Chancellor standing here today would face this reality. "
MNI UK FISCAL: Chancellor Confirms Minimum Wage Increase
Chancellor of the Exchequer Rachel Reeves delivering Budget statement. On welfare spending Reeves claims that the implementation of the Work Capability Assessment, a crackdown on fraud (costing GBP4.3B a year), and a 'Get Britain Working' white paper to address inactivity. Claims that the measures, including beefing up HMRC compliance will raise GBP6.5B by end forecast.
(BBG) U.S. SUPREME COURT ALLOWS VIRGINIA TO REMOVE SOME 1,600 PEOPLE FROM VOTER ROLLS
(BZG) OPEC+ Could Delay Planned Oil Output Hike Scheduled For December By One Month Or More
OVERNIGHT DATA
MNI US DATA: ADP Points To Large Upside Scope For NFPs, But With Disruption Asterisk
ADP employment was far stronger than expected in October at 233k (cons 111k) for its strongest monthly print since Jul’23. It also followed an upward revised 159k (initial 143k) although that still leaves what was a sizeable undershoot of September’s 223k (at least prior to Friday’s revisions).
- The press release notes that “Manufacturing was the only sector to shed jobs” even “amid hurricane recovery”.
- Note that the average gap between ADP and private payrolls has been only a 4k overshoot of ADP over private payrolls but that captures both over- and undershoots with an average absolute deviation of 46k.
- With that in mind, it still bodes well for Friday’s payrolls report where expectations are currently for private payrolls growth of just 70k, although there will be questions as to how representative this data is to specific hits from Boeing strikes and weather disruption around Florida and the Carolinas.
MNI US DATA: Q3 GDP Report Another Win For Atlanta Fed’s GDPNow
Real GDP growth in the Q3 advance report technically came in below expected at 2.8% annualized (cons 2.9) although it was in line with the Atlanta Fed’s GDPNow and importantly kept to the GDPNow’s healthier breakdown.
- In particular, personal consumption increased 3.7% (cons 3.3) after 2.8%. That meant a quarterly GDP contribution of 2.46pp for very close to the 2.43pp that GDPNow was tracking, as consumption did indeed see its strongest quarter since 1Q23.
- Net trade did indeed see a large drag, but less so than in Q2 (-0.56pp after -0.9pp), and encouragingly for signs of domestic demand real imports surged 11% annualized (dragging -1.5pps from GDP after -1.0pp in Q2). We have noted previously that monthly trade data show capital and consumer goods imports growing very strongly, with the former likely benefiting from onshoring.
- The flip side to stronger contributions from final domestic demand and net trade was an unusually strong boost from changes in inventories disappearing in Q3, with -0.2pp after 1.1pp.
- Coming in close to GDPNow estimates should partly limit the market reaction to the stronger consumer spending figures.
US DATA: Pending Home Sales Rise More Firmly Off Series Lows
Pending home sales were far stronger than expected as they increased 7.4% (cons 1.9) in September after an unrevised 0.6% M/M.
- It’s the strongest single monthly increase since Jun 2020, and notably came with widespread increases by major region (ranging from 6.5%-9.8%).
- It sees the level of pending home sales increase further off what had been lows for the series starting in 2001 (index at 75.8 in Sept after 70.6 in Aug and 70.2 in July).
- With their typical 1-2 month lead, it bodes well for near-term existing home sales but as the below chart shows, the level of sales is still low and 30Y mortgage rates have climbed 70bps the middle of September.
MNI US DATA: Core PCE Inflation Beat Suggests Jul-Aug Upward Revisions
Core PCE inflation was stronger than expected in the Q3 advance, rising 2.16% annualized for a still large moderation from the 2.8% in Q2.
- Whilst only just rounding up from consensus of 2.1 (and a smaller beat than the rounded 2.2 on screens would imply), as we noted beforehand latest analyst estimates for September had looked more in keeping with a 2.0 print for Q3.
- That would imply a 0.35% M/M increase for Sept in tomorrow’s monthly report but we think it’s much more likely that upward revisions come further back in the quarter, with September closer to the 0.25/0.26% M/M estimates we have seen averaged since CPI/PPI/import price releases.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 91.51 points (-0.22%) at 42141.54
S&P E-Mini Future down 27.25 points (-0.46%) at 5843.75
Nasdaq down 104.8 points (-0.6%) at 18607.93
US 10-Yr yield is up 2.6 bps at 4.2803%
US Dec 10-Yr futures are down 6/32 at 110-18
EURUSD up 0.0041 (0.38%) at 1.086
USDJPY down 0.04 (-0.03%) at 153.32
WTI Crude Oil (front-month) up $1.66 (2.47%) at $68.87
Gold is up $11.92 (0.43%) at $2786.66
European bourses closing levels:
EuroStoxx 50 down 64.27 points (-1.3%) at 4885.75
FTSE 100 down 59.98 points (-0.73%) at 8159.63
German DAX down 220.73 points (-1.13%) at 19257.34
French CAC 40 down 82.75 points (-1.1%) at 7428.36
US TREASURY FUTURES CLOSE
3M10Y +4.489, -30.102 (L: -40.06 / H: -29.299)
2Y10Y -4.166, 11.209 (L: 9.646 / H: 15.404)
2Y30Y -7.373, 32.445 (L: 31.443 / H: 40.122)
5Y30Y -6.694, 34.842 (L: 34.077 / H: 41.914)
Current futures levels:
Dec 2-Yr futures down 3.25/32 at 102-31.25 (L: 102-30.875 / H: 103-05.125)
Dec 5-Yr futures down 6.25/32 at 107-9.25 (L: 107-08.5 / H: 107-23)
Dec 10-Yr futures down 5.5/32 at 110-18.5 (L: 110-17 / H: 111-06.5)
Dec 30-Yr futures up 4/32 at 117-26 (L: 117-23 / H: 118-28)
Dec Ultra futures up 18/32 at 125-9 (L: 125-02 / H: 126-18)
MNI US 10YR FUTURE TECHS: (Z4) Corrective Bounce
- RES 4: 113-12 Low Sep 3 and a recent breakout point
- RES 3: 112-25+ 50-day EMA
- RES 2: 112-22 High Oct 16 and a key short-term resistance
- RES 1: 111-14/112-01 High Oct 25 / 20-day EMA
- PRICE: 110-18 @ 1612 ET Oct 30
- SUP 1: 110-09+ Low Oct 29
- SUP 2: 110-00 Round number support
- SUP 3: 109-17+ Low Jul 5 (cont)
- SUP 4: 109-07 2.0% 10-dma envelope
The trend condition in Treasuries remains bearish and the contract traded lower again, Tuesday. The latest short-term bounce is considered corrective. This week’s move reinforces the bear theme and maintains the bearish price sequence of lower lows and lower highs. Note that moving average studies are in a bear-mode position too. Sights are on the 110-00 handle. Initial key resistance has been defined at 112-22, the Oct 16 high.
SOFR FUTURES CLOSE
Dec 24 -0.010 at 95.615
Mar 25 -0.030 at 95.935
Jun 25 -0.050 at 96.155
Sep 25 -0.070 at 96.275
Red Pack (Dec 25-Sep 26) -0.085 to -0.075
Green Pack (Dec 26-Sep 27) -0.065 to -0.045
Blue Pack (Dec 27-Sep 28) -0.035 to -0.02
Gold Pack (Dec 28-Sep 29) -0.01 to +0.005
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01081 to 4.69649 (-0.01081/ wk)
- 3M -0.01547 to 4.58917 (-0.01547/wk)
- 6M -0.01802 to 4.41270 (-0.01802/wk)
- 12M -0.00823 to 4.14467 (-0.00823/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.82% (+0.00), volume: $2.116T
- Broad General Collateral Rate (BGCR): 4.81% (+0.00), volume: $794B
- Tri-Party General Collateral Rate (TGCR): 4.81% (+0.00), volume: $763B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $100B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $264B
FED Reverse Repo Operation:
RRP usage recedes to $228.946B from $244.841B prior, compares to new multi year low of $202.798B from Thursday, October 24, '24. Number of counterparties slips to 54 from 58 prior.
MNI PIPELINE: $5.2B Waste Management 5Pt Debt Issuance Launched
- Date $MM Issuer (Priced *, Launch #)
- 10/30 $7.25B #Marsh McLennan $950M 3Y +45, $300M 3Y SOFR+70, $1B +5Y +55, $1B 7Y +65, $2B +10Y +75, $500M 20Y +75, $1.5B +30Y +95
- 10/30 $5.2B #Waste Management $1B +3Y +45, $700M +5Y +55, $750M +7Y +65, $1.5B +10Y +75, $1.25B 30Y +87.5
- 10/30 $3B #Philip Morris $750M 3Y +50, $750M 5Y +65, $750M 7Y +80, $750M 10Y +92
- 10/30 $500M *CenterPoint Energy WNG +10Y +83
- 10/30 $Benchmark Marex Group 5Y +225a
- 10/30 $1B *Kingdom of Belgium WNG 10Y +64
- 10/30 $500M *Swedish Export Credit 2.5Y SOFR+35
MNI BONDS: EGBs-GILTS CASH CLOSE: Bear Flattening On Inflation Data And UK Budget
Multiple hawkish developments Wednesday saw European bonds weaken sharply, with Gilts selling off on fiscal concerns but Bunds ultimately closing even weaker.
- The key driver of weakness and intraday volatility was the much-anticipated UK Budget announcement, from which the implications of near-term inflation and longer-term issuance saw Gilts sell off across the curve.
- The UK curve initially bear steepened as supply implications were digested, but closed bear flatter with yields trading in wide ranges. BoE cut probabilities were pared, with 32bp in cumulative 2024 cuts now seen, vs 39bp pre-budget.
- Even prior to the UK budget, bond-negative data (among which: above-expected German CPI/Eurozone Q3 GDP/US private payrolls) applied broader pressure.
- EGBs were dragged by movements in Gilts, with the German curve bear flattening, and periphery EGB spreads mostly widening.
- The strong inflation data helped push back December ECB cut pricing, with 50bp implied down to 20% probability vs 40% Tuesday. Even as the short-end sold off, German 10Y yields posted their highest close since July; UK yields would close off the highs.
- Thursday's focus will be the Italian and French October flash inflation readings, with the Eurozone reading later in the morning.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 11.8bps at 2.26%, 5-Yr is up 10bps at 2.259%, 10-Yr is up 5.1bps at 2.388%, and 30-Yr is down 1.1bps at 2.619%.
- UK: The 2-Yr yield is up 6bps at 4.319%, 5-Yr is up 3.6bps at 4.226%, 10-Yr is up 3.7bps at 4.352%, and 30-Yr is up 4.1bps at 4.832%.
- Italian BTP spread up 2.4bps at 125bps / Spanish up 1bps at 70.9bps
MNI FOREX: USD Index Slips, EURGBP Notable Outperformer Following Budget
- Despite the firmer-than-expected ADP jobs report and confirmation of solid GDP growth data in the US, the dollar index sits 0.25% in the red on Wednesday as we approach the APAC crossover.
- EURUSD strength mainly stemmed from higher-than-expected GDP & inflation data in Germany, boosting the pair to trade back above 1.0850 and extend the bounce to near 1% from Tuesday’s 1.0769 lows.
- Despite yesterday’s brief test below 0.8300, EURGBP (+0.73%) has reversed higher today and is a notable outperformer on Wednesday. Note that price action today and activity on Oct 18 continue to highlight a possible early reversal signal and if correct, a key short-term base.
- The moves have been underpinned by the firmer-than-expected German figures, and come despite the upward pressure on UK gilt yields following the UK budget. A close at current levels would provide the first close above the 20-day EMA (intersecting at 0.8348) since early October. Key trend resistance for the cross is unchanged at 0.8434, the Oct 3 high.
- Elsewhere, G10 currencies have remained relatively stable as we approach more significant risk events to finish the week, namely the BOJ meeting, Eurozone inflation data and the US employment report.
- Higher core yields have weighed on the emerging market basket with the likes of the Hungarian Forint and Latin American currencies underperforming. Notably, USDMXN rose to a fresh year-to-date high of 20.2278 as markets continue to consider the implications of the US election and domestic reform uncertainties.
THURSDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 31/10/2024 | 0830 | *** | 26-Oct | Continuing Claims | 1897 | 1880 | (k) |
| 31/10/2024 | 0830 | *** | 26-Oct | Initial Jobless Claims | 227 | 230 | (k) |
| 31/10/2024 | 0830 | *** | 26-Oct | Prev Continuing Claims, Rev | -- | -- | (k) |
| 31/10/2024 | 0830 | *** | 26-Oct | Prev Initial Jobless Claims, Rev | -- | -- | (k) |
| 31/10/2024 | 0830 | *** | Sep | Core PCE Price Index m/m | 0.1 | 0.3 | % |
| 31/10/2024 | 0830 | *** | Sep | Core PCE Price Index m/m (3 dp) | -- | -- | % |
| 31/10/2024 | 0830 | *** | Sep | Core PCE Price Index, y/y | 2.7 | 2.6 | % |
| 31/10/2024 | 0830 | *** | Sep | Current Dollar PCE | 0.2 | 0.4 | % |
| 31/10/2024 | 0830 | *** | Sep | Personal Income m/m | 0.2 | 0.4 | % |
| 31/10/2024 | 0830 | *** | Sep | Total PCE Price Index m/m | 0.1 | 0.2 | % |
| 31/10/2024 | 0830 | *** | Sep | Total PCE Price Index m/m (3 dp) | -- | -- | % |
| 31/10/2024 | 0830 | *** | Sep | Total PCE Price Index, y/y | 2.2 | 2.1 | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI | 0.9 | 0.9 | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Cur Q seas. adj. % change benefits from prev Q | 1.0 | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Cur Q unadj y/y % change | 4.1 | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Cur Q unadj y/y % change benefits cost | 3.8 | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev Q seas. adj. % change benefits | -- | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev Q unadj y/y % change | -- | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev Q unadj y/y % change benefits cost | -- | -- | % |
| 31/10/2024 | 0830 | *** | Q3 | ECI - Prev quarter | -- | -- | % |
| 31/10/2024 | 0830 | ** | 24-Oct | Corn Net Sales | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Corn Weekly Exports | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Soy Net Sales | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Soy Weekly Exports | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Wheat Net Sales | -- | -- | MT (k) |
| 31/10/2024 | 0830 | ** | 24-Oct | Wheat Weekly Exports | -- | -- | MT (k) |
| 31/10/2024 | 0945 | *** | Oct | MNI Chicago PMI | 46.6 | 47.0 | |
| 31/10/2024 | 1030 | ** | 25-Oct | Natural Gas Stocks w/w | -- | -- | Bcf |
| 31/10/2024 | 1130 | * | 01-Nov | Bid to Cover Ratio | -- | -- | |
| 31/10/2024 | 1130 | ** | 01-Nov | Bid to Cover Ratio | -- | -- |