MNI ASIA OPEN: Tsys Off Lows After Strong 20Y Sale
- MNI INTERVIEW: US Consumer Savings To Underpin Demand Into '24
- MNI INTERVIEW: Resilient Housing To Rebound As Rates Fall
- MNI: Conf. Board LEI Back To Signaling Near-Term Recession
- Tsy futures drifting near post-20Y auction highs after the bell, curves bull flattening with the short end underperforming. At the moment, Dec'23 10Y futures are +4 at 108-28 vs. 108-29.5 high, 2y10y curve -4.094 at -49.314.
- TYZ3 traded in a narrow, lower range for much of the first half (108-16 to -19) until the strong $16B 20Y bond auction (912810TW8) traded through: draws 4.780% high yield vs. 4.790% WI; 2.58x bid-to-cover vs. prior month's 2.59x.
- Little react to Richmond Fed President Barkin comments on midday interview by Fox: "NOW ISN'T BIG TIME FOR FORWARD GUIDANCE ON RATES; OVERALL, CORE INFLATION NUMBERS COMING DOWN NICELY," while Barkin focuses "ON INFLATION TO DECIDE RATE MOVES".
- Little react to this morning's Conference Board’s leading index that provided another weaker than expected data set: falling -0.8% (cons -0.7%) in September after -0.7%, for its largest monthly decline since October.
- Busy schedule ahead for the shortened Thanksgiving holiday week. CME Group schedule: full session Wednesday, Thursday close (Globex reopens 1800ET), early close Friday (floor at 1300ET, Globex at 1315ET).
- Tuesday focus on Existing Home Sale and FOMC Minutes for the November meeting. Wednesday, meanwhile, sees weekly claims, durables/cap-goods and UofM conditions/inflation expectations.
US: Excess savings accumulated during the pandemic will help fuel American consumer spending into the first half of next year, longer than previously thought, with the implication that demand-driven inflation will remain elevated for longer, economists Luiz Oliveira and Hamza Abdelrahman of the Federal Reserve Bank of San Francisco told MNI.
- The level of personal savings in excess of what might have been expected had the pandemic not occurred gives some indication of how consumer spending could evolve in coming months and helps inform discussions on inflation dynamics in the short run, Oliveira and Abdelrahman said.
- Strong household demand for goods and services has "significantly contributed to inflationary pressures over the last couple of years," the economists said in an interview. "If demand continues to be strong going forward, we can expect demand-driven inflation to remain elevated." For more see MNI Policy Main Wire at 0810ET.
US: Strong demand for homes from millennial buyers in a market that's well short of new supply has kept housing buoyant despite sharply higher mortgage rates, Freddie Mac deputy chief economist Len Kiefer told MNI.
- "Mortgage borrowers have held up pretty well across various credit" categories and "home prices have actually been accelerating in the most recent data which is reflective of the very low levels of housing supply," Kiefer said in an interview.
- The number of transactions remains low, a trend he expects to persist in 2024. But this reflects legions of fixed-cost mortgage holders who locked in ultra low rates and are now draining supply from the market, rather than any recessionary impulse for housing. "In a recession you'd expect home values would fall and performance would worsen with defaults higher, It's actually not what we are seeing at all," he said. For more see MNI Policy Main Wire at 1255ET.
US DATA: Released earlier today, the Conference Board’s leading index provided another weaker than expected released, falling -0.8% (cons -0.7%) in September after -0.7%, for its largest monthly decline since October.
- From the press release: “Among the leading indicators, deteriorating consumers’ expectations for business conditions, lower ISM® Index of New Orders, falling equities, and tighter credit conditions drove the index’s most recent decline.”
- “After a pause in September, the LEI resumed signaling recession in the near term. The Conference Board expects elevated inflation, high interest rates, and contracting consumer spending—due to depleting pandemic saving and mandatory student loan repayments—to tip the US economy into a very short recession. We forecast that real GDP will expand by just 0.8 percent in 2024.”
- Key market levels of markets in late NY trade:
- DJIA up 245.34 points (0.7%) at 35190.27
- S&P E-Mini Future up 37.75 points (0.83%) at 4565
- Nasdaq up 167.9 points (1.2%) at 14292.86
- US 10-Yr yield is down 1.2 bps at 4.4237%
- US Dec 10-Yr futures are up 2/32 at 108-26
- EURUSD up 0.0028 (0.26%) at 1.0943
- USDJPY down 1.28 (-0.86%) at 148.35
- WTI Crude Oil (front-month) up $1.71 (2.25%) at $77.60
- Gold is down $2.02 (-0.1%) at $1978.77
- European bourses closing levels:
- EuroStoxx 50 up 1.64 points (0.04%) at 4342.41
- FTSE 100 down 7.89 points (-0.11%) at 7496.36
- German DAX down 17.83 points (-0.11%) at 15901.33
US TREASURY FUTURES CLOSE
- 3M10Y -1.613, -97.895 (L: -99.711 / H: -92.106)
- 2Y10Y -3.705, -48.925 (L: -49.722 / H: -42.202)
- 2Y30Y -4.142, -34.017 (L: -35.266 / H: -26.638)
- 5Y30Y -1.584, 12.874 (L: 11.737 / H: 16.927)
- Current futures levels:
- Dec 2-Yr futures down 0.375/32 at 101-15.375 (L: 101-14.625 / H: 101-17.375)
- Dec 5-Yr futures up 1.25/32 at 105-27.25 (L: 105-21.25 / H: 105-29.25)
- Dec 10-Yr futures up 2/32 at 108-26 (L: 108-14 / H: 108-29.5)
- Dec 30-Yr futures up 11/32 at 115-24 (L: 114-22 / H: 116-02)
- Dec Ultra futures up 15/32 at 120-19 (L: 119-09 / H: 120-30)
- RES 4: 110-07+ High Sep 14
- RES 3: 110-00 Round number resistance
- RES 2: 109-20 High Sep 19
- RES 1: 109-08+ High Nov 17
- PRICE: 108-27 @ 1455 ET Nov 20
- SUP 1: 108-03 50-day EMA
- SUP 2: 107-24+ 20-day EMA
- SUP 3: 107-00 Low Nov 13
- SUP 4: 105-30+ 2.0% 10-dma envelope
Short-term bullish conditions in Treasuries remain intact following last week’s gains and the contract is trading closer to its recent highs. Price has recently pierced resistance at 108-25, the Nov 3 high. A clear break of this hurdle would signal scope for an extension towards 109-20, the Sep 19 high. Key short-term support has been defined at 107-00, the Nov 13 low. A reversal and a break of this support, would instead highlight a bearish threat.
SOFR FUTURES CLOSE
- Dec 23 -0.008 at 94.615
- Mar 24 -0.010 at 94.750
- Jun 24 -0.015 at 94.985
- Sep 24 -0.020 at 95.270
- Red Pack (Dec 24-Sep 25) -0.01 to +0.020
- Green Pack (Dec 25-Sep 26) +0.025 to +0.030
- Blue Pack (Dec 26-Sep 27) +0.030 to +0.035
- Gold Pack (Dec 27-Sep 28) +0.035 to +0.040
SHORT TERM RATES
SOFR Benchmark Settlements:
- 1M +0.00230 to 5.33483 (+0.01014 total last wk)
- 3M +0.00458 to 5.37151 (-0.01071 total last wk)
- 6M +0.00934 to 5.37281 (-0.05130 total last wk)
- 12M +0.02561 to 5.22634 (-0.08572 total last wk)
- Daily Effective Fed Funds Rate: 5.33% volume: $98B
- Daily Overnight Bank Funding Rate: 5.32% volume: $256B
- Secured Overnight Financing Rate (SOFR): 5.32%, $1.587T
- Broad General Collateral Rate (BGCR): 5.30%, $588B
- Tri-Party General Collateral Rate (TGCR): 5.30%, $573B
- (rate, volume levels reflect prior session)
FED REVERSE REPO OPERATION
NY Federal Reserve/MNI
The NY Fed Reverse Repo operation usage climbs to $953.088B w/95 counterparties today vs. $935,803B Friday - the lowest level since early August 2021. Usage fell below $1T for the first time since August 2021 last on November 9 ($993.314B) latest cycle low of $912.010B on November 16.
- Date $MM Issuer (Priced *, Launch #)
- 11/20 $3B #Intesa Sanpaolo $1.5B 10Y +280, $1.5B 30Y +325
- 11/20 $1.75B #NAB 5Y SOFR+98
- 11/20 $1.5B #Consolidated Edison $600M +10Y +115, $900M 30Y +137
- 11/20 $1B #Norfolk Southern $400M +10Y +112.5, $600M +40Y +137.5
- Expected to issue Tuesday:
- 11/21 $500M Kommuninvest WNG 5Y +49a
- 11/21 $Benchmark AfDB 2027 SOFR+37a
Bunds underperformed Gilts with the German curve bear flattening Monday.
- Core FI got off to a weak start in digesting weekend developments including stronger oil prices before stabilising mid-morning, only to relapse to session's weakest levels around midday despite no discernable headline triggers.
- While they recovered from session lows, Bunds' underperformance came amid uncertainty over the medium-term fiscal impact of last week's German court ruling on the government's usage of off-balance sheet COVID funds (BBG published a sources article in the afternoon corroborating weekend reports that the debt brake might be suspended for 2023).
- Periphery EGBs benefited from Moody's after hours on Friday revising Italy's outlook to stable from negative, and revising Portugal's rating up two notches to A3 (outlook stable).
- In contrast to the German curve, the UK's twist steepened, with fiscal matters in focus in the form of the Autumn Statement's release Wednesday (and ahead of that, public finance data first thing Tuesday morning). Tuesday sees BoE's Bailey and colleagues before a parliamentary committee.
- Also Tuesday, we get several ECB speakers including Lagarde, Schnabel, and Centeno.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 6.3bps at 3.027%, 5-Yr is up 4bps at 2.571%, 10-Yr is up 2.3bps at 2.611%, and 30-Yr is up 0.1bps at 2.803%.
- UK: The 2-Yr yield is down 1.5bps at 4.531%, 5-Yr is down 0.7bps at 4.112%, 10-Yr is up 2.1bps at 4.125%, and 30-Yr is up 1.1bps at 4.552%.
- Italian BTP spread down 3.6bps at 173.4bps / Portuguese down 2.3bps at 64.2bps
- The greenback extended the post US CPI weakness from last week as markets continue to remain optimistic over a soft-landing scenario. This has prompted the USD Index to breach the 200-day moving average for the first time since December last year.
- Equity markets are reflecting similar optimism, trading on a firm footing headed through to the Tuesday APAC crossover, with the e-mini S&P comfortably above Friday's session bests and helping underpin the bid in high beta currencies. As such, NOK is one of the best G10 performers, bolstered by higher oil prices, which has helped aide EUR/NOK toward its initial support of 11.6892.
- JPY stands closely behind as on of the best performers also, helping both USDJPY and EUR/JPY ease through Friday's lows and extend the pullback off last week's highs.
- USDJPY has traded sharply lower Monday as the pair extends the pullback from 151.91, the Nov 13 high. Support at the 50-day exponential moving average, at 149.19, has been cleared. The break of this EMA strengthens a short-term bearish theme and signals scope for a deeper correction, towards 147.43, the Oct 3 low.
- AUD, NZD have also rallied around 0.65%, with AUDUSD strength resulting in a clear break of resistance at 0.6522, the Aug 30 and Sep 1 high. The breach is an important short-term bullish development and signals scope for a continuation higher towards 0.6582.
- EURUSD briefly traded above 1.0950 on Monday, piercing 1.0945, the Aug 30 high and a key resistance. Moving average studies have crossed, highlighting a bull-mode position and a rising trend, which could signal further strength towards the August highs above 1.1000.
- The greenback weakness combined with the attractive carry profiles, also continues to support Latin American currencies which have made some impressive gains Monday, with USDBRL rising around 1.2% and USDMXN zoning in on the 17.00 handle.
- RBA minutes are due overnight before Canadian CPI and FOMC minutes headline the Tuesday docket.
TUESDAY DATA CALENDAR
|21/11/2023||0700/0700||***||UK||Public Sector Finances|
|21/11/2023||1000/1000||*||UK||Index Linked Gilt Outright Auction Result|
|21/11/2023||1015/1015||UK||Treasury Select Hearing on MPR|
|21/11/2023||1330/0830||**||US||Philadelphia Fed Nonmanufacturing Index|
|21/11/2023||1355/0855||**||US||Redbook Retail Sales Index|
|21/11/2023||1500/1000||***||US||NAR existing home sales|
|21/11/2023||1600/1700||EU||ECB's Lagarde discusses Inflation and democracy|
|21/11/2023||1630/1130||*||US||US Treasury Auction Result for Cash Management Bill|
|21/11/2023||1630/1130||**||US||US Treasury Auction Result for 2 Year Floating Rate Note|
|21/11/2023||1715/1815||EU||ECB's Schnabel at Wurzburg Policy Lecture|
|21/11/2023||1800/1300||**||US||US Treasury Auction Result for TIPS 10 Year Note|
|21/11/2023||2100/1600||CA||Canada fall economic/fiscal statement (release time is approximate)|