US BONDS: 10Y Yields Move Flat On The Day, Short End Underperforms
10Y Treasury yields are now flat on the day, falling 6+bp since the solid 10Y Note refunding auction at 1300ET and down 8bp from the highs set post-Services ISM selloff.
- The short end has held onto earlier losses, however: 2Y yields are up nearly 4bp on the session and 1bp since ISM (albeit 3bp off highs), resulting in a twist flattening in the curve.
- The short end underperformance corresponds with a slight uptick in the futures-implied Fed rate path (up 5-6bp through end 2025 vs Monday's close): while a 25bp cut is still basically fully priced for Thursday, December is not a done deal (19bp incremental), with 7bp less cuts through 2025 (114bp total). Overall the rate path is a little higher than it was before Friday's soft payrolls report. See chart below.
- Overall rates will remain highly sensitive to election headlines - checking on levels, 2-Yr yield is up 3.7bps at 4.1972%, 5-Yr is up 2.1bps at 4.1669%, 10-Yr is down 0.2bps at 4.2828%, and 30-Yr is down 2.3bps at 4.4447%.
NEWS:
In this article, we provide an estimated timetable of events for the US general election taking place on Tuesday 5 November as ballots are counted. As well as a guide of what times various states may call their results, we also provide analysis on key counties to watch in swing states that are likely to give the best indication as to the direction the presidency is heading in.
Full article PDF attached below:
MNIPOLITICALRISK-USElectionViewingGuide.pdf
US (MNI): Final Electoral College Projections Highlight Lack Of Consensus
Final electoral college projections from pollsters, betting markets, and news outlets by-and-large show the contest as too close to call, with 13 of those listed below having the tipping point of victory (270 EC votes) being within the 'toss-up' category of states. The five outlets stripping out toss-ups (Electoral-vote.com, Split Ticket, Elections Daily, Cnalysis, and Sabato's Crystal Ball) all have Democratic candidate Kamala Harris winning the election. Betting market Polymarket, which has Nevada as a toss-up, projects Donald Trump winning the electoral college.
US (MNI): Turnout Data Turns Betting Markets Bullish On Harris In Nevada
Betting markets see turnout data from Nevada as positive for Harris, after a strong reported turnout from Democrats and independents. In the last few hours, the Nevada market on Kalshi turned positive for Harris, after showing Trump as high as 65% implied probability of winning in late October.
MNI INTERVIEW: US Service Strength To Persist Into 2025-ISM
U.S. service sector activity looks set to stay robust in coming months as new orders boom, though growth could soften a bit into the holidays after a drag on supplier deliveries from two hurricanes and a port strike temporarily boosted the October reading, Institute for Supply Management non-manufacturing survey chief Steve Miller told MNI.
ISRAEL (MNI): Netanyahu Fires Defence Minister Gallant, Elevates Katz
Israeli Prime Minister Benjamin Netanyahu has dismissed Defence Minister Yoav Gallant and appointed Israel Katz as new defence minister, citing “significant differences” with Gallant over war strategy. Netanyahu said in a statement: “In the midst of a war, more than ever, full trust is required... over the past few months this trust has cracked between me and the defence minister.”
CANADA (MNI): MNI interviews member of Canada's Senate Banking Committee on monetary policy -- On MNI Policy MainWire now, for more details please contact sales@marketnews.com
ECB (MNI): The ECB is weighing into discussions over the length of proposed fiscal adjustments.- On MNI Policy MainWire now, for more details please contact sales@marketnews.com
GERMANY (MNI): Kiel Institute for the World Economy (ifw) president Moritz Schularick talks about Germany's economy and car industry.- On MNI Policy MainWire now, for more details please contact sales@marketnews.com
DATA:
US DATA: A Surprisingly Robust ISM Services Report
The ISM Services report was generally stronger than expected, with only new orders missing but that was versus a typically narrow survey and with levels still at highs since early 2023. The buoyant employment component is the standout this month considering the uncertainty surrounding Friday’s payrolls report.
- ISM Services index: 56.0 (cons 53.8) after 54.9 – highest since Aug 2022 having built upon an at the time easily stronger than expected September reading.
- Employment: 53.0 (cons 48.0, 3 responses) after 48.1 – highest since Aug 2023 with the 4.9pt jump coming after a 3pt cumulative decline in Aug and Sept.
- Prices paid: 58.1 (cons 58.0, 5 responses) after 59.4 – pulling back 1.3pts after the 2.1pt increase in September left it at the highest since January. Context: averaged 58.3 in 1H24, 59.3 in 2023 and 57.5 in 2019 so not a huge needle mover today.
- New orders: 57.4 (cons 58.0, 3 responses) after 59.4, a small miss against a typically very small sample of estimates. It’s still a very healthy reading as the 2.0pt decline on the month holds much of September’s 6.4pt jump. These latest two months are the highest since Feb 2023.
CANADA DATA: Service PMI Cost Inflation At One-Year High
- The S&P Global Canada services PMI increased in October at 50.4 after 46.4, back above 50 into implied positive territory for its first time since May and before that May 2023.
- It helped push the composite PMI up from 47.0 to 50.7.
- The press release notes some positive developments: “There were reports of better market demand and firms were suitably encouraged to hire additional staff for the first time in three months.”
- Highest cost inflation in a year: “Service providers pointed towards higher salary costs as a source of accelerated input cost inflation in October. Overall, operating expenses rose to the greatest degree for a year with respondents noting that vendors were increasingly willing to increase prices.”
- But limited pricing power: “Several service providers sought to protect margins by raising their own charges, although competitive pressures served to limit pricing power. Output charge inflation subsequently remained modest in the latest survey period and unchanged since September.”
- See the full press release here.
US DATA: Services PMI Lowest Prices Charged Inflation In Almost 4.5 Years
- The S&P Global US services PMI was revised down to 55.0 (cons & prelim 55.3) in October for a mild decline from 55.2 in September at a still solid level.
- It meant the composite PMI was revised down to 54.1 (cons & prelim 54.3) for a mild increase from 54.0.
- The press release notes still solid demand despite weaker external demand, but uncertainty weighing on employment: “New orders grew at a solid pace that was broadly in line with that seen in September, despite signs of weaker international demand. Business activity expectations revived from a 23-month low in September. Firms nevertheless continued to scale back staffing levels marginally amid uncertainty over future demand."
- “[C]ompanies raised their charges at the joint-slowest pace in almost four-and-a-half years, in spite of a further sharp increase in input costs.”
- See the full press release here.
MARKET SNAPSHOT: Below gives key levels of markets in afternoon NY trade:
- DJIA up 352.05 points (0.84%) at 42141.47
- S&P E-Mini Future up 58.25 points (1.01%) at 5800.75
- Nasdaq up 229.2 points (1.3%) at 18408.09
- US 10-Yr yield is up 0 bps at 4.2848%
- US Dec 10-Yr futures (TY) are up 1.5/32 at 110-13
- EURUSD up 0.0048 (0.44%) at 1.0925
- USDJPY down 0.66 (-0.43%) at 151.46
- WTI Crude Oil (front-month) up $0.56 (0.78%) at $72.03
- Gold is up $3.85 (0.14%) at $2740.48
Prior European bourses closing levels:
- EuroStoxx 50 up 18.23 points (0.38%) at 4870.33
- FTSE 100 down 11.85 points (-0.14%) at 8172.39
- German DAX up 108.42 points (0.57%) at 19256.27
- French CAC 40 up 35.44 points (0.48%) at 7407.15
US TREASURY FUTURES CLOSE:
- Dec 2-Yr futures (TU) down 2.375/32 at 102-27.75 (L: 102-25.8 / H: 102-30.9)
- Dec 5-Yr futures (FV) down 1/32 at 107-4.5 (L: 106-27.8 / H: 107-8.3)
- Dec 10-Yr futures (TY) up 1.5/32 at 110-13 (L: 109-30 / H: 110-16.5)
- Dec 30-Yr futures (US) up 15/32 at 118-05 (L: 117-05 / H: 118-12)
- Dec Ultra futures (WN) up 27/32 at 126-02 (L: 124-19 / H: 126-09)
US 10YR FUTURE TECHS: (Z4) Bear Cycle Remains Intact
- RES 4: 112-22 High Oct 16 and a key short-term resistance
- RES 3: 112-14 50-day EMA
- RES 2: 112-07 High Oct 21
- RES 1: 110-30/111-15+ High Nov 1 / 20-day EMA
- PRICE: 109-31+ @ 16:49 GMT Nov 5
- SUP 1: 109-27+ Low Nov 1
- SUP 2: 109-15 Low Jul 1
- SUP 3: 109-05 76.4% retracement of the Apr - Sep bull cycle
- SUP 4: 108-21+ 2.0% 10-dma envelope
A bear cycle in Treasuries remains in play and last week’s extension lower, reinforces current bearish conditions. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. The 110-00 handle has been pierced. A continuation lower would open 109-15, the Jul 1 low. Initial firm resistance is seen at 111.15+, the 20-day EMA. Short-term gains would be considered corrective.
US TSYS/OVERNIGHT REPO: SOFR Softens As Month-End Effects Continue To Reverse
Monday saw a swift reversal lower in repo rates, per NY Fed data out today: SOFR fell 4bp to 4.82%, and vs 4.90% posted on Oct 31. This is largely due to month-end effects which are now unwinding. Nothing in the distribution of rates by percentiles looks out of the ordinary for a post-month end move (see chart). Meanwhile, effective Fed funds remain steady as usual - though are set to drop effective Friday after the expected Fed 25bp rate cut on Thursday (to a range of 4.50-4.75%).
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.82%, -0.04%, $2308B
- Broad General Collateral Rate (BGCR): 4.82%, -0.02%, $796B
- Tri-Party General Collateral Rate (TGCR): 4.82%, -0.02%, $764B
New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 4.83%, no change, volume: $98B
- Daily Overnight Bank Funding Rate: 4.83%, no change, volume: $270B
US TSYS/OVERNIGHT REPO: ON RRP Continues To Fall, But Reserves Still Ample
Takeup of the NY Fed's Overnight Reverse Repo facility fell to the lowest level today since May 2021 - by $27B to $144.2B. Since October 29, takeup has fallen by over $100B, with levels well off the all-time high of over $2.5T at end-2022.
- The move has largely been unexpected, with most observers appearing to believe there would be an uptick starting from the low-$200B levels seen in mid-October. However, that hasn't materialized.
- It's an interesting time for ON RRP to get drained to this extent, given that the FOMC may be discussing QT policy on Thursday, albeit without any intention of making near-term changes. Overall, reserves + ON RRP (which is considered a fungible substitute for reserves in terms of system liquidity) total $3.4T (per Thursday's Fed weekly balance sheet release plus today's TGA), which is well above levels thought to be scarce (starting somewhere around $3T).
- The pullback in ON RRP takeup coincided closely with the rise in Tsy bill issuance amd rebuild of the Treasuey General Account after the suspension of the debt limit - but that suspension is set to be lifted at the start of 2025, and ON RRP is expected to bounce back at that time.
BONDS: EGBs-GILTS CASH CLOSE: Gilts Extend Underperformance With Event Risk Eyed
Gilts underperformed again Tuesday, ahead of major global event risk the next couple of sessions.
- Today's US election and Thursday's multitude of central bank decisions (including the BoE and Fed) have set a bearish backdrop for core European FI so far this week, with Gilts continuing to reel from last week's UK fiscal announcement.
- Today saw weak demand at the 10Y Gilt auction, underlining the negative sentiment. A strong US ISM Services number saw Gilt weakness extent, with selling continuing into the close. The belly of the UK curve underperformed on the day, with 5Y yields up 10bp.
- Gilt underperformance to Bunds continued: 10Y spread up 4+bp today to a fresh post-Oct 2022 high of 210bp.
- As with Monday, German yields traded largely within last week's ranges, with some bear flattening seen in today's trade. Periphery EGB spreads narrowed for the session, tracking a bounce in equities, after having widened early.
- After hours we hear from ECB's Schnabel. All attention overnight will be on the US election outcome. Early Wednesday we get German factory orders data and final Services PMIs for the Eurozone, in addition to multiple ECB speakers.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 3.9bps at 2.303%, 5-Yr is up 3.4bps at 2.292%, 10-Yr is up 3bps at 2.425%, and 30-Yr is up 2.7bps at 2.609%.
- UK: The 2-Yr yield is up 7.8bps at 4.513%, 5-Yr is up 10bps at 4.434%, 10-Yr is up 7.2bps at 4.53%, and 30-Yr is up 3.4bps at 4.958%.
- Italian BTP spread down 2.6bps at 124.6bps / Spanish down 0.5bps at 70.3bps
FOREX: Greenback Retreats Further as US Election Results Beckon
- Despite the odds for a Trump victory firming on Tuesday and an associated reversal higher for US yields, the dollar’s resolve is being tested and the USD index has extended session declines to 0.5% as the APAC crossover approaches.
- There has been broad strength for G10 currencies against the dollar, with AUD a notable outperformer and the Swiss Franc displaying a relatively contained trading range.
- For AUDUSD (+0.75%), the move has been assisted by the RBA maintaining a hawkish stance overnight, having seen little change in the economy over the last few months to warrant an adjustment to its higher-for-longer strategy.
- Price action narrows the gap to initial resistance at 0.6648, the 20-day EMA. The more significant 50-day resides at 0.6691, which may limit the short-term topside given overnight straddle pricing currently points to a ~50pip move either side of the strike.
- USDJPY (-0.35%) has also edged back below the 152 handle on Tuesday, printing a pullback low of 151.38. With the election remaining a close call, any early leanings towards a Harris victory could further weigh on USDJPY and there remains plenty of downside before initial firm support at 149.11, the 50-day EMA. The 20-day EMA is at 150.86.
- Significant volatility has already been seen in the Mexican peso, rising as high 20.3560, before sharply paring that advance back to 20.18 at typing. USDMXN overnight implied vol did clear 100 points - an all-time high for the contract. This implied a ~4% swing for USD/MXN on the results, and will place the pair under the spotlight as results begin to emerge.
- New Zealand employment data will play second fiddle to the US election developments overnight. Central bank decisions from Sweden, Norway, the BOE and Fed are all due Thursday.
| Date | GMT/Local | Impact | Country | Event |
| 05/11/2024 | 0001/0001 | * |  GB | BRC-KPMG Shop Sales Monitor |
| 05/11/2024 | 0145/0945 | ** |  CN | S&P Global Final China Services PMI |
| 05/11/2024 | 0145/0945 | ** | CN | S&P Global Final China Composite PMI |
| 05/11/2024 | 0330/1430 | *** |  AU | RBA Rate Decision |
| 05/11/2024 | 0645/0745 | ** |  CH | Unemployment |
| 05/11/2024 | 0745/0845 | * |  FR | Industrial Production |
| 05/11/2024 | 0930/0930 | ** | GB | S&P Global Services PMI (Final) |
| 05/11/2024 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 05/11/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 05/11/2024 | - |  EU | ECB's De Guindos participate in ECOFIN Meeting | |
| 05/11/2024 | - |  US | US Presidential Election | |
| 05/11/2024 | 1330/0830 | ** | US | Trade Balance |
| 05/11/2024 | 1330/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 05/11/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 05/11/2024 | 1430/1530 | EU | ECB's Lagarde speech at French Competition Authority's event | |
| 05/11/2024 | 1445/0945 | *** | US | S&P Global Services Index (final) |
| 05/11/2024 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 05/11/2024 | 1500/1000 | *** | US | ISM Non-Manufacturing Index |
| 05/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 05/11/2024 | 1800/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 05/11/2024 | 1830/1330 | CA | BOC Minutes (Summary of Deliberations) | |
| 05/11/2024 | 1830/1930 | EU | ECB's Schnabel speech on Macroeconomic Policy | |
| 06/11/2024 | - |  SE | Riksbank Meeting | |
| 06/11/2024 | 0030/0930 | ** |  JP | S&P Global Final Japan Services PMI |
| 06/11/2024 | 0030/0930 | ** | JP | S&P Global Final Japan Composite PMI |
| 06/11/2024 | 0700/0800 | ** |  DE | Manufacturing Orders |
| 06/11/2024 | 0930/0930 | ** | GB | S&P Global/CIPS Construction PMI |
| 06/11/2024 | 1000/1100 | ** | EU | PPI |
| 06/11/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 06/11/2024 | 1400/1500 | EU | ECB's Lagarde address at 10th anniversary of Single Supervisory Mechanism | |
| 06/11/2024 | 1430/1530 | EU | ECB's De Guindos speech and Q&A at Distinguished Speaker Seminar | |
| 06/11/2024 | 1500/1000 | * | CA | Ivey PMI |
| 06/11/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 06/11/2024 | 1725/1225 | CA | BOC Sr Deputy Rogers speech in Toronto. | |
| 06/11/2024 | 1800/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |
| 07/11/2024 | 2330/0830 | ** | JP | average wages (p) |