EXECUTIVE SUMMARY
- MNI US INFLATION: MNI US Inflation Insight: Softer Housing Helps Ensure Dec Cut
- MNI: ECB Cuts Rates, Scraps Restrictive Pledge
- MNI ECB: Main statement changes (ex-forecast and rate decision)
- MNI US DATA: Claims Surprise Higher, Seasonal Noise But Still High In NSA Terms
- MNI US DATA: PPI Shows Core Pipeline Pressures Continue To Dissipate
US
MNI US INFLATION: MNI US Inflation Insight: Softer Housing Helps Ensure Dec Cut
Our US Inflation Insight has just been published (PDF): Core CPI inflation was a little stronger than expected in November on an unrounded basis, at 0.31% M/M vs 0.28% M/M, for a fourth month at a similar monthly pace. However, main rental components surprised materially lower with 0.2% M/M increases, the weighted average of which (0.23% M/M) saw its first month this cycle below its pre-pandemic average of 0.27% (it last tied with this 0.27% increase back in June before surprisingly surging to 0.47% M/M in Aug).
NEWS
MNI FRANCE: Appointment Of Prime Minister Delayed Until Friday
Reuters reporting that the French presidential office has issued a statement noting that an appointment of a prime minister has been "postponed until Friday morning." Reuters notes that, "French President Emmanuel Macron said two days ago he wanted to name a new head of government within 48 hours. The new team is due to replace the one led by Michel Barnier, who resigned last week after far-right and leftist lawmakers voted to topple his government, plunging France into its second major political crisis in six months."
MNI BRIEF: ECB Cuts Rates, Scraps Restrictive Pledge
The European Central Bank cuts its three key interest rates by 25 basis points on Thursday, sending the benchmark Deposit Rate to 3.0%, the lowest in over two years. The Governing Council said it is "determined to ensure that inflation stabilises sustainably at its 2% medium-term target. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.” It dropped a previous commitment to “keep policy rates sufficiently restrictive for as long as necessary” to achieve its inflation target.
MNI ECB: Main statement changes (ex-forecast and rate decision)
"The disinflation process is well on track." - this remains but has moved to the bit with the projections. They have changed the language on inflation returning to 2% in a timely manner to "stabilises sustainably at its 2% medium-term target." They have also dropped restrictive - Now "follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance" - last 3 words were previously "level and duration of restriction."
MNI SECURITY: Israeli Air Force Prepares For Action Against Iran Nuclear Facilities
The Times of Israel is reporting that the Israeli Air Force, "is continuing its readiness and preparations for potential strikes against Iran’s nuclear facilities... Due to the dramatic changes in the Middle East... the Israeli military believes there is now an opportunity to strike Iran’s nuclear sites." Amichai Stein at Kan confirms the TOI report on X: "The Air Force continues to prepare for action against Iran's nuclear facilities, and an attempt is being made to enlist the United States to the mission."
MNI US: Tsys Extend Late Lows, ECB Guidance May Not Be As Dovish as Expected
- Treasuries drifting near moderate session lows after the bell, decent overall volumes (TYH4 >1.4M) as rates extended lows late on headline the ECB may not be as aggressive in cutting rates in early 2025 after cutting 25bp this morning.
- No where near where US markets started the session: slightly higher than expected PPI and weekly jobless claims saw Tsys see-saw to early session highs (TYH5 110-25) before ratcheting lower by midmorning.
- Producer price inflation picked up by more than expected in November, at +0.4% (0.38% unrounded) M/M vs 0.3% prior (0.25%, reflecting an upward revision from 0.20% initial). The core indices were cooler though: ex-food/energy registered 0.2% (from 0.3% prior, in line with expectations) and the more important ex-food/energy/trade services printed an 18-month low of 0.05% unrounded (0.34% prior, and vs 0.2% expected).
- Initial jobless claims were firmly higher than expected at 242k (sa, cons 220k) in the week to Dec 7 after a marginally upward revised 225k (initial 224k). That’s the highest single week since Oct 12 although the four-week average saw a more muted 5k increase to 224k away from recent lows of 218/219k having been exactly in line with the 2019 average.
- Treasuries extended lows after the $22B 30Y auction reopen (912810UE6) tailed 1.2bp: 4.535% high yield vs. 4.523% WI; 2.39x bid-to-cover vs. 2.64x in the prior month.
- Limited data ahead Friday with import/export prices, the main focus remains on next weeks FOMC policy announcment on Wednesday, Dec 18.
OVERNIGHT DATA
MNI US DATA: PPI Shows Core Pipeline Pressures Continue To Dissipate
Producer price inflation picked up by more than expected in November, at +0.4% (0.38% unrounded) M/M vs 0.3% prior (0.25%, reflecting an upward revision from 0.20% initial). The core indices were cooler though: ex-food/energy registered 0.2% (from 0.3% prior, in line with expectations) and the more important ex-food/energy/trade services printed an 18-month low of 0.05% unrounded (0.34% prior, and vs 0.2% expected).
- Even the underlying details of the headline figure were fairly benign: the BLS notes that "a quarter of the November rise in prices for final demand goods is attributable to a 54.6-percent jump in the index for chicken eggs" (note that food prices were an upside surprise in November CPI as well, though).
- And as suggested by the core index, another upside driver to headline PPI was that "margins for final demand trade services moved up 0.8 percent" - this is an imputed inflation reading.
- Core (ex-food/energy/trade services) continues to cool, with the 2.1% 3-month annualized pace the lowest reading of the year, and down from 2.7% in October.
- The 6-month annualized figure is pulling back as well, after a secondary peak of 4.4% in May 2024 it's now down to 2.6% and continuing to head in the right direction (and well below 6-8% readings during the pandemic supply chain disruptions).
- The Fed will also find comfort in the details of the release which appear to show softening in various PCE-relevant categories, more on which separately.
MNI US DATA: Core PCE Tracking Smaller Overshoot Of FOMC Forecast Post-PPI
- Unrounded core PCE estimates have been revised down from ~0.20% M/M post-CPI to somewhere in the region of 0.13-0.14% M/M after today’s PPI report.
- Core PCE estimates: Barclays (0.11), MS (0.11), GS (0.13), Nomura (0.13), BofA (0.14), UBS (0.15) and Citi (0.18).
- That would mark a sizeable moderation after two months averaging 0.27% M/M, although despite that it still leaves a very good chance that core PCE inflation will overshoot the previous FOMC forecast for Q4 2024. It comes as the committee looks to refresh its SEP at next week’s meeting.
- As a purely indicative scenario, a 0.13-0.14% M/M increase in Nov before 0.2% M/M in Dec (simply based on six-month average to Oct) would see average core PCE inflation of 2.8% Y/Y in Q4.
- That’s versus the 2.6% the median FOMC member projected back in the September SEP (having reversed its prior upward revision to 2.8% back in June).
- It also leaves a trajectory potentially close to those from the most hawkish members of the FOMC, with an entire FOMC range of 2.4-2.9%, although we had been tracking closer to that 2.9% prior to today’s PPI release.
MNI US DATA: Claims Surprise Higher, Seasonal Noise But Still High In NSA Terms
- Initial jobless claims were firmly higher than expected at 242k (sa, cons 220k) in the week to Dec 7 after a marginally upward revised 225k (initial 224k). That’s the highest single week since Oct 12 although the four-week average saw a more muted 5k increase to 224k away from recent lows of 218/219k having been exactly in line with the 2019 average.
- There are widespread contributions behind the large 99k increase in the NSA data: California (+14.8k), Texas (+9.5k), NY (+9.2k), Illinois (+7.5k) and Georgia (+5.8k).
- Continuing claims were also higher than expected but to less extent, rising to 1886k (sa, cons 1877k) in the week to Nov 30 after an unrevised 1871k.
- That sees them just below the three-year highs of 1898/1897k seen in mid-November.
- Seasonal adjustment factors for both initial and continuing claims are likely still having difficulty in the post-Thanksgiving period although the outright level of NSA claims is on the high side for the time of year for both.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 194.23 points (-0.44%) at 43958.48
S&P E-Mini Future down 27.5 points (-0.45%) at 6065.25
Nasdaq down 118.4 points (-0.6%) at 19918.68
US 10-Yr yield is up 5.5 bps at 4.3258%
US Mar 10-Yr futures are down 10.5/32 at 110-11.5
EURUSD down 0.0025 (-0.24%) at 1.0471
USDJPY up 0.15 (0.1%) at 152.6
WTI Crude Oil (front-month) down $0.09 (-0.13%) at $70.20
Gold is down $36.3 (-1.34%) at $2681.95
European bourses closing levels:
EuroStoxx 50 up 6.18 points (0.12%) at 4965.53
FTSE 100 up 10.14 points (0.12%) at 8311.76
German DAX up 27.11 points (0.13%) at 20426.27
French CAC 40 down 2.46 points (-0.03%) at 7420.94
US TREASURY FUTURES CLOSE
3M10Y +8.893, -0.877 (L: -12.299 / H: -0.485)
2Y10Y +2.358, 13.936 (L: 10.952 / H: 14.498)
2Y30Y +3.693, 36.428 (L: 31.729 / H: 37.023)
5Y30Y +2.412, 37.152 (L: 34.103 / H: 38.34)
Current futures levels:
Mar 2-Yr futures down 2.125/32 at 102-31.875 (L: 102-31.625 / H: 103-03.25)
Mar 5-Yr futures down 6/32 at 107-5 (L: 107-04.25 / H: 107-14)
Mar 10-Yr futures down 10.5/32 at 110-11.5 (L: 110-10.5 / H: 110-25)
Mar 30-Yr futures down 31/32 at 117-6 (L: 117-06 / H: 118-06)
Mar Ultra futures down 48/32 at 123-18 (L: 123-16 / H: 125-04)
MNI US 10YR FUTURE TECHS: (H5) Pullback Extends
- RES 4: 112-18 50.0% retrace of the Sep 11 - Nov 15 bear leg
- RES 3: 112-02 Low Oct 14
- RES 2: 111-24 38.2% retrace of the Sep 11 - Nov 15 bear leg
- RES 1: 111-07/111-20+ 20-day EMA / High 6 and the bull trigger
- PRICE: 110-12+ @ 19:39 GMT Dec 12
- SUP 1: 110-10+ Intraday low
- SUP 2: 110-02 61.8% retrace of the Nov 15 - Dec 6 bull cycle
- SUP 3: 109-20 Low Nov 20/21
- SUP 4: 109-02+ Low Nov 15 and the bear trigger
A bull phase in Treasuries remains in play, however, a corrective cycle has resulted in a pullback from recent highs. The contract has again traded lower today. An extension would open 110-02, a Fibonacci retracement point. A breach of 110-02 would strengthen a bearish theme. For bulls, a reversal higher would refocus attention on key resistance at 111-20+, the Dec 6 high. Clearance of this level would resume the recent bull cycle.
SOFR FUTURES CLOSE
Dec 24 steady at 95.648
Mar 25 -0.015 at 95.865
Jun 25 -0.030 at 96.020
Sep 25 -0.030 at 96.120
Red Pack (Dec 25-Sep 26) -0.045 to -0.04
Green Pack (Dec 26-Sep 27) -0.055 to -0.05
Blue Pack (Dec 27-Sep 28) -0.06 to -0.05
Gold Pack (Dec 28-Sep 29) -0.06 to -0.055
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.04642 to 4.39709 (-0.08021/wk)
- 3M -0.03688 to 4.35857 (-0.06815/wk)
- 6M -0.03419 to 4.26045 (-0.06897/wk)
- 12M -0.02728 to 4.12138 (-0.05941/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.62% (-0.02), volume: $2.287T
- Broad General Collateral Rate (BGCR): 4.60% (-0.01), volume: $855B
- Tri-Party General Collateral Rate (TGCR): 4.60% (-0.01), volume: $820B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.58% (+0.00), volume: $104B
- Daily Overnight Bank Funding Rate: 4.58% (+0.00), volume: $244B
FED Reverse Repo Operation
RRP usage recedes to $165.025B Thursday afternoon from $180.120B prior. Usage has risen on the week from last Friday's multi-year low of $130.014B (last seen at May 3 2021: $129.724B). The number of counterparties at 49.
MNI PIPELINE: $1.4B Windstream 2031 Tap
- Date $MM Issuer (Priced *, Launch #)
- 12/12 $1.4B Windstream 8.25% 2031 tap +103.75
- $3.45B Priced Wednesday, $14.65B/wk
- 12/11 $2B *Microchip Tech $1B +3Y +80, $1B +5Y +93
- 12/11 $950M *Diebold 5.25NC2 7.75%
- 12/11 $500M *Onesky Flight 5NC2 8.875%
MNI BONDS: EGBs-GILTS CASH CLOSE: BTPs Notable Underperformers After ECB Cut
European yields rose sharply Thursday, with periphery EGBs underperforming.
- Soft US producer price and jobless claims data helped push core FI to session highs as the post-ECB meeting press conference got underway, but Bunds and Gilts would fully reverse those gains and head lower by the cash close.
- While the ECB cut by 25bp as had fully been expected, and dropped language saying it would keep policy "sufficiently restrictive", Lagarde's tone seemed less dovish, noting two-sided risks to inflation.
- Around 7bp of cuts were priced out through the next 6 meetings, though around 125bp is still foreseen (a Bloomberg sources piece after the cash close pointed to two 25bp cuts at the next two meetings, less than market-implied, but had little impact).
- The lack of dovish follow-through from Lagarde saw Bunds lead a steady sell-off, with periphery spreads hard-hit, in particular BTPs on prospects of less monetary easing, with 10Y spreads widening 8+bp.
- The German curve belly underperformed, with the UK's leaning bear steeper (though 5s underperformed 2s and 10s).
- Friday's scheduled highlight will be UK monthly activity data, along with ECB speakers (scheduled are Villeroy, Holzmann, Centeno)
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 6.9bps at 2.021%, 5-Yr is up 8.2bps at 2.037%, 10-Yr is up 7.8bps at 2.205%, and 30-Yr is up 6.8bps at 2.445%.
- UK: The 2-Yr yield is up 2.2bps at 4.273%, 5-Yr is up 4.7bps at 4.18%, 10-Yr is up 4.5bps at 4.362%, and 30-Yr is up 5.6bps at 4.932%.
- Italian BTP spread up 8.1bps at 114.5bps / French OAT down 0.3bps at 76.6bps
MNI FOREX: CHF Lags Following Bold SNB Easing, GBP Also Underperforms
- Following the bold 50bp rate cut from the SNB, the Swiss Franc is the worst performer in G10 on Thursday. Despite the initial EURCHF spike to 0.9344, momentum did then stall and a late mention that the likelihood of negative rates has become smaller prompted a reversal back to 0.9305 ahead of the ECB. However, ERUCHF (+0.61%) has been steadily grinding higher since and looks set to close near session highs.
- USDCHF rose to a fresh two-week high of 0.8902, and the renewed strength sees us narrow the gap to the post-election highs of 0.8957. The 50-day EMA has supported the pair well here, with the dip following non-farm payrolls providing a good entry point to the broader trend.
- The Euro is currently just above pre-ECB announcement levels ~1.0495, with a tight 55pip range containing the two-way swings post press conference. Support at 1.0461, the Dec 2 low, continues to hold for now and we pointed out that notable option expiries up to Monday between 1.0500-1.0600 might limit the single currency downside.
- Relative weakness for sterling has prompted EURGBP to rise 0.41% on the session, briefly reaching 0.8273 post ECB. Attention remains on key support at 0.8203, the Mar 7 ‘22 low and the lowest point of a multi-year range.
- AUDUSD had a volatile session, initially rallying well on the solid jobs report overnight, where the unemployment rate fell back sub 4.0%, well below forecasts. However, mixed signals this week from the China developments and the RBA dovish pivot keeps the broader dovish trend dominant. Spot has edged back below 0.6400 and is just 40 pips above Wednesday’s fresh one-year low of 0.6337.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 13/12/2024 | 0700/0800 | ** |  SE | Unemployment |
| 13/12/2024 | 0700/0700 | ** |  GB | UK Monthly GDP |
| 13/12/2024 | 0700/0700 | ** | GB | Index of Services |
| 13/12/2024 | 0700/0700 | *** | GB | Index of Production |
| 13/12/2024 | 0700/0700 | ** | GB | Output in the Construction Industry |
| 13/12/2024 | 0700/0700 | ** | GB | Trade Balance |
| 13/12/2024 | 0700/0800 | ** |  DE | Trade Balance |
| 13/12/2024 | 0745/0845 | *** |  FR | HICP (f) |
| 13/12/2024 | 0800/0900 | *** |  ES | HICP (f) |
| 13/12/2024 | 0930/0930 | ** | GB | Bank of England/Ipsos Inflation Attitudes Survey |
| 13/12/2024 | 1000/1100 | ** |  EU | Industrial Production |
| 13/12/2024 | - | *** |  CN | Money Supply |
| 13/12/2024 | - | *** | CN | New Loans |
| 13/12/2024 | - | *** | CN | Social Financing |
| 13/12/2024 | 1330/0830 | ** |  US | Import/Export Price Index |
| 13/12/2024 | 1330/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 13/12/2024 | 1330/0830 | ** | CA | Wholesale Trade |