Highlights:
- Fed on course for 25bps cut, but 2025 signalling is what matters for markets
- GBP shrugs off inflation, as core and services CPI miss forecast
- USD/JPY vols surge as they capture Fed, BoJ decisions
US TSYS: Back Little Changed And Outperforming Europe Pre-FOMC
- Treasuries have pared gains seen in Asia hours to leave them broadly unchanged ahead of today’s FOMC-focused session, outperforming Gilts and EGBs.
- Cash yields range between unch to 0.5bps higher. 20s and 30s lead the increase with the long end possibly seeing some lethargy after yesterday’s 20Y auction tailed by 1.5bp, an auction that was better than November’s but certainly not better than most.
- TYH5 sits at 109-25 (-04) having kept to Tuesday’s range throughout, on particularly low volumes of 150k.
- A bear threat is still seen, with support at 109-17 (Dec 17 low) before potentially 109-04+ (equates to 4.50% yield). Both sit above a bear trigger at 109-02+ (Nov 15 low) although note that TYZ4 was trading as the active contract then. To the upside, resistance is seen at 110-17+ (20-day EMA), a break of which would highlight an early bullish development.
- Data: Weekly MBA data (0700ET), Housing starts/building permits Nov (0830ET), Current account Q3 (0830ET)
- Fed: FOMC decision/SEP (1400ET), Powell press conference (1430ET)
- Bill issuance: US Tsy to sell $64bn 17-week bills (1130ET)
STIR: 25bp Fed Cut Seen Locked In Today, Shallow Path Thereafter
- Fed Funds implied rates are little changed overnight, with a 25bp cut today seen as locked in (24bp priced) but a subsequent 25bp cut only fully priced for the June FOMC.
- Cumulative cuts from 4.58% effective: 24bp Dec, 28bp Jan, 40bp Mar, 47bp May and 56bp June.
- Further out, the SOFR-implied terminal of ~3.85% (broadly 75bp of cuts including today’s) continues to point to a markedly shallower easing cycle than the 2.75-3% median dot in the September SEP.
- The median analyst sees the FOMC rate “dot” for 2025 upped by 25bp (i.e. one less cut) to 3.6%, with a range of opinions including unchanged at 3.4% and +50bp to 3.9%. Analysts are almost unanimous that the longer-run Dot will be raised from 2.9%, to either 3.0% or 3.1%.
- MNI Fed Preview: https://media.marketnews.com/Fed_Prev_Dec2024_With_Analysts_5b1eec4e36.pdf
CENTRAL BANK PREVIEWS
MNI FED PREVIEW - DECEMBER 2024: Greater Caution, Flatter Rate Path
The latest unemployment and inflation data have kept the FOMC on track to cut the federal funds rate by 25bp (to 4.25-4.50%) on Dec 18, but macro and political developments have heightened uncertainty over its the next moves. With the unemployment rate likely to undershoot September’s median projection along with core PCE inflation and GDP growth overshooting, the FOMC will undoubtedly signal a more cautious approach to easing. This will be communicated most clearly in the updated Dot Plot, which is set to show 75bp of cuts in 2025.
MNI BOJ PREVIEW - DECEMBER 2024: Pushing Further Tightening Into 2025
The broad consensus for the BoJ policy meeting outcome on Thursday is for no changes in policy settings. Towards late November, market pricing for the meeting outcome stood at over 60% in terms of a 25bps hike priced in. This has fallen back sharply though as we have gotten closer to the meeting date, last around 14% probability priced for a full rate hike.
MNI BOE PREVIEW - DECEMBER 2024: 8-1 Vote for Hold
We expect this week’s MPC meeting to see an 8-1 vote split for Bank Rate to be on hold (with Dhingra the sole dissenter looking for a 25bp cut) and with guidance largely unchanged. We look through where we expect each MPC member to sit within the "cases" framework. And we look at when we do expect the guidance to change, and what could be the triggers.
MNI RIKSBANK PREVIEW - DECEMBER 2024: Still Cutting for Now
The Riksbank is expected to bring its policy rate to 2.50% with a 25bp cut in December. Although inflation has tracked a little above the September MPR projections over the past three months, continued softness in domestic economic activity means there is little reason for the Executive Board to go against its November guidance. The December decision includes an updated monetary policy report and rate path projection.
MNI NORGES BANK PREVIEW - DECEMBER 2024: Cuts Are Approaching
Norges Bank has signalled since September that policy rates will likely be kept at 4.50% through the end of 2024. As such, anything other than another hold in rates would be a significant surprise to markets. The September MPR rate path assigned a near-certain implied probability of a 25bp cut in Q1 2025, so it won’t be a surprise for Norges Bank to signal such an intention in the December policy statement.
MNI CNB PREVIEW - DECEMBER 2024: Time to Press Pause
Consensus has been converging towards the view that the Czech National Bank (CNB) will pause its rate-cutting cycle at the December meeting. Communications from several central bank members signalled that an on-hold decision is very much on the table as the two-week repo rate gets closer to its neutral level. In addition, the temporary flare-up in headline inflation coupled with the imminent seasonal repricing of goods and services in January warrant caution on the Bank Board’s part.
MNI BANXICO PREVIEW - DECEMBER 2024: Bolder Easing Votes in Focus
Following the dovish tilt to Banxico’s unanimous cut in November, subsequent central bank rhetoric has evolved in a similar direction. While most analysts expect another 25bp move to 10.00% in December, there are notable calls for the committee to imminently step up the pace of easing. Indeed, Governor Rodriguez has not ruled out larger cuts ahead, appearing content with latest developments in the currency market and the markets interpretation of the latest budget proposal for 2025.
MNI BSP PREVIEW - DECEMBER 2024: Soft Inflation Should See a Cut
The Philippines economy is showing resilience in the face of some mixed signals from their regional neighbours, yet there is one data release that will hold the most weight with the BSP decision this week: that being the CPI. The BSP has a CPI target for 2024 of 3.00% +/- 1% and whilst November saw a slight increase to +2.5% (from +2.3% in October) the benign inflation environment provides an opportunity to cut at a time when regional uncertainty is growing.
US TSY FUTURES: Short Cover In Most Contracts On Tuesday
OI data points to net short cover in most contracts on Tuesday, with that theme only broken by a modest round of net long setting in US futures.
- TY futures saw the largest DV01 equivalent positioning swing (~$1.6mn).
| 17-Dec-24 | 16-Dec-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,217,505 | 4,240,057 | -22,552 | -876,506 |
FV | 6,065,452 | 6,072,538 | -7,086 | -302,455 |
TY | 4,453,907 | 4,478,215 | -24,308 | -1,593,604 |
UXY | 2,160,574 | 2,163,275 | -2,701 | -241,646 |
US | 1,845,918 | 1,843,507 | +2,411 | +310,065 |
WN | 1,758,282 | 1,765,018 | -6,736 | -1,330,297 |
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| Total | -60,972 | -4,034,443 |
STIR: SFRZ4 Positioning Swings Continue To Dominate
OI data suggests that fresh net short positioning was set in SFRZ4 on Tuesday, building on the theme from Monday (Friday saw OI in the contract tumble alongside the expiration of December ’24 options).
- A mix of net long and short cover was then seen across most of the remainder of the strip.
| 17-Dec-24 | 16-Dec-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,225,696 | 1,223,971 | +1,725 | Whites | +48,274 |
SFRZ4 | 1,298,692 | 1,255,422 | +43,270 | Reds | -1,943 |
SFRH5 | 1,100,584 | 1,097,131 | +3,453 | Greens | -5,266 |
SFRM5 | 1,016,344 | 1,016,518 | -174 | Blues | -27,886 |
SFRU5 | 821,571 | 812,652 | +8,919 |
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SFRZ5 | 929,913 | 936,967 | -7,054 |
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SFRH6 | 564,452 | 566,631 | -2,179 |
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SFRM6 | 632,086 | 633,715 | -1,629 |
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SFRU6 | 623,668 | 621,407 | +2,261 |
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SFRZ6 | 709,624 | 715,174 | -5,550 |
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SFRH7 | 423,232 | 418,616 | +4,616 |
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SFRM7 | 353,457 | 360,050 | -6,593 |
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SFRU7 | 279,820 | 274,751 | +5,069 |
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SFRZ7 | 280,348 | 308,646 | -28,298 |
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SFRH8 | 207,484 | 210,710 | -3,226 |
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SFRM8 | 156,711 | 158,142 | -1,431 |
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JPY: January BoJ Pricing Could Be the Market to Watch For Next 24hrs
USD/JPY vols are suitably bid today, with the overnight contract capturing both the Fed decision later today, as well as the BoJ due during the Thursday Asia-Pac session.
- It's clear that signalling at both the banks will be key for the market reaction: a 25bps FOMC cut, and a BoJ hold are close to fully priced - meaning it's the comms strategy for 2025 that could swing prices here, and that's likely what's showing in vol space.
- USD/JPY vols are bid to 25 points, and EUR/JPY to 23 points, meeting levels akin to the lead-up to the September US jobs report, and prompting the break-even on an overnight straddle to widen to ~130 pips - close to double the YTD average for the same structure.
- This raises the focus on layered resistance at the Y155 handle and the cycle highs above at 156.75 should the confluence of Fed/BoJ risks be beneficial for the pair. Such a move would work against the recent improvement in the JPY net position, which currently sits at a small net long after this year's sharp correction.
- It's January BoJ pricing that could prove key here - a 25bps hike is ~50% priced, leaving notable two-way risk on a firm steer in either direction from Ueda's press conference - which could make this the market to watch in the coming 24 hours.
FOREX: Greenback Eyes Monthly Highs Ahead of Fed Decision
- The Fed decision later today marks the halfway point of the last full week for markets of 2024, at which the FOMC are expected to proceed with a further 25bps rate cut. The market is set to focus not on today's decision itself, but on the messaging and communication for the path of policy across 2025, via the policy statement, Powell's press conference and the dot plot.
- Ahead of the decision, the greenback is firmer, but only modestly so - with price action largely contained and recent ranges respected. The USD Index remains at the upper-end of the December range, making 107.19 the bull trigger, above which the USD eyes the best levels seen since the Presidential election at 108.071.
- Elsewhere, the EUR trades well, recovering a small part of recent weakness, aided higher by demand in the crosses: EUR/AUD has broken to a new monthly high and cleared resistance at the early November print of 1.6601. For now, 1.6648 is holding, but clearance of that mark will be the highest EUR/AUD print since August.
- GBP has slipped against most others as both core and services CPI came in modestly below expectations. As a result, markets have shrugged off the inline headline read, which should have little bearing on the thinking of the MPC.
- Outside of the Fed decision, US housing starts and building permits data are set to cross.
COMMODITIES: WTI Futures Recover From Monday's Lows
- A bearish threat in WTI futures remains present and recent gains are - for now - considered corrective. A resumption of the bear cycle would open $65.57, the Oct 1 low, and $63.73, the Sep 10 low and key support. For bulls, a stronger reversal to the upside would instead refocus attention on the key short-term resistance at $76.41, the Oct 8 high. Initial firm resistance to watch is unchanged at $71.97, the Nov 7 high.
- Gold is unchanged and continues to trade below its recent highs. Trend signals are bullish and a move lower is considered corrective. A key short-term resistance at $2721.4, Nov 25 high, has recently been pierced and this represents a positive development. A resumption of gains would expose key resistance at $2790.1, the Oct 31 high. Clearance of this level would resume the primary uptrend. First key support is $2605.3, the Nov 26 low.
EQUITIES: Recent Shallow Pullback in E-Mini S&P Considered Corrective
- A bull cycle in the Eurostoxx 50 futures contract remains intact and the latest pullback is - for now - considered corrective. The contract has recently traded through the 50-day EMA. The clear break of this average strengthens a bullish theme and note that 4961.00, the Nov 6 high, has also been cleared. A resumption of gains would open 5015.00 next, the Oct 29 high. Initial support to watch lies at 4895.65, the 50-day EMA.
- The S&P E-Minis outlook remains bullish and the latest shallow pullback is considered corrective and marks a pause in the uptrend. Recent gains confirmed a resumption of the trend. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. A continuation higher would open 6194.19, a Fibonacci projection. Initial support to watch lies at 6105.41, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 18/12/2024 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 18/12/2024 | 1330/0830 | * | US | Current Account Balance |
| 18/12/2024 | 1330/0830 | *** | US | Housing Starts |
| 18/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 18/12/2024 | 1900/1400 | *** | US | FOMC Statement |
| 19/12/2024 | 2145/1045 | *** |  NZ | GDP |
| 19/12/2024 | - |  NO | NorgesBank Meeting | |
| 19/12/2024 | 0300/1200 | *** |  JP | BOJ Policy Rate Announcement |
| 19/12/2024 | 0700/0800 | * |  DE | GFK Consumer Climate |
| 19/12/2024 | 0745/0845 | ** |  FR | Manufacturing Sentiment |
| 19/12/2024 | 0830/0930 | *** |  SE | Riksbank Interest Rate Decison |
| 19/12/2024 | 0900/1000 | *** | NO | Norges Bank Rate Decision |
| 19/12/2024 | 0900/1000 | ** |  EU | EZ Current Account |
| 19/12/2024 | 1200/1200 | *** |  GB | Bank Of England Interest Rate |
| 19/12/2024 | 1200/1200 | GB | BOE MPS and Minutes | |
| 19/12/2024 | 1200/1200 | GB | BOE Agents' summary of business conditions | |
| 19/12/2024 | 1200/1200 | *** | GB | Bank Of England Interest Rate |
| 19/12/2024 | 1330/0830 | *** | US | Jobless Claims |
| 19/12/2024 | 1330/0830 | *** | US | GDP |
| 19/12/2024 | 1330/0830 | * |  CA | Payroll employment |
| 19/12/2024 | 1330/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 19/12/2024 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 19/12/2024 | 1500/1000 | *** | US | NAR existing home sales |
| 19/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 19/12/2024 | 1600/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 19/12/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 19/12/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 19/12/2024 | 1800/1300 | ** | US | US Treasury Auction Result for TIPS 5 Year Note |
| 19/12/2024 | 1900/1400 | *** |  MX | Mexico Interest Rate |
| 19/12/2024 | 2100/1600 | ** | US | TICS |
| 20/12/2024 | 2330/0830 | *** | JP | CPI |