Highlights:
- NZD slides as RBNZ opt for dovish outlook
- China stimulus in focus as MoF announce Saturday briefing
- Raft of Fedspeak takes focus, amid light data schedule
US TSYS: A Lighter Docket With Fed Comms and 10Y Supply To Headline
- Treasuries are little changed on the day, consolidating yesterday’s late rally to remain more firmly within recent ranges.
- A light data docket today sees tomorrow’s US CPI firmly in focus (preview). Fed commentary sees some attention in the interim, including the FOMC minutes, along with 10Y supply.
- Last month’s 10Y auction traded through by 1.4bp with solid internals whilst yesterday’s 3Y saw a modest 0.8bp tail and more notably weaker internals.
- Cash yields are 0.8bp lower (2s) to 0.7bps higher (30s), with mild steepening in 2s10s to 6.5bps (+1bp).
- TYZ4 has kept to narrow ranges overnight, currently at 112-18 (+ 03) for well within yesterday’s range and with below average volumes of 285k.
- Yesterday’s low of 112-10 saw the bear threat remain intact in another push towards the round 112-00 after which sits 111-14 (50% retrace of Apr-Sep bull cycle, cont.).
- Data: MBA mortgage data (0700ET), Wholesale inventories/sales Aug F/Aug (1000ET)
- Fedspeak: Bostic welcome remarks (0800ET), Logan (0915ET, text only), Goolsbee opening remarks (1030ET), Jefferson on discount window (1230ET, text + Q&A), FOMC minutes (1400ET), Collins (1730ET, text +Q&A), Daly in moderated discussion (1800ET) – see STIR bullet
- Note/bond issuance: US Tsy $39B 10Y Note auction re-open - 91282CLF6 (1300ET)
- Bill issuance: US Tsy $64B 17W Bill auction (1130ET)
STIR: Fed Rates Tread Water, Fedspeak/Minutes Ahead
- Cumulative cuts from 4.83% effective: 22.5bp Nov, 50bp Dec, 70bp Jan and 120bp June.
- Vice Chair Jefferson (voter) late yesterday gave his first monetary policy relevant remarks since May. He saw the employment and inflation goals as roughly in balance. His comment that job market cooling is modest but “noticeable” is notable in light of the latest strong payrolls report, whilst he sees the Fed approaching rate adjustments on a meeting-by-meeting basis.
- Collins (’25 voter) also said "recent data, including September’s unexpectedly robust jobs report, bolster my assessment that the labor market remains in a good place overall – neither too hot nor too cold”. Repeating Powell’s Jackson Hole remarks, “we do not seek or welcome further cooling in labor market conditions." "My confidence in the disinflation trajectory has increased – but so have the risks of the economy slowing beyond what is needed to restore price stability."
- Today sees a heavy schedule for Fedspeak but Logan (non-voter) at 0915ET and Daly (’24) at 1800ET are the only ones who haven’t spoken recently. Logan delivers prepared remarks at an energy conference which could limit relevance, but any mon pol discussion will be of note having last talked in June and with the same for QT policy.
- The FOMC minutes also land at 1400ET, more on them here.
US TSY FUTURES: OI Points To Long Cover In TY Futures On Tuesday
OI data points to relatively modest adjustments in positioning for most Tsy futures on Tuesday, with the only notable positioning swing coming via apparent long cover in TY futures.
| 08-Oct-24 | 07-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,447,221 | 4,469,488 | -22,267 | -845,947 |
FV | 6,264,102 | 6,283,957 | -19,855 | -856,810 |
TY | 4,825,153 | 4,867,835 | -42,682 | -2,789,706 |
UXY | 2,211,378 | 2,209,698 | +1,680 | +152,390 |
US | 1,763,102 | 1,760,904 | +2,198 | +294,343 |
WN | 1,707,343 | 1,707,693 | -350 | -74,449 |
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| Total | -81,276 | -4,120,179 |
STIR: OI Points To Mix Of Long & Short Setting Across Much Of SOFR Strip Tuesday
OI data points to a mix of short & long setting as the SOFR strip twist steepened on Tuesday, with only limited, isolated pockets of cover noted.
| 08-Oct-24 | 07-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,258,723 | 1,268,282 | -9,559 | Whites | +16,416 |
SFRZ4 | 1,109,615 | 1,109,063 | +552 | Reds | +30,805 |
SFRH5 | 1,019,907 | 997,857 | +22,050 | Greens | +10,851 |
SFRM5 | 857,500 | 854,127 | +3,373 | Blues | +17,850 |
SFRU5 | 688,558 | 680,586 | +7,972 |
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SFRZ5 | 961,013 | 950,050 | +10,963 |
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SFRH6 | 609,490 | 598,154 | +11,336 |
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SFRM6 | 608,935 | 608,401 | +534 |
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SFRU6 | 560,717 | 551,728 | +8,989 |
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SFRZ6 | 616,372 | 620,512 | -4,140 |
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SFRH7 | 367,374 | 361,379 | +5,995 |
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SFRM7 | 306,261 | 306,254 | +7 |
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SFRU7 | 266,424 | 256,365 | +10,059 |
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SFRZ7 | 252,729 | 247,221 | +5,508 |
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SFRH8 | 191,140 | 190,314 | +826 |
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SFRM8 | 160,809 | 159,352 | +1,457 |
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MNI US EARNINGS SCHEDULE - Banks Take Early Focus
Highlights:
- Earnings season informally begins this week with Pepsi's midweek report, before BlackRock, Wells Fargo and JP Morgan on Friday.
- Unfortunately for net interest margins, the Fed's first rate cut since the pandemic will have come too late in the quarter to provide any material relief for banks - leaving initial focus on FICC revenues and general cost reduction.
- Just over half of the S&P 500 by market cap will have reported by the end of October – although significant releases still cross through November, with NVIDIA scheduled for 21st November.
Full schedule for the quarter including timings, EPS & revenue expectations here: MNIUSEARNINGS081024.pdf
MNI: US CPI Preview: Major Surprise Required For A Fed Skip
- We have published and e-mailed to subscribers the MNI US CPI Preview.
- Please find the full report including MNI analysis and views from 20 analysts here: https://media.marketnews.com/USCPI_Prev_Oct2024_cbca0180b0.pdf
UK FISCAL: New fiscal rules and near-term schedule
- The Guardian has reported that today is the deadline for Chancellor Reeves to confirm her new fiscal rules to the OBR ahead of the 30 October Budget. The newspaper also reports that Reeves briefed the cabinet about the Budget last night and will send over a first draft to the OBR today (with the full preliminary costings due to be reported back to the Treasury on Monday - round 3 of the 5 part forecast process).
- Note that there have already been two "pre-measures" rounds of forecasts from the OBR where some individual policies will have already been initially costed. There have been recent media reports that the government has watered down some of its proposals for changes to the capital gains tax applicable for carried interest and non-doms as the OBR judged that the proposals in their initial form would not raise money (and may in fact result in a net loss due to HNW individuals leaving the country).
- It appears as though the more "ideological" measures that won't raise much money (other than the VAT on private schools) are being watered down - and therefore the budget may not be as extreme as some market participants fear (we last rounded up some of the possible measures in the Gilt Week Ahead a couple of weeks ago).
- In terms of the fiscal rules, the previous government's primary rule was that public sector net debt excluding the Bank of England to fall in the fifth, and final, year of the forecast. (Note that the margin that this is met by was referred to as the "headroom" when analysing previous budgets). There was also a supplementary "target" for PSNB to be below 3% of GDP in the fifth year of the forecast.
- The Labour manifesto included commitments to balance day-to-day spending with tax receipts (but using no specific definitions) and for debt to be falling as a share of the economy in the fifth year of the forecast (again not using any specific definitions).
- On the former, it appears as though Labour will look to balance the "current budget" - but probably to exclude the BOE from this. Under the OBR's previous forecasts (made alongside the last Conservative Budget in March), the current budget (before any definition changes) was not in balance for any future year through the forecast horizon (ranging from current deficits of between GBP2.7-8.2bln). This is before the GBP21.9bln extra departmental spending and public sector pay deals that have already been announced.
- In terms of measurement of debt, there are again a few options for Reeves. Excluding the BOE from the debt measures would be significant as the APF alone is forecast to make cash losses of around GBP20bln per year (although this assumes a faster pace of active gilt sales than recently announced by the BOE and probably assumes more capital losses with interest rates being higher for longer in the March forecast). We have seen some reports that this could free up to around GBP50bln of extra infrastructure spending - a number that seemed to spook gilt markets on Monday this week.
- It appears as though the probability of more controversial measures is receding (based on media reports). The most controversial would be to look at net debt when including government assets (government buildings such as schools, hospitals etc) - but these things are hard to value. An interim measure would be to take things like the student loan book, BOE, long-term investment off balance sheet.
FED: Sept Minutes Preview: Instant Answers Look For How Many Eyed 25bp Cut
The minutes to the September FOMC meeting (released Wednesday at 1400ET) could shed further light on the decision to semi-surprise markets with a 50bp vs a 25bp cut to begin the easing cycle. Our full preview is here (PDF).
- While the vast majority of participants have since commented that they supported the half-point cut, the meeting decision brought the first dissent from a Fed governor (Bowman) since 2005, and it will be interesting to get a gauge of how many non-voting members also opposed the outsized rate reduction. It seems from comments since that meeting that the vast majority – including hawks – supported the 50bp cut.
- It's to be expected that the discussion over the future rate path will revolve around a data-dependent/meeting-by-meeting approach, but the characterization of the decision to cut 50bp will be of note in this context if there was a sense of falling behind the curve of labor market deterioration, and/or regret over not cutting 25bp in July.
- Was there more support on the Committee to get to neutral quickly due to policy being far too restrictive, or for the front-loaded 50bp being a pure "recalibration", with the bar to sizeable future easing set a little higher?
- MNI has one question for the Instant Answers release – “Did several or more participants say they could have supported a 25 bp cut in Sept?”
FED: Sept Minutes Preview: 50bp Not "The Rule", Strong Payrolls No Concern
In Committee communications since the September meeting, two themes have been notable.
- First, with Powell’s lead, participants have played down the perception that September’s 50bp cut represented a new normal. Powell’s comments that the committee doesn’t feel like it ‘s “in a hurry” to cut rates, while pointing out that the base case was 2 more 25bp cuts this year as per the Dot Plot.
- NY’s Williams also noted that 50bp isn’t “the rule” for future actions. Some have expressed openness for another outsized cut were the data to warrant it (Waller, Bostic) but it’s been fairly clear it’s not the base case for most participants unless data surprises are forthcoming.
- Second, there has been limited concern about the signal sent from the strong payrolls figure from the few participants we have heard from since its release on Oct 4.
- Far from worrying that they were wrong-footed in cutting 50bp in September, participants continued to portray the labor market as cooling overall, with the most recent employment report a positive development inasmuch as they did not desire to see further cooling.
- Below is our updated Hawk-Dove spectrum - see our full Minutes preview (PDF) for a summary of key FOMC commentary.
FOREX: AUD/NZD North of Key Level on Dovish RBNZ
- NZD is comfortably the poorest performer across G10 following the RBNZ rate decision overnight. The 50bps OCR rate cut was largely as expected, but council's commitment to rolling back restrictive policy should the economy warrant action has raised the likelihood of further easing this year - with over 50bps now priced for the November decision.
- As such, AUD/NZD has been marked sharply higher breaking above the Monday highs to hit the best levels since late July. A close at current or higher levels would also confirm a break above the 76.4% retracement for the downleg off the mid-year high at 1.1066.
- The greenback trades firmer, with a wave of dollar demand coinciding with a soft European equity open. Concerns over Chinese stimulus should remain a key topic for the rest of the week - an announcement that the Chinese Ministry of Finance will hold a briefing on policy this Saturday failed to underpin sentiment. The CSI-300 closed lower by 7% after a late phase of selling pressure.
- The Fed minutes release later today could shed further light on the decision to semi-surprise markets with a 50bp vs a 25bp cut to begin the easing cycle. It's to be expected that the discussion over the future rate path will revolve around a data-dependent/meeting-bymeeting approach, but the characterization of the decision to cut 50bp will be of note. Our full preview found here: https://mni.marketnews.com/481Unc5
- Speakers of note Wednesday include Fed's Bostic, Logan, Goolsbee & Jefferson, with Collins & Daly after the close - covering a variety of issues. ECB's Villeroy is also set to appear in Paris at the London close.
OPTIONS: Expiries for Oct09 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0900-10(E748mln), $1.1000(E789mln)
- USD/JPY: Y144.75($1.4bln), Y146.00($614mln), Y147.00($960mln), Y147.35-50($1.2bln), Y150.00-20($948mln)
- EUR/GBP: Gbp0.8430(E544mln)
- AUD/USD: $0.6625(A$648mln)
- NZD/USD: $0.6050(N$1bln), $0.6175-85(A$633mln)
EQUITIES: Bull Cycle in E-Mini S&P Intact Despite Recent Shallow Pullback
- Eurostoxx 50 futures are unchanged. The latest pullback appears to be a correction. Key short-term support to watch is 4929.62, the 50-day EMA. A clear break of this EMA would signal scope for a deeper retracement. Recently, the contract breached resistance at 5024.00, the Sep 3 high. This confirmed a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. Key resistance and bull trigger is 5106.00, the Sep 30 high.
- A bull cycle in S&P E-Minis remains intact and the latest shallow pullback still appears to be a correction. Price is trading closer to its recent highs. MA studies are in a bull-mode setup, highlighting a dominant uptrend and positive market sentiment. Sights are on 5868.50, a Fibonacci projection, and 5900.00 further out. Initial support to watch is 5742.64, the 20-day EMA. It has been pierced. Key support lies at 5674.40 the 50-day EMA.
COMMODITIES: Tuesday's Reversal Lower in WTI Futures Considered Corrective
- WTI futures traded higher Monday as the pair extended the rally that started Oct 1. Tuesday’s reversal is for now, considered corrective. Recent gains suggest potential for a continuation higher near-term. Attention is on $77.40, the 76.4% retracement of the Jul 5 - Sep 10 bear leg. This level has been pierced, a clear break of it would strengthen a bullish condition. On the downside, initial firm support to watch is $71.41, the 20-day EMA.
- The latest short-term retracement in Gold is considered corrective. The trend condition is unchanged and bulls remain in the driver’s seat. Moving average studies are in a bull-mode set-up too, highlighting a clear uptrend and positive market sentiment. A resumption of gains would refocus attention on $2690.2, a Fibonacci projection. Firm support lies at $2615.7, the 20-day EMA. It has been pierced, a clear break would signal scope for a deeper retracement.
| Date | GMT/Local | Impact | Country | Event |
| 09/10/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 09/10/2024 | 1200/0800 | US | Atlanta Fed's Raphael Bostic | |
| 09/10/2024 | 1315/0915 | US | Dallas Fed's Lorie Logan | |
| 09/10/2024 | 1400/1000 | ** | US | Wholesale Trade |
| 09/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 09/10/2024 | 1630/1230 | US | Fed Vice Chair Philip Jefferson | |
| 09/10/2024 | 1700/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 09/10/2024 | 1800/1400 | *** | US | FOMC Minutes |
| 09/10/2024 | 2100/1700 | US | Boston Fed's Susan Collins | |
| 09/10/2024 | 2200/1800 | US | San Francisco Fed's Mary Daly | |
| 10/10/2024 | 0600/0800 | *** |  NO | CPI Norway |
| 10/10/2024 | 0600/0800 | ** |  SE | Private Sector Production m/m |
| 10/10/2024 | 0600/0800 | ** |  DE | Retail Sales |
| 10/10/2024 | 0800/1000 | * |  IT | Industrial Production |
| 10/10/2024 | - | *** |  CN | Money Supply |
| 10/10/2024 | - | *** | CN | New Loans |
| 10/10/2024 | - | *** | CN | Social Financing |
| 10/10/2024 | 1230/0830 | *** | US | Jobless Claims |
| 10/10/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 10/10/2024 | 1230/0830 | *** | US | CPI |
| 10/10/2024 | 1315/0915 | US | Fed Governor Lisa Cook | |
| 10/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 10/10/2024 | 1430/1030 | US | Richmond Fed's Tom Barkin | |
| 10/10/2024 | 1500/1100 | US | New York Fed's John Williams | |
| 10/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 10/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 10/10/2024 | 1700/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |
| 10/10/2024 | 1800/1400 | ** | US | Treasury Budget |
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