Highlights:
- Normalization of FX vols exposes currencies with sensitivity to Trump term
- China's stimulus package discloses few fireworks, leaving AUD to slip into NY hours
- Canadian jobs data, UMich sentiment on docket
US TSYS: Modest Bid As China Stimulus Doesn’t Meet Some Lofty Expectations
- Treasuries trade modestly firmer, with a tailwind from China unveiling a 10tn yuan ($1.4tn) program to primarily support local governments that disappointed some expecting additional more consumption-focused aspects.
- EGBs outperform Treasuries owing to their greater sensitivity to China growth.
- Today’s docket is light and we expect the U.Mich consumer survey to largely be discounted with a survey window of Oct 22-Nov 4 stopping just shy of the Nov 5 presidential election, barring any particularly large surprises.
- Cash yields are 2-3bps lower, with largest declines seen in 3s.
- 2s10s at 13.5bps (+0.5bp) is within recent ranges.
- TYZ4 trades at 110-13+ (+ 07+) on strong cumulative volumes of 440k, off an earlier high of 110-16+.
- The rally extends yesterday’s bounce and is deemed corrective with resistance at 110-21+ (Nov 6 high). A resumption of the bear cycle would see support at the bear trigger of 109-07 (Nov 6 low).
- Data: U.Mich consumer survey Nov prelim (1000ET)
- Fedspeak: Bowman speaks on banking (1100ET) – she can’t touch upon mon pol as the FOMC blackout ends tonight at midnight ET
STIR: Still Relatively Modest Post-FOMC Reaction
- Fed Funds implied rates are little changed out to mid-2025 as they hold a very small decline compared to pre-FOMC levels, most of which came from Powell’s press conference.
- Cumulative cuts from an assumed 4.58% effective: 19bp Dec, 29bp Jan, 47bp Mar and 69bp June.
- Further out the curve, some disappointment in China fiscal stimulus relative to heightened expectations has seen larger rallies on the day, with SOFR implied yields 5bps lower through 2026 contracts.
- It sees a terminal rate of 3.69%, pointing to circa 90bp of cuts from here, compared to the median FOMC longer run dot of 2.75-3.0% from the September SEP.
- See the MNI Fed Review here: https://media.marketnews.com/Fed_Review_Nov2024_c8498fe582.pdf
STIR: OI Suggests Long Setting Dominated In Front Of SOFR Strip On Thurs
OI also points to a mix of net long setting and short cover dominating during Thursday’s partial reversal of the Trump trades that took hold on Wednesday.
- Net long setting was very prominent through the reds, with a better mix of the two then seen further out.
- See prior bullet for exact levels surrounding Fed pricing and greater colour on STIRs.
| 07-Nov-24 | 06-Nov-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,270,129 | 1,264,997 | +5,132 | Whites | +51,018 |
SFRZ4 | 1,180,537 | 1,181,229 | -692 | Reds | +74,702 |
SFRH5 | 1,038,071 | 1,004,655 | +33,416 | Greens | +1,677 |
SFRM5 | 934,932 | 921,770 | +13,162 | Blues | -2,079 |
SFRU5 | 715,843 | 711,370 | +4,473 |
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SFRZ5 | 962,298 | 909,989 | +52,309 |
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SFRH6 | 633,263 | 614,184 | +19,079 |
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SFRM6 | 597,835 | 598,994 | -1,159 |
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SFRU6 | 528,919 | 525,664 | +3,255 |
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SFRZ6 | 612,262 | 618,009 | -5,747 |
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SFRH7 | 391,790 | 392,921 | -1,131 |
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SFRM7 | 328,119 | 322,819 | +5,300 |
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SFRU7 | 267,907 | 267,516 | +391 |
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SFRZ7 | 262,208 | 261,797 | +411 |
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SFRH8 | 204,113 | 204,827 | -714 |
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SFRM8 | 155,091 | 157,258 | -2,167 |
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US TSY FUTURES: OI Points To Mix Of Short Cover & Long Setting In Thursday Rally
OI data points to a mix of net short cover and long setting as Tsy futures unwound some of the election-driven weakness on Thursday.
- Net short cover provided slightly greater impact in curve-wide DV01 equivalent terms.
- A reminder that net short setting dominated in most contracts as Wednesday, as markets eyed potential fallout from Trump’s preferred policy choices.
| 07-Nov-24 | 06-Nov-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,461,373 | 4,429,440 | +31,933 | +1,157,259 |
FV | 6,317,988 | 6,329,962 | -11,974 | -498,782 |
TY | 4,565,720 | 4,591,198 | -25,478 | -1,655,336 |
UXY | 2,194,326 | 2,192,463 | +1,863 | +161,542 |
US | 1,843,342 | 1,861,443 | -18,101 | -2,289,636 |
WN | 1,740,645 | 1,733,286 | +7,359 | +1,428,668 |
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| Total | -14,398 | -1,696,283 |
EUROPEAN COUNCIL: Leaders Meet With 2nd Trump Presidency The Main Talking Point
EU member state leaders hold an informal meeting in Budapest, Hungary today where they will try to agree on a joint communique. As was the case with the European Political Community meeting on 7 Nov, the looming second Trump presidency will dominate conversations. Trump's well-publicised comments regarding Europe paying for its own defence will place pressure on EU budgets, while the president-elect's tariff plans threaten major upheaval for those European industries reliant on US demand.
- Comments from a Trump campaign team member reported by the WSJ on 7 Nov highlighted the major shift in stance the US could take, resulting in a significant increase in pressure on EU member states to boost military spending. “We can do training and other support but the barrel of the gun is going to be European,...We are not sending American men and women to uphold peace in Ukraine. And we are not paying for it. Get the Poles, Germans, British and French to do it.”
- The concerns surrounding Trump's tariff plans will also feed into talks on EU competitiveness. Former Italian PM and ECB president Mario Draghi will be in attendance to discuss his competitiveness report for the Union. On 7 Nov, French President Emmanuel Macron claimed that “The world is made up of herbivores and carnivores. If we decide to remain herbivores, then the carnivores will win and we will be a market for them...I think, at the very least, we should choose to become omnivores.”
- Post-meeting presser at 1530CET (0930ET, 1430GMT). Livestream here.
CHINA: Debt Swap Package Meets CNY10tln Expectations, More To Come In '25
The policymaker press conference confirmed that the Chinese debt swap package for local governments will total CNY10tln, with the aim of cutting hidden local government debt by CNY12tln come ’28 (from CNY14.3tln to CNY2.3tln).
- A reminder that a debt package of ~CNY10ln was previously outlined by RTRS. This package seems broadly in line with that, at least at first glance.
- The policymakers also noted that bank recapitalisation work will be accelerated, while tax measures to support the property sector will be rolled out soon.
- We suggested that more meaningful consumer support may not be forthcoming at this juncture ahead of the press conference and that has held true (at least as of typing).
- Looking forwards, policymakers pointed to the rollout of further fiscal support during ’25, with active planning already under way and “large” fiscal space flagged.
- This will give them time to assess initial U.S. policy preferences during the early stages of President Trump’s second term.
- The fact that debt swap size seemed t co meet wider expectations allowed some of the knee-jerk risk-off move to fade.
- Markets still more risk-off than they were pre-press conference given the lack of upside surprise in the package.
- USD/CNH 7.1770 vs. highs of 7.1908 and pre-press conference levels just below 7.1800.
- Euro Stoxx 50 futures hold near lows, last 4,852.00.
GERMANY: 2/3 Of Voters Want Quick Snap Elections-ARD
Opinion polling from state broadcaster ARD and Infratest dimap shows nearly two-thirds of respondents in favour of snap elections taking place as quickly as possible to end Germany's political paralysis. These findings could place more pressure on Chancellor Olaf Scholz, who has outlined his plans for a January confidence vote in the Bundestag resulting in a March federal election. On 7 Nov Freidrich Merz, leader of the main opposition conservative Christian Democratic Union (CDU), and Christian Lindner, erstwhile finance minister and head of the pro-business liberal Free Democrats (FDP), both called for an immediate confidence vote to allow for an election in January 2025.
- The opinion poll showed 65% of respondents in favour of elections 'at the earliest point in time', with 33% backing Scholz's March 2025 timeline. Respondents in the poll laid the blame for the collapse of the 'traffic light' coalition at the feet of the FDP, blamed by 40% of respondents compared to 26% saying it was the fault of the environmentalist Greens and 19% Scholz's centre-left Social Democrats (SPD).
- The power remains with the chancellor on the timing of a vote. The opposition can only call a 'constructive confidence vote' where they need an overall majority for a new chancellor candidate to remove the incumbent.
- Nevertheless, dragging the process out risks a public backlash against Scholz's SPD that could give the party an even weaker hand in coalition negotiations post-election.
FOREX: Post-Election Moderation Continues, AUD Suffers on China Package
- JPY gains are outstripping all others in G10 as the post-election normalization continues. USD/JPY has slipped back below the Y152.50 level to further narrow the gap with pre-election levels - and weakness through 151.30 would provide a full reversal.
- AUD is the poorest performer in G10 as China stimulus news came in below market expectations, with no firm signals of fresh consumption support as part of the broader fiscal package. The falter at highs for AUD/USD firms the 100-dma as key resistance ahead - crossing today at 0.6692.
- Daily low prints of 0.8306 and 0.8309 in the last two sessions continue to highlight the ongoing and building significance of the medium-term inflection point for EURGBP. The post UK budget pressure on sterling proved short-lived last week and EURGBP’s spike to 0.8448 has steadily reversed.
- Key short-term support and the bear trigger remains at 0.8295, the Oct 18 low. Moving average studies are in a bear-mode position, highlighting a dominant downtrend and a break below this level would confirm a resumption of the current downtrend.
- The Canadian jobs data for October takes focus going forward, with markets expecting a tick higher in the unemployment rate to 6.6%, while US focus rests on the prelim UMich survey - although the respondents will likely be reflecting pre-election sentiment in their answers given the survey closed on November 4th. Central bank speakers today include BoE's Pill and Fed's Bowman.
OPTIONS: Normalizing Vols Expose Currencies Sensitive to Trump
- Implied FX vols took an expected leg lower in the second half of this week following the conclusion of the elections, but the three-month tenor remains of particular note as it captures the first few weeks of the new Trump administration. While Trump is unlikely to pull the trigger on major policy switches so soon into his Presidency, expectations and messaging on policy are likely to be set, with a full cabinet in place.
- As a result, vols for currencies seen as particularly exposed to tariff risk and global trade conditions remain well elevated over the three-month maturity - with EUR, GBP, JPY, CNY, MXN and BRL 3m vols still comfortably north of the 12m upper quartile.
- The stickiness in vols for some currencies also exposes those that are seen as more insulated from an incoming Trump administration, with CHF, NOK, SEK and, although to a lesser extent, NZD normalizing swiftly off highs.
Figure 1: Post-election vol normalization proves stickier for some
EQUITIES: E-Mini S&P Breaches $6000 Handle, Bullish Theme Strengthening
- A bearish condition in Eurostoxx 50 futures remains intact and Wednesday’s sell-off reinforces current conditions. The contract has traded to a fresh cycle low and pierced 4815.50, the 50.0% retracement of the Aug 5 - Sep 30 bull cycle. This exposes 4757.00, the Sep 6 / 10 low and a key support. Initial firm resistance has been defined at 5015.00, the Oct 29 high, where a break would highlight a reversal.
- Bullish conditions in S&P E-Minis remain intact and this week’s gains reinforce current conditions. A key short-term support has been defined at 5724.25, Nov 4 low. The move higher resulted in a breach of the bull trigger at 5927.25, Oct 17 high, confirming a resumption of the primary uptrend. The 6000.0 psychological handle has been pierced. Sights are on 6028.44, a Fibonacci projection. Initial support is at 5927.25, the Oct 17 high.
COMMODITIES: This Week's Gains in WTI Futures Considered Corrective
- A bearish theme in WTI futures remains intact and the latest recovery, including this week’s gains, appears to be corrective. A resumption of weakness would expose $65.99, the Oct 1 low, and $64.16, the Sep 10 low and key support. For bulls, a clear reversal would instead refocus attention on the key S/T resistance at $77.70, the Oct 8 high. Clearance of this level would resume the recent uptrend. Initial resistance is $74.35, the Oct 14 high.
- The trend condition in Gold is unchanged, it remains bullish and the latest pullback is considered corrective. The yellow metal has cleared the 20-day EMA and this highlights potential for an extension of the corrective cycle. Attention is on a key support at $2645.8, the 50-day EMA. A clear break of this average would expose $2604.9, the Oct 8 low. For bulls a reversal higher would refocus attention on the bull trigger at $2790.1, the Oct 31 high.
| Date | GMT/Local | Impact | Country | Event |
| 08/11/2024 | 1215/1215 |  GB | BOE's Pill and Shortfall hold MPC Agency briefing | |
| 08/11/2024 | 1330/0830 | *** |  CA | Labour Force Survey |
| 08/11/2024 | 1500/1000 | ** |  US | U. Mich. Survey of Consumers |
| 08/11/2024 | 1600/1100 | US | Fed Governor Michelle Bowman | |
| 08/11/2024 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 08/11/2024 | 1930/1430 | US | St. Louis Fed's Alberto Musalem | |
| 09/11/2024 | 0130/0930 | *** |  CN | CPI |
| 09/11/2024 | 0130/0930 | *** | CN | Producer Price Index |
| 09/11/2024 | 1535/1635 |  EU | ECB's Lagarde in Climate risks event |