Highlights:
- Curve sits twist steeper, with JOLTS eyed for labour market clues
- EUR resilient to French political prospects, censure motion set for Wednesday
- USD/CNH touches new YTD high
- Treasuries sit twist steeper today, with the front end still weighed by Fed Governor Waller’s dovish musings yesterday whilst the longer end has steadily reversed yesterday’s gains.
- Cash yields are 0.6bp lower (2s) to 2.5bp higher (30s).
- 2s10s sits at 3.4bps (+2bp), back at levels seen just prior to Thanksgiving.
- TYH5 trades at 111-01 (-02+) off a session low of 110-30+, having remained within yesterday’s range, amidst particularly low volumes of just 235k.
- Resistance is seen at yesterday’s 111-09 before 111-13 (50-day EMA), a clear break of which would signal scope for a stronger recovery after what are currently seen a corrective gains from a technical perspective.
- Today’s docket is somewhat backloaded, starting with the JOLTS report at 1000ET (see the STIR bullet with Waller’s near-term focus on it) before Fedspeak starts from 1215ET.
- Data: JOLTS Oct (1000ET), Vehicle sales
- Fedspeak: Daly interviewed on Fox Business (1215ET), Kugler speech on the labor market and mon pol (1235ET, text + Q&A) and Goolsbee in keynote conversation about US mon pol (1330ET, Q&A).
- Bill issuance: US Tsy $75B 42D CMB bill auction (1130ET)
STIR: Fed Rate Path Maintains Waller’s Dovish Shift
- Fed Funds implied rates hold most of late yesterday’s Waller-inspired dovish shift – we repeat part of what we wrote yesterday for an important tee-up ahead of today’s JOLTS data.
- Whilst he currently supports a cut in December, the market only sees it as 50/50 decision between cutting or pausing despite the dovish shift.
- Cumulative cuts from 4.58% effective: 18bp Dec, 23bp Jan, 37bp Mar and 56bp June.
- Today sees Daly ('24) at 1215ET, Kugler (voter) at 1235ET and Goolsbee ('25) at 1330ET. We watch Kugler in particular, a usually more dovish FOMC member who two weeks ago surprised with more hawkish remarks including discussing the possibility of a December pause.
- Waller from yesterday: While he sounded open-minded to the arguments for a hold in December, his commentary is about as explicit an indication as we've received that the base case for the FOMC is to cut again, unless incoming data surprises to the strong side: "Based on the economic data in hand today and forecasts that show that inflation will continue on its downward path to 2 percent over the medium term, at present I lean toward supporting a cut to the policy rate at our December meeting. But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation."
- That may include this Friday's nonfarm payrolls data, but Waller basically discounts it, saying "I do expect a rebound in payroll data in the November employment report that is due out later this week, but it may take more time for the full swings in the payroll data to fully wash out. For that reason, I am leaning on other metrics to reveal what is really going on in the labor market." Indeed he says NFPs "may have misleading [] data", and specifically says that in deciding his approach for the December meeting, he will be looking "very closely" at additional data including Tuesday's JOLTS, next week's CPI / PPI, and retail sales in 2 weeks time.”
FRANCE: Censure Motion Set For 1600CET, 4 Dec-BFM TV
BFM TV reporting that the National Assembly will take up a motion of censure against the gov't of PM Michel Barnier at 1600CET (1000ET, 1500GMT) on Wednesday 4 December. Following the gov'ts use of Article 49.3 of the Constitution to force the Social Security Finance Bill (PLFSS) through on 2 Dec without a vote, both the leftist New Popular Front (NFP) and far-right Rassemblement National (National Rally, RN) have said they will submit censure motions to remove the Barnier gov't. The RN has said that it will back censure motions submitted by other parties as well as its own.
- For a censure motion to pass an absolute majority of all 577 deputies - not just those present - is required. This means 289 deputies voting in favour of the motion. The four groups comprising the NFP total 192 deputies. Even with the addition of the regionalist Liberties, Independents, Overseas and Territories (LIOT) group, they would still fall short of the 289 threshold.
- This makes the action of the RN (125 deputies) and its far-right allies in the UDR (16) crucial. If they vote alongside the NFP for censure the Barnier gov't will fall. However, abstentions will cause the censure motion to fail.
- Political betting markets show a high, but seemingly not certain, probability that Barnier will be forced from government in 2024. Data from Polymarket gives a 72% implied probability that Barnier is ousted before year-end.
Chart 1. Betting Market Implied Probability Barnier is Out as PM in 2024, %
Source: Polymarket
US TSY FUTURES: OI Points To Mix Of Long Cover & Long Setting On Monday
OI data points to a mix of net long cover through UXY futures and net long setting in US & WN futures on Monday, as the curve twist flattened.
- The net long setting further out the curve provided the largest DV01 equivalent swing in positioning.
| 02-Dec-24 | 29-Nov-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,216,163 | 4,220,917 | -4,754 | -188,734 |
FV | 6,078,524 | 6,122,916 | -44,392 | -1,925,049 |
TY | 4,483,428 | 4,517,078 | -33,650 | -2,245,832 |
UXY | 2,161,353 | 2,164,255 | -2,902 | -265,187 |
US | 1,842,529 | 1,816,294 | +26,235 | +3,493,463 |
WN | 1,739,400 | 1,726,095 | +13,305 | +2,753,326 |
|
| Total | -46,158 | +1,621,986 |
STIR: OI Points To Net Short Setting In SFRH5-H6 Dominating On Monday
OI data suggests that net short setting in SFRH5 through SFRH6 provided the most notable positioning swing on the SOFR futures strip on Monday.
- There was a modest bias towards net long cover further out the strip.
| 02-Dec-24 | 29-Nov-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,264,034 | 1,264,240 | -206 | Whites | +21,919 |
SFRZ4 | 1,321,139 | 1,327,797 | -6,658 | Reds | +50,083 |
SFRH5 | 1,064,478 | 1,038,166 | +26,312 | Greens | -5,674 |
SFRM5 | 982,939 | 980,468 | +2,471 | Blues | -4,484 |
SFRU5 | 801,344 | 791,033 | +10,311 |
|
|
SFRZ5 | 950,076 | 914,074 | +36,002 |
|
|
SFRH6 | 577,859 | 571,072 | +6,787 |
|
|
SFRM6 | 584,340 | 587,357 | -3,017 |
|
|
SFRU6 | 631,241 | 643,677 | -12,436 |
|
|
SFRZ6 | 678,424 | 675,860 | +2,564 |
|
|
SFRH7 | 410,594 | 409,422 | +1,172 |
|
|
SFRM7 | 348,533 | 345,507 | +3,026 |
|
|
SFRU7 | 272,577 | 274,592 | -2,015 |
|
|
SFRZ7 | 288,950 | 288,273 | +677 |
|
|
SFRH8 | 205,334 | 206,116 | -782 |
|
|
SFRM8 | 153,141 | 155,505 | -2,364 |
|
|
US TSY FUTURES: CFTC CoT Shows Continued Cover From Asset Mgers & Hedge Funds
The latest CFTC CoT report showed another week of net cover by the asset management and hedge fund cohorts (through November 26).
- Asset managers reduced net longs in all contracts outside of WN futures, although they remain net long across the board.
- Meanwhile, hedge funds cut net shorts in TU, FV, US & WN futures, while adding to net shorts in TY & UXY futures. They remain net short across all contracts.
- Non-commercial net positioning saw a mix of net shorts being added to and reduced, with net short cover in TU and FV futures providing the biggest swings. Non-commercial net short positioning remains intact across all contracts.
- A reminder that the presence of basis trades will skew positioning figures provided within the CFTC CoT.
Source: MNI - Market News/CFTC/Bloomberg
FOREX: EUR Resilient to French Political Prospects
- With a censure motion tabled in French Parliament, focus remains on the fragility of the French government, with betting markets seeing PM Barnier very likely to lose - thereby ensuring a collapse of the Barnier-led coalition. Currency markets are taking the uncertainty in its stride, with the single currency holding up well, and aiding the recovery off yesterday's lows for EUR/GBP - which trades back above the 0.8300 level.
- JPY is the poorest performer in G10, fading against all others as markets take profit on the recent rally. EUR/JPY is off monthly lows but the overarching downtrend remains. A number of retracement points have been cleared on the recent leg lower, and further losses would strengthen the bearish theme to open 155.15, the Sep 16 low.
- The belly of the US yield curve has edged higher through Asia-Pac hours, however the USD is yet to benefit. EUR/USD and GBP/USD are comfortably off lows, with markets looking toward, and gauging expectations for this Friday's payrolls print.
- JOLTS jobs data set for October will be the highlight of the Tuesday session, particularly after yesterday's manufacturing ISM data showed the employment sub-component beating expectations. Fed speakers due today include Daly, Kugler and Goolsbee, while ECB's Panetta appears at a Spain-Italy Forum.
OPTIONS: Expiries for Dec03 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0470(E627mln), $1.0500(E968mln), $1.0565(E530mln)
- AUD/USD: $0.6710(A$1.0bln)
- AUD/NZD: N$1.1173(A$584mln)
- USD/CNY: Cny7.2450($580mln), Cny7.2500($871mln)
CHINA: USDCNH Prints New Yearly High, Extends Above Trendline Resistance
- USD/CNH rose to a fresh 12 month high of 7.3148 overnight, extending the break above downtrend resistance drawn from the 2023 highs. Broader USD gains have been supported by a higher US yield backdrop this week, while China yields continue to track lower, with the 10yr residing below 2.00% at fresh multi decade lows.
- Analysts continue to assess the potential impact of Trump’s tariff intentions, with the heightened sense of uncertainty leading to a sharp reversal of the record inflows into China-related ETFs that occurred in October.
- Bloomberg noted that the $7.2 billion iShares China Large-Cap ETF, saw about $2.3 billion in outflows last month, while investors pulled more than $1 billion from the KraneShares CSI China Internet Fund, the largest monthly redemption for both funds on record.
- Furthermore, PBOC easing expectations, particularly ahead of key China government meetings in Dec, remain a factor weighing on the yuan, while the weekend threat from President-Elect Trump on BRICs countries abandoning the USD should not be overlooked.
- For USDCNH, 7.3682 and 7.3749 remain the two key upside targets for the pair. Support moves up to 7.2351, the 20-day EMA. Both the composite and services Caixin PMI readings are scheduled tomorrow.
INR: CNY Weakness Weighs on Rupee, RBI Intervene to Prevent Further Slide
The rupee hit a fresh low overnight, weighed by broad dollar strength and a rise in USD/CNH to a 12-month high during the APAC session. A fade in the greenback towards the start of European hours ultimately resulted in USD/INR ending the session close to unchanged, with Reuters reporting that the RBI sold dollars in spot via state-run banks and conducted buy/sell swaps in mid-tenor forwards to support the currency as well. Central bank intervention is becoming an increasingly common theme – particularly given the increasing pressure on the rupee since the US election – with officials aiming to cap INR downside while keeping vols muted.
- Concerns about India's slowing economic growth, outflows from local equities and weakness in broader Asia FX have all contributed to INR weakness. This has seen 1-month implied vols spike above 3% - reaching ~4 month highs in the process – while option markets continue to hedge against further rupee weakness ahead (as evidenced by the USD/INR vol skew shifting further in favour of calls).
- The RBI meet later in the week and while the central bank moved to a neutral stance at its previous meeting, only a minority of analysts expect a rate cut at this juncture. As a reminder, RBI Governor Das sounded hawkish in November when he said the central bank will consider its job unfinished until inflation moderates around its 4% target on a durable basis. Our full preview for Friday’s decision will be released later in the week.
EQUITIES: Eurostoxx 50 Futures Extending Monday's Gains, Remain Above 50-Day EMA
- Eurostoxx 50 futures traded higher yesterday and the contract is holding on to its recent gains. The latest move higher undermines a recent bearish theme. Price has traded through the 50-day EMA, at 4860.94. A clear break of this average would strengthen a bullish theme and signal scope for a stronger recovery. Key support has been defined at 4699.00, the Nov 19 low. A break of this level would resume the recent bear cycle.
- On Friday, S&P E-Minis pierced key resistance and the bull trigger at 6053.25, the Nov 11 high. This confirms a resumption of the uptrend and the contract is holding on to its latest gains. Note that moving average studies remain in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 6070.16, a Fibonacci projection point. Initial support to watch lies at 5970.46, the 20-day EMA.
COMMODITIES: WTI Futures Recover From Monday's Lows, Conditions Still Bearish
- A bearish threat in WTI futures remains present and the Nov 25 move lower reinforces this theme. Attention is on $65.74, the Oct 1 low, and $63.90, 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 $77.04, the Oct 8 high. Initial firm resistance to watch is unchanged at $72.41, the Nov 7 high.
- Gold is unchanged. The long-term trend condition remains bullish and the Oct 31 - Nov 14 bear leg appears to have been a correction. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. Resistance to watch is $2721.4, the Nov 25 high. Clearance of this level would highlight a bullish short-term development. Key support to monitor is $2536.9, the Nov 14 low.
| Date | GMT/Local | Impact | Country | Event |
| 03/12/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 03/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS jobs opening level |
| 03/12/2024 | 1500/1000 | *** | US | JOLTS quits Rate |
| 03/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 03/12/2024 | 1735/1235 | US | Fed Governor Adriana Kugler | |
| 03/12/2024 | 1830/1330 | US | Chicago Fed's Austan Goolsbee | |
| 03/12/2024 | 2045/1545 | US | Chicago Fed's Austan Goolsbee | |
| 04/12/2024 | 2200/0900 | * |  AU | S&P Global Final Australia Services PMI |
| 04/12/2024 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |
| 04/12/2024 | 0030/1130 | *** | AU | Quarterly GDP |
| 04/12/2024 | 0030/0930 | ** |  JP | S&P Global Final Japan Services PMI |
| 04/12/2024 | 0030/0930 | ** | JP | S&P Global Final Japan Composite PMI |
| 04/12/2024 | 0145/0945 | ** |  CN | S&P Global Final China Services PMI |
| 04/12/2024 | 0145/0945 | ** | CN | S&P Global Final China Composite PMI |
| 04/12/2024 | 0815/0915 | ** |  ES | S&P Global Services PMI (f) |
| 04/12/2024 | 0815/0915 | ** | ES | S&P Global Composite PMI (final) |
| 04/12/2024 | 0845/0945 | ** |  IT | S&P Global Services PMI (f) |
| 04/12/2024 | 0845/0945 | ** | IT | S&P Global Composite PMI (final) |
| 04/12/2024 | 0850/0950 | ** |  FR | S&P Global Services PMI (f) |
| 04/12/2024 | 0850/0950 | ** | FR | S&P Global Composite PMI (final) |
| 04/12/2024 | 0855/0955 | ** |  DE | S&P Global Services PMI (f) |
| 04/12/2024 | 0855/0955 | ** | DE | S&P Global Composite PMI (final) |
| 04/12/2024 | 0900/1000 | ** |  EU | S&P Global Services PMI (f) |
| 04/12/2024 | 0900/1000 | ** | EU | S&P Global Composite PMI (final) |
| 04/12/2024 | 0900/1000 | EU | ECB's Cipollone speech on behavioural financial regulations | |
| 04/12/2024 | 0900/0900 |  GB | BOE's Bailey keynote interview at the FT Boardroom | |
| 04/12/2024 | 0930/0930 | ** | GB | S&P Global Services PMI (Final) |
| 04/12/2024 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 04/12/2024 | 1000/1100 | ** | EU | PPI |
| 04/12/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 04/12/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 04/12/2024 | 1315/0815 | *** | US | ADP Employment Report |
| 04/12/2024 | 1330/1430 | EU | ECB's Lagarde statement at ECON hearing | |
| 04/12/2024 | 1345/0845 | US | St. Louis Fed's Alberto Musalem | |
| 04/12/2024 | 1400/0900 | US | Richmond Fed's Tom Barkin | |
| 04/12/2024 | 1445/0945 | *** | US | S&P Global Services Index (final) |
| 04/12/2024 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 04/12/2024 | 1500/1000 | *** | US | ISM Non-Manufacturing Index |
| 04/12/2024 | 1500/1000 | ** | US | Factory New Orders |
| 04/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 04/12/2024 | 1845/1345 | US | Fed Chair Jerome Powell | |
| 04/12/2024 | 1900/1400 | US | Fed Beige Book |