Highlights:
- Fed Funds implied rates hold yesterday’s two-stage step lower, with 42bps of cuts priced for tomorrow's FOMC.
- The greenback resumed its weakening trend on Tuesday with the DXY approaching a 14-month low.
- Canada inflation data and US retail sales headline the economic calendar for the remainder of the session.
US TSYS: Modest Twist Flattening Ahead of Retail Sales as a Final FOMC Steer
- Treasuries are twist flatter on the day with the front end seeing some recent selling pressure despite a continuation of a large cut being priced for tomorrow’s FOMC decision.
- Cash yields are 1.5bp higher (2s and 3s) to 0.5bp lower (20s and 30s), with the long end outperforming despite upcoming supply for the 20Y after the 30Y tailed last week.
- 2s10s at 5.2bps (-1.5bps) is off yesterday’s fresh ytd high of 10.4bps.
- TYZ4 is back little changed at 115-17 (- 01) off an earlier high of 115-21 following a short-lived rally in EGBs, amidst low volumes of 225k ahead of retail sales.
- Resistance is seen at 115-23+ (Sep 11 high) and 115-31 (1.618 proj of the Aug 8-21-Sep 3 swing), whilst support is seen at 114-31+ (Sep 12 low).
- Data: Retail sales Aug (0830ET), NY Fed Services Sep (0830ET), IP/Cap Util Aug (0915ET), Business inventories Jul (1000ET), NAHB housing market index Sep (1000ET)
- Note/bond issuance: US Tsy $13B 20Y Bond auction re-open (1300ET)
- Bill issuance: US Tsy $60B 42D CMB bill auction (1130ET)
STIR: Fed Funds With 42bps of Cuts Priced for Tomorrow's FOMC
- Fed Funds implied rates hold yesterday’s two-stage step lower (first with the Asian open and then late in the US session).
- It’s on little new information but rather continued speculation that the FOMC could cut by 50bps tomorrow (Fed Funds have 41.8bp priced, OIS 38.1bp).
- Cumulative cuts from 5.33% effective: 42bp Sep, 78bp Nov, 119bp Dec, 157bp Jan and 233bp June.
- Retail sales could well have an outsized impact at cementing pricing for a 50bp cut if there are signs of weakness, whilst it feels like a beat would have to be particularly large to shift pricing closer to a 25bp cut at this juncture.
STIR: Long Setting & SFRH5/H6 Steepener Dominated on SOFR Strip on Monday
Long setting once again dominated in SOFR futures on Monday, as the odds of a 50bp cut at this week’s FOMC increased further. The biggest net OI swings came in SFRH5 & H6, driven by an 81.5K SFRH5/H6 steepener block, which would benefit from a frontloading of Fed cuts.
| 16-Sep-24 | 13-Sep-24 | Daily OI Change |
| Daily OI Change In Packs |
|---|---|---|---|---|---|
SFRM4 | 1,156,127 | 1,135,837 | +20,290 | Whites | +136,133 |
SFRU4 | 1,362,123 | 1,339,628 | +22,495 | Reds | +9,420 |
SFRZ4 | 1,264,080 | 1,233,920 | +30,160 | Greens | +20,833 |
SFRH5 | 1,094,627 | 1,031,439 | +63,188 | Blues | +9,999 |
SFRM5 | 878,691 | 868,942 | +9,749 |
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SFRU5 | 702,621 | 728,667 | -26,046 |
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SFRZ5 | 960,174 | 995,625 | -35,451 |
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SFRH6 | 698,766 | 637,598 | +61,168 |
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SFRM6 | 607,680 | 596,577 | +11,103 |
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SFRU6 | 538,150 | 538,310 | -160 |
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SFRZ6 | 558,403 | 549,174 | +9,229 |
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SFRH7 | 345,170 | 344,509 | +661 |
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SFRM7 | 304,351 | 311,923 | -7,572 |
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SFRU7 | 232,899 | 231,797 | +1,102 |
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SFRZ7 | 229,359 | 216,738 | +12,621 |
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SFRH8 | 173,564 | 169,716 | +3,848 |
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US TSY FUTURES: Long Setting Seen Across Most of Curve During Monday's Rally
OI points to long setting dominating during Monday’s rally, as the dovish repricing covering this week’s FOMC extended further. Only modest rounds of net short cover in the wings (TU & WN) broke that theme.
| 16-Sep-24 | 13-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
|---|---|---|---|---|
TU | 4,328,665 | 4,343,248 | -14,583 | -576,580 |
FV | 6,440,070 | 6,426,462 | +13,608 | +607,590 |
TY | 4,898,727 | 4,850,898 | +47,829 | +3,245,956 |
UXY | 2,121,213 | 2,119,009 | +2,204 | +208,697 |
US | 1,749,153 | 1,736,866 | +12,287 | +1,749,803 |
WN | 1,708,838 | 1,709,128 | -290 | -66,290 |
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| Total | +61,055 | +5,169,176 |
MNI FED PREVIEW - SEPTEMBER 2024: “Close Call” Tilts to 50bp Cut
- Fed leadership has made it abundantly clear that the FOMC will initiate a rate cutting cycle at the September meeting, with pre-blackout developments pointing toward a 25bp reduction as opposed to an outsized 50bp.
- But subsequent media reports that it’s a “close call” have pushed market pricing to imply a split decision vs a 50bp cut, and to MNI’s Markets Team, it suddenly looks more likely than not that Chair Powell will persuade the FOMC to opt for a slightly more front-loaded cutting cycle.
- The apparent last-minute indecision underlines uncertainty over how the Committee currently sees the likely extent and pace of cuts, beyond “data dependent”, as it assesses what it sees as a shifting balance of risks between rising unemployment and above-target inflation.
- The new Dot Plot is likely to reflect uncertainty over the path forward, starting with anywhere from 75bp to 125bp of cuts signalled in the 2024 Fed funds median, depending on what the FOMC opts for on Wednesday.
- The end-2025 rate is likely to show an even wider dispersion, reflecting the uncertainty over the path ahead, but a general consensus that the FOMC would like to return policy to neutral levels fairly quickly.
- Click hereto see the full preview.
MNI UK INFLATION PREVIEW: August 2024
- The August inflation print will have already been seen by the MPC – under the early access agreement they had been given the Monday morning.
- The report follows a big downside miss in the July data – with the largest driver by far much softer-than-expected accommodation prices.
- The lowest sellside estimate for services CPI in the previews that we have read came in at 5.38%, over two tenths above the 5.17%Y/Y print seen in July. The median of the previews that we have read came in at 5.5%Y/Y (with the mean at 5.55%, the Bloomberg median was a little higher at 5.6%). The highest estimates in the previews that we read of 5.7%Y/Y were all, however, still below the BOE’s 5.84%Y/Y forecast (from its August MPR).
- The surprise to services in July was the main story, but it was also noteworthy that both core goods (non-energy industrial goods) and food prices surprised to the upside versus the BOE’s forecasts.
- Click here to see the full preview.
EUROPEAN ISSUANCE UPDATE
UK auction results
- GBP2.25bln of the 4.375% Jul-54 Gilt. Avg yield 4.329% (bid-to-cover 2.89x, tail 0.9bp).
- Disappointing tail on 30-year auct; little pricing impact
- Despite a decent volume of bids (evident from the 2.89x bid-to-cover) the lowest accepted price of 100.613 was lower than the secondary market price 35 minutes prior to the auction window closing.
- This resulted in a tail of 0.9bp - but the tail was exacerbated by the average price of 100.768 being very healthy (the highest price during the auction window was 100.744).
- There has been little knock on impact on prices, and the price of the 4.375% Jul-54 gilt is now similar to 10 minutes before the bidding window closed.
- Gilt futures saw a minor blip on the release of the result but have largely ignored the auction result.
Finland auction results
- E971mln of the 0.50% Sep-29 RFGB. Avg yield 2.331% (bid-to-cover 1.97x).
- E530mln of the 1.125% Apr-34 RFGB. Avg yield 2.581% (bid-to-cover 1.92x).
FOREX: USD Index at Session Lows, Approaches 14-Month Low
- The greenback has resumed its weakening trend on Tuesday and the USD index is testing the week’s lows as we approach the NY crossover. The ongoing tilt towards a 50BP FOMC cut is weighing and despite the contained ranges across G10, the DXY is hovering just above 100.50, which would be the lowest level since July 2023.
- AUDUSD is the relative outperformer, rising 0.16% and making an attempt at 0.6767, the August US NFP high. Above here, markets will turn their focus to 0.6824, the August high, and the highest printed level since January.
- In similar vein, EURUSD is also edging towards key short-term resistance at 1.1155, the Sep 6 high. Clearance of this level would cancel a recent bearish theme and highlight scope for a stronger recovery towards 1.1202, the Aug 26 high and a bull trigger.
- GBPUSD is further extending its recovery from 130.00 and is within close proximity of the September peak at 1.3238 as we approach both UK inflation data tomorrow and the BOE decision Thursday. An extension to 1.3266, the August high, would see Cable once again at its highest level since 4th March 2022.
- USDJPY resides close to unchanged on the session, despite exhibiting a 90 pip range overnight. USDCHF (-0.15%) hovers at session low and the main support here is at the September low of 0.8375, also the lowest print since December.
- Canada inflation data and US retail sales headline the economic calendar for the remainder of the session.
EQUITIES: Bear Threat in Eurostoxx 50 Futures Still Present Despite Latest Gains
- Eurostoxx 50 futures are holding on to their recent gains. Despite the latest recovery, a bear threat is still present. The sell-off between Sep 3 - 6, resulted in a move below both the 20- and 50-day EMAs. A resumption of the bear leg would signal scope for weakness towards 4686.53, a Fibonacci retracement point. First resistance is at 4863.45, the 50-day EMA. A clear break of this average would strengthen a bullish condition.
- Last week’s recovery in S&P E-Minis, highlights a bullish reversal and the end of the Sep 3 - 6 corrective cycle. The contract is trading above the 20- and 50-day EMAs and a continuation higher would open 5730.50, the Sep 3 high. Clearance of this level would expose 5785.00, the Jul 16 high and bull trigger. A reversal lower and a breach of 5451.25, the Sep 6 low, would reinstate a bearish theme. First support is 5583.10, the 50-day EMA.
COMMODITIES: Bullish Structure in Gold Intact After Hitting Fresh Record High
- WTI futures are holding on to their latest gains. The move higher that started Sep 9, appears to be a correction. Recent weakness reinforced a bearish condition and note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A resumption of the downtrend would open $63.93 next, a Fibonacci projection point. Initial firm resistance to watch is at $70.97, the 20-day EMA.
- A bullish structure in Gold remains intact and the metal traded, once again, to a fresh all-time high, yesterday. Last week’s gains confirmed a resumption of the primary uptrend and marked the end of the recent period of consolidation - a pause in the uptrend. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2600.0 next. Firm support lies at $2515.5, the 20-day EMA.
MNI (LONDON)
| Date | GMT/Local | Impact | Country | Event |
| 17/09/2024 | 1215/0815 | ** |  CA | CMHC Housing Starts |
| 17/09/2024 | 1230/0830 | *** | CA | CPI |
| 17/09/2024 | 1230/0830 | *** |  US | Retail Sales |
| 17/09/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 17/09/2024 | 1300/1500 |  EU | ECB's Elderson in supervisory effectiveness panel | |
| 17/09/2024 | 1315/0915 | *** | US | Industrial Production |
| 17/09/2024 | 1400/1000 | * | US | Business Inventories |
| 17/09/2024 | 1400/1000 | ** | US | NAHB Home Builder Index |
| 17/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 17/09/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 17/09/2024 | 2200/1800 | CA | BOC Sr Deputy Rogers fireside chat on women in finance. | |
| 18/09/2024 | 2350/0850 | ** |  JP | Trade |
| 18/09/2024 | 2350/0850 | * | JP | Machinery orders |
| 18/09/2024 | 0600/0700 | *** |  GB | Consumer inflation report |
| 18/09/2024 | 0600/0700 | *** | GB | Producer Prices |
| 18/09/2024 | 0600/0800 | ** |  SE | Unemployment |
| 18/09/2024 | 0900/1100 | *** | EU | HICP (f) |
| 18/09/2024 | 0900/1100 | ** | EU | Construction Production |
| 18/09/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 18/09/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities |
| 18/09/2024 | 1230/0830 | *** | US | Housing Starts |
| 18/09/2024 | 1300/1500 | EU | MNI Connect Video Conference on Euro Area Macro Projections | |
| 18/09/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 18/09/2024 | 1730/1330 | CA | BOC Minutes (Summary of Deliberations) | |
| 18/09/2024 | 1800/1400 | *** | US | FOMC Statement |
| 18/09/2024 | 2000/1600 | ** | US | TICS |
| 19/09/2024 | 2245/1045 | *** |  NZ | GDP |
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