Highlights:
- The strong recovery and extension higher for major equity benchmarks has underpinned notable outperformance for the likes of AUD and NZD. NOK leads G10 gains following the relatively hawkish tilt from Norges Bank.
- Treasuries have firmly moved off early overnight lows as European participants react to the FOMC cutting by 50bps.
- BOE, Norges Bank and CBRT all unchanged. Rate decision in South Africa coming up this afternoon.
- Jobless claims data in the US highlights what is otherwise a relatively thin calendar for the remainder of the session.
US TSYS: Post-Fed Steepening Extends, Jobless Claims in Focus
- Treasuries have firmly moved off early overnight lows as European participants react to the FOMC cutting by 50bps (50/50 priced between 25bp or 50bp cuts) although Powell passing it off as a recalibration of policy has helped limit the extent for gains currently.
- With the median FOMC participant marking up their unemployment rate forecast by four tenths to 4.4% for 4Q24 (4.2% as of Aug) but then expecting no further deterioration from there, expect today’s jobless claims data to headline the docket.
- Potential spillover from the BoE decision could also be seen at 0700ET.
- Cash yields range from 3.2bp lower (2s) to 0.4bp higher (30s) as curves continue to steepen. 2YY at 3.588% are almost 7bps below intraday highs.
- 2s10s has set a fresh ytd high of 12bps, currently at 11.6bps (+2.8bp on the day).
- TYZ4 sits at 115-00 (-02+) on solid volumes of 455k off an overnight low of 114-22. That low chimed with support at 114-22+ (20-day EMA) whilst the trend needle points north with resistance at 115-23+ (Sep 11 high).
- Data: Weekly jobless claims (0830ET), Current account Q2 (0830ET), Philly Fed mfg Sep (0830ET), Existing home sales Aug (1000ET), Conf Board leading index Aug (1000ET)
- Fedspeak: Still in blackout until tonight
- Note/bond issuance: US Tsy $17B 10Y TIPS re-open (1300ET)
- Bill issuance: US Tsy $80B each 4- & 8W Bill auctions (1130ET)
STIR: Markets Move on From 50bp Fed Cut Weighing 25bp or 50bp in Nov
- Fed Funds implied rates are unchanged overnight for the next FOMC meeting in November but beyond that are 1-3bp lower out to mid-2025.
- It leaves a rate path mostly 7-8bp lower than pre-FOMC decision levels after it cut 50bp (vs 50/50 pricing of a 25bp or 50bp cut), although Powell describing it as a recalibration of policy with no indication of planned large cuts leaves a path 1-2.5bp higher than before the press conference.
- Cumulative cuts from assumed 4.83% effective: 34bp Nov, 72bp Dec, 106bp Jan and 177bp June.
STIR: OI Points to Mix of Positioning Swings as SOFR Twist Steepened Post-Fed
OI points to long setting in the very front end of the SOFR strip (SFRU4 & Z4) on Wednesday, while a mix of short setting and long cover was seen further out.
- Markets had to adjust to the delivery of the Fed’s 50bp cut in the very front end, which wasn’t fully discounted.
- Further out the strip was impacted by Chair Powell’s steer towards a higher neutral rate than in recent times.
| 18-Sep-24 | 17-Sep-24 | Daily OI Change |
| Daily OI Change In Packs |
|---|---|---|---|---|---|
SFRU4 | 1,435,436 | 1,409,758 | +25,678 | Whites | +45,593 |
SFRZ4 | 1,308,486 | 1,284,931 | +23,555 | Reds | +27,938 |
SFRH5 | 1,093,950 | 1,098,391 | -4,441 | Greens | +14,672 |
SFRM5 | 905,405 | 904,604 | +801 | Blues | +12,855 |
SFRU5 | 690,131 | 687,455 | +2,676 |
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SFRZ5 | 978,069 | 959,426 | +18,643 |
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SFRH6 | 719,988 | 726,042 | -6,054 |
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SFRM6 | 629,306 | 616,633 | +12,673 |
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SFRU6 | 538,810 | 540,688 | -1,878 |
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SFRZ6 | 590,404 | 574,795 | +15,609 |
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SFRH7 | 336,974 | 338,542 | -1,568 |
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SFRM7 | 295,121 | 292,612 | +2,509 |
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SFRU7 | 263,562 | 253,024 | +10,538 |
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SFRZ7 | 232,390 | 229,971 | +2,419 |
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SFRH8 | 173,022 | 171,964 | +1,058 |
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SFRM8 | 155,704 | 156,864 | -1,160 |
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US TSY FUTURES: OI Shows Mix of Short Setting & Long Cover on Fed Day
OI points to a mix of net short setting and long cover as Tsy futures ultimately finished lower post-FOMC.
- Short setting had a slightly more pronounced impact in curve-wide terms, with the most sizeable DV01 equivalent swings coming in TY & UXY futures.
| 18-Sep-24 | 17-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
|---|---|---|---|---|
TU | 4,281,491 | 4,314,135 | -32,644 | -1,285,989 |
FV | 6,388,127 | 6,395,881 | -7,754 | -344,755 |
TY | 4,919,809 | 4,897,252 | +22,557 | +1,521,547 |
UXY | 2,141,398 | 2,111,941 | +29,457 | +2,766,668 |
US | 1,753,046 | 1,757,010 | -3,964 | -556,100 |
WN | 1,714,412 | 1,711,730 | +2,682 | +599,284 |
|
| Total | +10,334 | +2,700,655 |
BOE: BOE Keeps Rates Unchanged, 24/25 QT AGBP 100BN
- The Bank of England Monetary Policy Committee kept interest rates unchanged at 5% at the September meeting, with policymakers voting 8 to 1 in favour of Governor Andrew Bailey's proposition.
- As on many occasions, before August's 25bps cut, external member Swati Dhingra preferred an immediate further 25bps cut in rates, highlighting among her reasons policy transmission lags.
- The MPC voted unanimously to reduce the stock of government bonds on the Bank's balance sheet by an additional GBP100 billion in the year from October. That will be comprised of GBP 87 billion of maturing bonds rolling off and GBP13 billion of active sales, down from active sales of around GBP50 billion in the current 12 month period.
- The Bank voted before news of the Federal Reserve's 50bps rate cut broke, with the MPC noting in the minutes the Fed was expected to ease by either 25 or 50 bps.
- Guidance was little changed, with policymakers noting "a gradual approach to removing restraint remains appropriate" in the absence of material developments.
- However, the MPC again accepted would need to remain restrictive for sufficiently long" to return inflation to target.
- The risks of inflation persistence will be closely monitored and would decide the appropriate policy restrictiveness at each meeting, noting in the minutes that a full assessment would be made in the November forecasting round.
- Governor Andrew Bailey said in a statement alongside the release that the Bank "should be able to reduce rates gradually over time," but noting rates should not be cut too fast or by too much.
NORGES BANK: Norges Bank Holds, Sees Cuts Starting Q1 2025
- Norges Bank left its policy rate on hold at 4.5%, as widely expected, and said the first cut this cycle was likely to come in the first quarter of 2025.
- Analysts have been split over whether the Norwegian central bank will begin easing in late 2024 or early 2025 but its own projections show a tilt to the latter, with Governor Ida Wolden Bache stating policymakers "will probably keep the interest rate at 4.5% for the rest of the year," but adding "the time to lower the interest rate is approaching."
- The forecast showed gradual easing from Q1 2025 with the policy rate at 4.1% in 2025 and then falling to 3.3% in 2026 and to 2.8% by the end of the three year projection, with the pace of easing a little faster than in the previous quarterly forecast round. Inflation was shown staying above target at 3.0% in 2025 on the core target measure, CPI-ATE, and 2.8% in 2026.
MNI FED REVIEW - SEPTEMBER 2024: “Strong Move”, But “No Rush"
Surprises at the September FOMC were actually relatively limited outside of the decision itself, which went in favor of a 50bp cut to 4.75-5.00% instead of a 25bp cut – and even then, either outcome was priced at roughly 50/50 going into 2pm ET.
- If anything the limited surprises in the communications leaned marginally hawkish to us versus what might have been expected in the context of an outsized rate cut to start the easing cycle, from Powell’s caginess over the cadence of future cuts in the press conference, to some subtleties in the Dot Plot.
- We think this interpretation is borne out by the market reaction, which went from very dovish on the semi-surprise cut size at the time of release, to reversing much of the initial move by the end of the press conference.
- See the full review here.
MNI BOJ PREVIEW - SEPTEMBER 2024: Wait-and-See Approach for Now
- The Bank of Japan (BoJ) Policy Board will meet on September 19-20, with markets closely watching for any signals regarding future monetary policy normalisation.
- Consensus unanimously expects no change to the 0.25% target rate at this meeting.
- Several factors suggest the BoJ may favour a wait-and-see approach for now. Uncertainty around the US economic outlook and downside risks to overseas economies persist. Additionally, Governor Ueda’s parliamentary testimony, along with speeches by Deputy Governors Uchida and Himino, have emphasised that the BoJ will not hike further while financial markets remain "unstable”.
- Moreover, the yen’s appreciation since July has reduced inflationary pressures, diminishing the need for an immediate rate hike.
- Another consideration for the BoJ is the upcoming LDP presidential election, which will determine the next prime minister. With the race currently unpredictable, coupled with the US election on November 5, the BoJ may opt for a cautious approach amid political uncertainties.
- Full preview here.
FOREX: GBPCHF Breaks Above 50-day EMA as BOE Decision Awaited
- Ahead of the BOE decision today, it is worth noting the continued outperformance of GBP in 2024. Sterling remains the strongest currency in the G10 basket against the dollar, rising 4.14% year-to-date. The outperformance is underpinned by CFTC positioning data, indicating that both asset managers and leveraged bets remain in firm bullish territory.
- While the August inflation print was a bit softer than the BOE’s forecast, particularly for services prices, we don’t think it is weak enough for any MPC member to immediately change their underlying view. Furthermore, we still struggle to rationalize cuts of greater than 25bp for the BOE with inflation and wage growth at current levels.
- Greenback swings have been volatile in the aftermath of the Fed decision, however, GBPUSD’s recovery this morning keeps the pair within close proximity of cycle highs, and the highest prints since March 2022.
- One cross that stands out this morning is GBPCHF, with the Swiss Franc underperformance contributing to the cross breaking above the 50-day EMA, the first time since late July. Price action sees the cross approach the Aug 19 high at 1.1264 and continue its recovery from the carry unwind/risk off induced selloff in early August.
- A positive reaction to today’s BOE could signal scope for a stronger recovery and may target a medium-term move towards 1.15, a psychological/inflection point over the past two years. Additionally, trendline resistance from the 2021 highs intersects just above the 1.15 handle, bolstering the technical significance of this area (see chart below).
- Goldman Sachs believe GBP should still benefit from a coordinated easing cycle where the US avoids recession, and particularly like being long on crosses, particularly against CHF.
FOREX: Rally for Equities Underpins Antipodean FX Strength, NOK Outperforms
- The strong recovery and extension higher for major equity benchmarks on Thursday has underpinned notable outperformance for the likes of AUD and NZD, both rising around 1% against the dollar. In contrast, the risk on tone has worked against the Japanese Yen. USDJPY is 0.3% higher on the day, however, remains well off the overnight 143.95 highs.
- Outperforming in G10 is the Norwegian Krone, following a relatively hawkish tilting Norges Bank. The central bank left its policy rate on hold at 4.5%, as widely expected, and said the first cut this cycle was likely to come in the first quarter of 2025. As such, USDNOK is down 1.4% as we approach the NY crossover, with the NOK also benefitting from the risk on tone.
- The USDNOK has now broken below the August low, and Market Participant's attention will now turn to the June low situated at 10.4354 (prices are according to BGNE).
- A clear break through, would open to 10.3865, this is not only the March low, but also the 76.4% retrace of the Dec/July range.
- Contrasting price action across G10 leaves the USD index unchanged on the session, following some impressive two-way swings. The post-Fed recovery for the index to 101.40 has been well sold into and the DXY has been edging steadily lower across the European morning and trades just 35 pips away from the year’s lows printed just yesterday at 100.22.
- Focus today turns jobless claims data in the US, as well as a policy decision in South Africa.
EUROPEAN ISSUANCE UPDATE
Spain auction review
- That wasn't the strongest of Spanish auctions. E5.562bln was sold across the three lines (close to the bottom of the E5.5-6.0bln target range) with bid-to-covers a little softer-than-usual in spite of this.
- The positive is that the lowest accepted price exceeded the pre-auction secondary market mid-price across all three lines, however.
- E1.404bln of the 5.15% Oct-28 Obli. Avg yield 2.463% (bid-to-cover 2.05x).
- E2.384bln of the 3.10% Jul-31 Obli. Avg yield 2.692% (bid-to-cover 1.59x).
- E1.774bln of the 3.45% Jul-43 Obli. Avg yield 3.527% (bid-to-cover 1.71x).
France MT OAT auction review
- Successful French auction sees the top of the target range (E12bln) sold across the four MT OATs with respectable bid-to-covers (which are higher for each line that at the last auction).
- The lowest accepted prices are all above the pre-auction secondary market mid-prices too.
- E4.07bln of the 2.50% Sep-27 OAT. Avg yield 2.45% (bid-to-cover 2.48x).
- E1.952bln of the 0.75% Feb-28 OAT. Avg yield 2.46% (bid-to-cover 2.95x).
- E3.567bln of the 2.75% Feb-30 OAT. Avg yield 2.62% (bid-to-cover 2.56x).
- E2.407bln of the 2.00% Nov-32 OAT. Avg yield 2.77% (bid-to-cover 2.68x).
France I/L OAT auction review
- E816mln of the 0.10% Mar-32 OATi. Avg yield 0.92% (bid-to-cover 2.88x).
- E330mln of the 3.15% Jul-32 OATei. Avg yield 0.76% (bid-to-cover 4.04x).
- E530mln of the 1.80% Jul-40 OATei. Avg yield 1.13% (bid-to-cover 2.66x).
- E323mln of the 0.10% Jul-53 OATei. Avg yield 1.1% (bid-to-cover 2.69x).
EQUITIES: E-Mini S&P Breaches Key Resistance at $5730.50
- Eurostoxx 50 futures have traded higher today as the contract extends the recovery that started Sep 10. It is still possible that the latest move higher is a correction. Moving average studies remain in a bear-mode position and this highlights a downtrend. A reversal lower would refocus attention on the key short-term support at 4729.00, the Sep 10 low. The next resistance to watch is 4934.52, a Fibonacci retracement.
- S&P E-Minis traded to a fresh short-term high Wednesday and the contract maintains a firmer tone. Last week’s gains highlight 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 resistance at 5730.50, the Sep 3 high, remains exposed. This level has been pierced, a clear break of it would open 5785.00, the Jul 16 high and a bull trigger. First support is 5595.52, the 50-day EMA.
COMMODITIES: WTI Futures Holding Onto This Week's Gains, Remain Above 20-Day EMA
- WTI futures are holding on to their latest gains. The move higher since Sep 9, appears - for now - 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 $64.61 next, a Fibonacci projection point. The 20-day EMA, at $70.09, has been pierced. A clear break of it would open $72.58, the 50-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 $2613.3 next. Firm support lies at $2542.3, the 20-day EMA.
MNI (LONDON)
| Date | GMT/Local | Impact | Country | Event |
| 19/09/2024 | 1200/0800 |  CA | BOC Deputy Vincent speech. | |
| 19/09/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 19/09/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 19/09/2024 | 1230/0830 | * | US | Current Account Balance |
| 19/09/2024 | 1230/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 19/09/2024 | 1400/1000 | *** | US | NAR existing home sales |
| 19/09/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 19/09/2024 | 1440/1640 |  EU | ECB's Schnabel chairs Jean Monnet Lecture at ECB Conference | |
| 19/09/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 19/09/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 19/09/2024 | 1700/1300 | ** | US | US Treasury Auction Result for TIPS 10 Year Note |
| 20/09/2024 | 2301/0001 | ** |  GB | Gfk Monthly Consumer Confidence |
| 20/09/2024 | 2330/0830 | *** |  JP | CPI |
| 20/09/2024 | 0200/1100 | *** | JP | BOJ Policy Rate Announcement |
| 20/09/2024 | 0600/0700 | *** | GB | Retail Sales |
| 20/09/2024 | 0600/0700 | *** | GB | Public Sector Finances |
| 20/09/2024 | 0600/0800 | ** |  DE | PPI |
| 20/09/2024 | 0645/0845 | ** |  FR | Manufacturing Sentiment |
| 20/09/2024 | 0830/0930 | GB | BOE's Mann Speech at Central Bank Research Association | |
| 20/09/2024 | 1215/0815 | CA | BOC Governor Macklem speech at AI conference | |
| 20/09/2024 | 1230/0830 | * | CA | Industrial Product and Raw Material Price Index |
| 20/09/2024 | 1230/0830 | ** | CA | Retail Trade |
| 20/09/2024 | 1230/0830 | ** | CA | Retail Trade |
| 20/09/2024 | 1400/1600 | ** | EU | Consumer Confidence Indicator (p) |
| 20/09/2024 | 1500/1700 | EU | ECB's Lagarde Banking Lecture Organised by the IMF | |
| 20/09/2024 | 1530/1730 | EU | ECB's Lagarde converses with IMF Georgieva | |
| 20/09/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
| 20/09/2024 | 1800/1400 | US | Philly Fed's Pat Harker |
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