Highlights:
- ECB to cut by 25bps, marking the third consecutive cut. The prospect of a 50bp step, although appearing unlikely, cannot be entirely discounted.
- USD/CHF rises to a fresh two-week high as the SNB opts for a bold 50bp rate cut.
- Fed Funds implied rates for upcoming meetings continue to see a sizeable dovish impact from yesterday’s CPI print.
US TSYS: Sell-Off Extends, Outperforming EGBs Pre-ECB
- Treasuries have extended yesterday’s second half sell-off and have now easily more than reversed the initially dovish reaction to US CPI across all major tenors.
- They follow sizeable downward pressure in EGBs where Italian supply has offered an additional headwind. China stimulus plans from the CEWC readout hasn’t had a material impact on Treasuries
- Away from potential spillover from the ECB decision at 0815ET, today’s focus is firmly on US PPI inflation and weekly jobless claims (see more detail in STIR bullet) before attention turns to the 30Y reopen after a strong 10Y yesterday.
- Cash yields are 2.1-2.5bp higher with 10s earlier breaching 4.30% (high 4.3023%) for the first time since Nov 26/27.
- 2s10s is back unchanged on the day at 12bps as it consolidates yesterday’s renewed steepening, off 13.3bps earlier for its steepest since Nov 20.
- TYH5 has been on and off session lows of 110-16 (-06) for two hours now, on slightly higher cumulative volumes of 270k after particularly weak overnight sessions earlier this week.
- The recent pullback has extended, coming closer to support at 110-11+ (50% retrace of Nov 15 – Dec 6 bull cycle) after which lies 110-02 (61.8% retrace). Resistance is seen at 111-07 (Dec 11 high).
- Data: PPI Inflation Nov (0830ET), Weekly jobless claims (0830ET), Household net worth Q3 (1200ET)
- Note/bond issuance:US Tsy $22B 30Y Bond reopen - 912810UE6 (1300ET)
- Bill issuance: US Tsy $80B 4W & $75B 8W bill auctions (1130ET)
STIR: Back to Only Just Fully Pricing Second 25bp Cut at May FOMC
- Fed Funds implied rates for upcoming meetings continue to see a sizeable dovish impact from yesterday’s CPI print, which included a pronounced slowdown in rental inflation, but have mostly reversed their decline in mid-2025 contracts.
- Whilst a Dec cut is now seen as a shoe in, the subsequent 25bp cut is back to only just fully priced for the May FOMC.
- Cumulative cuts from 4.58% effective: 24.5bp Dec, 29bp Jan, 44bp Mar, 51bp May and 61bp Jun.
- Today sees PPI and jobless claims in focus, with the former watched for its usual core PCE implications. That’s likely doubly so this month with a wide range of analyst estimates after CPI, and revisions from pre-CPI estimates moving in different directions (CIBC and Wrightson ICAP see core PCE at 0.3% M/M, Morgan Stanley 0.136% M/M).
US TSY FUTURES: Short Setting in TY Futures Dominated on Wednesday
OI data suggests that net short setting in TY futures provided the largest positioning swing on Wednesday (~$2.6mn DV01), with contained rounds of net short setting and long cover seen elsewhere essentially offsetting.
| 11-Dec-24 | 10-Dec-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,295,818 | 4,278,891 | +16,927 | +664,125 |
FV | 6,034,493 | 6,047,397 | -12,904 | -555,274 |
TY | 4,471,478 | 4,432,020 | +39,458 | +2,611,657 |
UXY | 2,187,941 | 2,198,221 | -10,280 | -929,828 |
US | 1,843,455 | 1,847,148 | -3,693 | -483,198 |
WN | 1,763,076 | 1,758,479 | +4,597 | +924,933 |
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| Total | +34,105 | +2,232,415 |
STIR: Mix of Long & Short Setting Seen in SOFR Futures on Wendesday
OI data points to net long setting in the whites during Wednesday’s twist steepening of the SOFR futures strip, with net short setting then dominating further out.
- See previous STIR bullet for greater colour on recent market moves and the latest run of Fed pricing.
| 11-Dec-24 | 10-Dec-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,218,852 | 1,218,564 | +288 | Whites | +68,561 |
SFRZ4 | 1,387,357 | 1,348,499 | +38,858 | Reds | +24,915 |
SFRH5 | 1,091,610 | 1,082,419 | +9,191 | Greens | +4,679 |
SFRM5 | 1,026,144 | 1,005,920 | +20,224 | Blues | +1,492 |
SFRU5 | 805,974 | 806,945 | -971 |
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SFRZ5 | 958,791 | 937,042 | +21,749 |
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SFRH6 | 565,351 | 557,714 | +7,637 |
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SFRM6 | 633,489 | 636,989 | -3,500 |
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SFRU6 | 630,700 | 629,374 | +1,326 |
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SFRZ6 | 712,584 | 712,240 | +344 |
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SFRH7 | 420,264 | 419,897 | +367 |
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SFRM7 | 364,658 | 362,016 | +2,642 |
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SFRU7 | 286,392 | 290,575 | -4,183 |
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SFRZ7 | 292,162 | 287,554 | +4,608 |
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SFRH8 | 200,431 | 199,366 | +1,065 |
|
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SFRM8 | 156,764 | 156,762 | +2 |
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MNI ECB PREVIEW: Back-to-Back Cuts Continue
- The ECB will cut by 25bp, marking the third back-to-back cut, and the fourth reduction this year.
- Given that the ECB has previously shown some flexibility in following its self-prescribed data dependent and meeting-by-meeting approach, future meetings carry some degree of uncertainty over policy outcomes. This time around, the prospect of a 50bp cut, although appearing unlikely, cannot be entirely discounted.
- Although all the pieces of the inflation puzzle are still not in place, back-to-back easing against a backdrop of weak economic activity and headline inflation close to target, suggests that language concerning the ‘restrictive’ policy stance is becoming redundant. Even if it is not removed from the policy statement this time around, it soon will be.
- See the full preview here.
MNI SNB WATCH: SNB Cuts 50bps With Room to Manoeuvre
- The SNB cut its key policy rate by 50 basis points to 0.5%, with the rate on excess sight deposits cut to 0%, the Board announced on Thursday, adding that it remains willing to be active in the foreign exchange market as necessary.
- President Martin Schlegel, noted that markets were pricing in a terminal rate of 0% some time in 2025, but avoided making any comment as to the SNB's rate path or whether it was clear rates would fall further. Monetary conditions were "appropriate,” he said, speaking in his first press conference at the head of the Bank, adding that there was room for further policy manoeuvring, but without directly addressing the possibility of a future move back to negative interest rates.
- Policymakers want to keep policy appropriate, without getting behind the curve. "We want to move soon enough to prevent having to overreact after,” he said.
- The rate cut came as inflation fell over the last quarter, with the annual rate below the September projection. Without Thursday’s policy move, the projection would be "lower still", the statement said. However, Schlegel said the SNB did not see inflation turning negative on a quarterly basis, despite cutting its 2025 forecast to just 0.3%.
- While it was possible that monthly measures of inflation could fall to negative levels, the Board would look through "temporary deviations" from target levels, Schlegel said. Without committing to a future rate cut path, the SNB said it was willing to act as necessary to keep inflation consistent with price stability. "The SNB will continue to monitor the situation closely, and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term," the statement said.
CHINA: CEWC Readout Begins, Markets Seemingly Disappointed by Lack of Stimulus
USDCNH has weakened marginally as the CEWC redout begins. However, moves remain modest at thist stage with the cross holding within yesterday's range. Meanwhile, Chinese & HK equity index futures have started to lead global peers lower, seemingly disappointed with lack of immediate stimulus.
- A reminder that the pre-meeting Politburo language seemed to point towards further stimulus, including the first monetary policy stance tweak seen since '11. The GDP and other annual numeric economic targets are not formally released until March (expect source reports between now and then as they will have been discussed at this gathering). The Politburo readout reduced chances of a mark lower in the GDP growth target and increased the odds of greater fiscal spending.
- Initial headlines have re-iterated that China will raise its fiscal deficit ratio next year, attempt to keep economic growth stable and to deliver further interest rate cuts at the approrpriate time (as signalled earlier this week).
- Familiar focus areas here, including property sector mentioned in other headlines, albeit with more forceful support in the offing.
FRANCE: New PM Could Be Announced This Evening
President Emmanuel Macron could announce the identity of a new prime minister as soon as the evening of 12 December. The formulation of the next gov't looks increasingly to be a broad coalition involving the parties of Macron's centrist Ensemble alliance, the centre-left Socialist Party (PS), environmentalist Ecologists, and potentially the left-wing French Communist Party (PCF) and conservative Les Republicains (LR). Such an administration would have a much more left-leaning outlook than the now-collapsed minority gov't of PM Michel Barnier.
- The composition of the alliance and identity of the PM appears to remain in flux. Ecologist leader Marine Tondelier said on Thursday morning "The fact that [Macron] persists in wanting to put a prime minister from his camp [into power] leads France into a political, social, economic, environmental deadlock." Tondelier said centrist MoDem leader Francois Bayrou and former PM Bernard Cazeneuve from the PS would not be acceptable candidates for her party.
- An 11 Dec opinion poll from Elabe for BFMTV showed 41% of respondents in favour of an apolitical/technocrat PM, compared to 23% supporting a candidate of the NFP, 17% the far-right Rassemblement National, 12% the conservative LR, and just 6% Macron's Ensemble alliance.
- The timing of any announcement could come quite late in the day, with Macron flying in and out of Warsaw today for bilaterals with Polish PM Donald Tusk and President Andrzej Duda.
- The new PM will face a tough task in passing a budget, with internal divisions between members of the unwieldy coalition likely to hinder efforts to pass the legislation.
GERMANY: IFO Forecasts GDP Growth Between 0.4-1.1% in 2025
The IFO institute forecasts German GDP growth of 0.4% in 2025 in its base case, but at least sees the possibility for an "alternative scenario" in which the economy grows 1.1%. That's on the back of uncertainty of Germany "overcom[ing] its structural challenges". Note that this compares to IFO's last projection of 0.9% 2025 growth published in September. The highlighting of an alternative scenario might be a nod to potential election outcomes.
- "German goods exports have become increasingly decoupled from global economic development, and Germany has become noticeably less competitive, especially in industry and especially outside Europe"
- "In the more pessimistic scenario, this weakness will lead to creeping deindustrialization. Industrial companies are relocating production and investments abroad. Due to the structural shift away from industry and toward more services, productivity growth remains weak, and a temporary rise in unemployment is to be expected. Slight growth impetus is coming from a slow recovery in private consumption and the construction industry."
- "In the more optimistic scenario, a more reliable economic policy will help manufacturing companies expand their production capacities again and, through tax incentives, for example, invest more and cut fewer jobs. In this scenario, incentives to work would also improve, more people overall would work, and individual employees would extend their working hours. This would in turn boost private consumption and cause the savings rate to fall."
- As for CPI inflation, they expect 2.3% in 2025 and 2.0% in 2026, revised up from 2.0% and 1.9% respectively in the September forecast.
AUSTRALIA DATA: Aussie Labour Market Tightens, Unemployment at 3.9%
- The unemployment rate tightened 20 basis points to 3.9% in November, 30bp better than expected, while 35,613 jobs were created, more than the 25,000 anticipated, data from the Australian Bureau of Statistics showed.
- “In November we saw a higher than usual number of people moving into employment who were unemployed and waiting to start work in October,” said David Taylor, head of labour statistics at the ABS. “This contributed to the rise in employment and fall in unemployment.”
- The Reserve Bank of Australia expects unemployment at 4.3% by Q4. The Board shifted dovish at its meeting on Tuesday which saw the cash rate hold at 4.35%.
FOREX: CHF Lags Following Bold SNB Cut, AUD Leads G10 Gains
- The Swiss Franc has weakened following the SNB opting for a larger 50bp rate cut compared to consensus forecasts expecting a more moderate 25bp move. EURCHF rose around 65 pips to trade back above 0.93 and print a 0.9344 high on the session. Despite the initial spike, momentum then stalled and a late mention that the likelihood of negative rates has become smaller prompted a small reversal back to 0.9315.
- USDCHF rose to a fresh two-week high of 0.8893, and the renewed strength sees us narrow the gap to the post-election highs of 0.8957. The 50-day EMA has supported the pair well here, with the dip following US NFP providing a good entry point to the broader trend.
- Elsewhere, AUDUSD has risen 0.7% and trades back above 0.6400 on the solid jobs report overnight, where the unemployment rate fell back sub 4.0%, well below forecasts. This has underpinned the Aussie recovery, following AUDUSD printing a new one-year low below 0.6340 on Wednesday.
- Mixed signals this week from the China signals, the RBA meeting and local data leaves AUDUSD just a touch firmer on the week, whereas AUDJPY remains ~2% in the green.
- Higher core yields continue to weigh on the Japanese yen and contrast to the more dovish rhetoric surrounding the immediate steps for BOJ monetary policy. USDJPY made a brief test towards the post-US CPI highs around 152.80, however, subsequent CHFJPY supply has helped contain the price action.
EUR: EURUSD Oscillating Around 1.0500 as ECB Approaches
- Focus now turns to the ECB, with EURUSD continuing to oscillate around 1.0500, where notable levels of option expiries reside. Our baseline scenario assumes the ECB delivers a 25bp policy rate cut, staff macroeconomic projections show downward revisions to growth and inflation in 2025, while inflation converges to target over the medium term.
- President Lagarde will likely indicate that risks to the outlook are tilted to the downside, but steer clear of providing any guidance on future policy rates and reiterate the ECB’s data-dependent and meeting-by-meeting approach.
- Overnight straddles suggest that EURUSD may be contained to a 65 point range either side of spot, potentially limiting the probability of a significant breakout ahead of the weekend. With that in mind, initial resistance at 1.0566 (20-day EMA) remains intact and will garner attention on the topside, while initial support is at 1.0461, the Dec 2 low. A bearish trend structure is in place and 1.0335 remains the notable the bear trigger.
EUROPEAN ISSUANCE UPDATE
Italy auction results
- E3bln of the 2.70% Oct-27 BTP. Avg yield 2.35% (bid-to-cover 1.66x).
- E3bln of the 3.15% Nov-31 BTP. Avg yield 2.92% (bid-to-cover 1.58x).
- E1.5bln of the 3.35% Mar-35 BTP. Avg yield 3.19% (bid-to-cover 2.10x).
- E1bln of the 4.30% Oct-54 BTP. Avg yield 3.94% (bid-to-cover 2.31x).
EQUITIES: Eurostoxx 50 Futures Trading Close to This Week's Highs
- A bull cycle in the Eurostoxx 50 futures contract remains intact and price is trading closer to its recent highs. The contract has recently breached the 50-day EMA. The clear break of this average strengthens a bullish theme and note that 4961.00, the Nov 6 high, has also been cleared. Sights are on 5015.00 next, the Oct 29 high. Key support is 4699.00, the Nov 19 low. Initial support to watch lies at 4887.95, the 20-day EMA.
- The S&P E-Minis contract maintains a bullish tone and the latest pullback is considered corrective. Recent gains confirm a resumption of the uptrend and signal scope for a continuation near-term. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. A resumption of the uptrend would open 6145.26, a Fibonacci projection. Initial support to watch lies at 6024.9, the 20-day EMA.
COMMODITIES: Recent Gains in WTI Futures Considered Corrective for Now
- A bearish threat in WTI futures remains present and this week’s gains are - for now - considered corrective. A resumption of the bear cycle would open $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 has traded higher this week. A key short-term resistance at $2721.4, the Nov 25 high, has been pierced and this represents a positive development. A continuation higher would expose key resistance at $2790.1, the Oct 31 high. Clearance of this level would confirm a resumption of the primary uptrend. On the downside key support to monitor is $2536.9, the Nov 14 low. First support is $2645.0, the 50-day EMA, ahead of $2605.3, the Nov 26 low.
| Date | GMT/Local | Impact | Country | Event |
| 12/12/2024 | 1315/1415 | *** |  EU | ECB Deposit Rate |
| 12/12/2024 | 1315/1415 | *** | EU | ECB Main Refi Rate |
| 12/12/2024 | 1315/1415 | *** | EU | ECB Marginal Lending Rate |
| 12/12/2024 | 1330/0830 | *** |  US | Jobless Claims |
| 12/12/2024 | 1330/0830 | *** | US | PPI |
| 12/12/2024 | 1330/0830 | * |  CA | Building Permits |
| 12/12/2024 | 1330/0830 | * | CA | Household debt-to-income |
| 12/12/2024 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 12/12/2024 | 1345/1445 | EU | ECB Monetary Policy Press Conference | |
| 12/12/2024 | 1500/1000 | * | US | Services Revenues |
| 12/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 12/12/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 12/12/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 12/12/2024 | 1800/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |
| 13/12/2024 | 2350/0850 | *** |  JP | Tankan |
| 13/12/2024 | 0001/0001 | ** |  GB | Gfk Monthly Consumer Confidence |
| 13/12/2024 | 0430/1330 | ** | JP | Industrial Production |
| 13/12/2024 | 0700/0800 | ** |  SE | Unemployment |
| 13/12/2024 | 0700/0700 | ** | GB | UK Monthly GDP |
| 13/12/2024 | 0700/0700 | ** | GB | Index of Services |
| 13/12/2024 | 0700/0700 | *** | GB | Index of Production |
| 13/12/2024 | 0700/0700 | ** | GB | Output in the Construction Industry |
| 13/12/2024 | 0700/0700 | ** | GB | Trade Balance |
| 13/12/2024 | 0700/0800 | ** |  DE | Trade Balance |
| 13/12/2024 | 0745/0845 | *** |  FR | HICP (f) |
| 13/12/2024 | 0800/0900 | *** |  ES | HICP (f) |
| 13/12/2024 | 0930/0930 | ** | GB | Bank of England/Ipsos Inflation Attitudes Survey |
| 13/12/2024 | 1000/1100 | ** | EU | Industrial Production |
| 13/12/2024 | - | *** |  CN | Money Supply |
| 13/12/2024 | - | *** | CN | New Loans |
| 13/12/2024 | - | *** | CN | Social Financing |
| 13/12/2024 | 1330/0830 | ** | US | Import/Export Price Index |
| 13/12/2024 | 1330/0830 | ** | CA | Monthly Survey of Manufacturing |
| 13/12/2024 | 1330/0830 | ** | CA | Wholesale Trade |
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