Highlights:
- German regional CPIs fail to mirror softer French, Spanish inflation
- AUD spot rally driven by short-covering
- EUR/USD on cusp of resuming underlying uptrend
- Treasuries have recently pulled back off lows but have still seen a surprisingly large bear flattening stemming from German regional CPI releases that belied dovish surprises seen in last week’s French and Spanish prints.
- Supply chain disruption is also at the fore with a major strike of ~45k dockworkers at eastern and Gulf ports looking set to go ahead at midnight tonight.
- The moves belatedly follow overnight strength in China equities and related commodity prices (iron ore at multi-month highs) after further stimulus, this time centered on real estate. That seems a marginal factor though considering the flattening moves seen plus S&P 500 futures seeing little boost.
- Cash yields are 1bps (30s) to 5bps (2s) higher on the day, with the entirety of those front-end increases coming since German CPI prints.
- 2s10s at 16.5bps (-3bps) has pushed back towards the low end of Friday’s range to leave it more firmly off last week’s fresh ytd high of 24bps.
- TYZ4 sits at 114-16+ (-07) on reasonable volumes of 315k but has remained within Friday’s range throughout. Support is seen at 114-07 (Sep 26 low) with a corrective cycle in play, whilst resistance is seen at 115-02+ (Sep 19 high).
- Data: MNI Chicago PMI Sep (0945ET), Dallas fed mfg Sep (1030ET)
- Fedspeak: Bowman on outlook/policy (text + Q&A), Fed Chair Powell at NABE conf (text + Q&A)
- Bill issuance: US Tsy $79B 13W & $72B 26W bill auctions (1130ET)
STIR: Further Off Dovish Extremes, Pre-Payrolls Powell In Focus
- Fed Funds implied rates have seen surprisingly large spillover stemming from German regional CPI releases which have pushed back against dovish surprises seen in last week’s French and Spanish prints.
- Cumulative cuts from 4.83% effective: 36bp Nov, 73bp Dec, 105bp Jan and 171bp June.
- Latest Fedspeak came from Musalem (’25) in an FT interview printed Friday afternoon. He wants to see the Fed revert to cutting rates “gradually” as the US economy could react “very vigorously” to looser financial conditions. In similar comments to Gov Waller: “I’m attuned to the fact that the economy could weaken more than I currently expect [and] the labour market could weaken more than I currently expect […] If that were the case, then a faster pace of rate reductions might be appropriate.”
- Fed Chair Powell headlines today’s docket, with a luncheon address at the NABE conference in Nashville (text + Q&A). Impact could be limited by the fact there has been relatively little by way of tier one data releases since his FOMC press conference (Friday’s core PCE appeared to be in line with Gov Waller’s estimates).
- We approach it with the Nov implied rate almost 10bp lower than prior to the Sep 18 FOMC announcement but at levels very similar prior to Powell taking the podium. That should limit impact from similar rhetoric that a 50bp cut earlier this month doesn't set the tone for the cadence of rate cuts ahead.
- Fed Gov. Bowman (voter) is also set to speak on the economic outlook and policy today at 0850ET (text + Q&A) but we have heard from her in detail since her dissent to the Fed cutting 50bps.
US TSY FUTURES: OI Points to Mix Of Long Setting & Short Cover In Friday's Rally
OI data points to a mix of short cover and long setting during Friday’s rally, as the PCE data suite and geopolitical risk centred on the Middle East supported Tsys into the weekend.
- Long setting in WN futures generated the largest DV01 equivalent move, while the largest round of DV01 equivalent short cover came in FV futures.
STIR: OI Points To Mix Of Long Setting & Short Cover In SOFR Futures On Friday
OI points to a mix of short cover and long setting during Friday's rally in SOFR futures, as the PCE data suite and geopolitical risk centred on the Middle East supported FI into the weekend.
- The only meaningful net positioning swings seemed to come via short cover in SFRU4 and long setting in SFRZ5.
EGB FUNDING UPDATE: Finland Q4 Funding Plans
- 2 RFGB auctions for E1.0-1.5bln each on 15 October and 19 November.
- However, it appears as though the second of these auctions has the potential to be withdrawn: "To complete the long-term funding requirement for the year, one or two more tap auctions of existing euro benchmark bond lines as well as two ORI auctions are expected to take place in the last quarter of the year."
- 2 previously announced ORI auctions for up to E400mln on 24 October and 28 November.
- There will be no Finnish syndication in Q4 (that's as expected).
- Last week's funding update saw net borrowing requirement revised to E11.859bln with gross borrowing of E42.111bln.
- "As in previous years, bonds may be issued under the EMTN programme to complement the funding in euro benchmark bonds during the year, market conditions permitting."
- 2 RFTB auctions are planned for E1-2bln each on 8 October and 12 November.
- "In addition to Treasury bill auctions, a tap issuance window for bills is likely to open during the last quarter of the year."
US TSY FUTURES: CFTC Shows Asset Managers Covering Longs, HFs Cut Shorts
The latest CFTC CoT showed asset managers trimming some of their net longs (TU, FV, US & WN), while they added to others (TY & UXY). They also cut net longs in SOFR futures.
- Meanwhile, hedge funds pared back net shorts in most contracts, only adding to net shorts in TU & UXY futures. They also added to net longs in SOFR futures.
- The CFTC survey cut off date was September 24, capturing the initial reaction to the Fed’s 50bp rate cut.
- Non-commercial positioning remained net short across all major Tsy futures.
- As ever, CFTC CoT positioning metrics will be skewed by basis trades.
Source: MNI - Market News/CFTC/Bloomberg
CFTC: AUD Spot Rally Built on Short-Covering
- Friday's CFTC release showed the recent rally in AUD continues to be driven by short-covering, with the data showing the 0.6750 to 0.6900 came alongside the net buying of 29k contracts, or 17.3% of open interest. This leaves the net short at 6.4% of open interest.
- It seems likely that the latest leg higher to 0.6940 this morning has further benefited from a trimming of these shorts - and a flip to net long would be only the second since 2021 - and may signal that medium-term momentum needs to pick up an extra tailwind beyond short-covering to sustain the rally.
- 0.6984, a Fibonacci projection, marks the next meaningful resistance, and if this mark caps the near-term rally, support at the 20- and 50-day EMAs provide the next downside targets for a corrective pullback, at 0.6789 and 0.6728 respectively.
- Meanwhile, markets modestly deepened shorts in CAD and CHF, while building the net long EUR, GBP and JPY position. Full data here:
EUROPEAN INFLATION: German State-Lvl Details Show Energy Drop, Sticky Services
Looking a bit closer at this morning's German state level September inflation data, goods disinflation appears to have continued, while for services, the data points towards some ongoing stickiness. Energy stands out as the downside driver.
- On energy: We see the category broadly in the negative mid-7% range, amid both base effects and a sequential drop, which likely was driven by lower pump prices. While our estimate here is only based on states accounting for around 50% weighting of the national basket, which adds some uncertainty, a downside contribution vs August on the yearly rate should be clear.
- Looking at the categories with heavy services weighting, we see healthcare at 2.5-2.6% Y/Y (2.7% Aug), communication largely unchanged from August's -1.2%, recreation and culture at 1.4-1.5% Y/Y (1.2% Aug), education at 5.5-5.6% Y/Y (5.1% Aug), and restaurants and hotels around 6.2% (6.2% August). The mixed-weighting transport category should come in broadly around -1.7% Y/Y (-0.2% Aug), consistent with lower energy prices.
- Food inflation appears to have seen little change in September, at around 2.1-2.2% Y/Y (2.1% Aug).
- Core goods might have seen some slight disinflation again - we see clothing and footwear at around 2.3% Y/Y (2.6% Aug) and furnishings and household equipment at around -1.1% (-0.7% Aug). Supply chain disruptions seem to pose an upside risk here a couple months ago appear to not have made their way through to consumer prices (yet).
FOREX: EUR/USD on Cusp of Resuming Underlying Uptrend
- EUR/USD has cleared the Friday high ahead of the NY crossover, with prices now sitting just below the 1.1214 level. A break above this level would mark a resumption of the primary uptrend which is shrugging off both increased speculation of a possible October ECB cut as well as Germany's flagging growth (evident in that last report that official growth expectations are to be revised lower to 0.0% from 0.3% for this year).
- The single currency trigger was aided higher by German regional CPIs which, while soft, don't match the sizeable downside surprises in Spanish, French releases last week. ECB pricing for the October decision has retraced in tandem, with this morning's 22bps rate cut pricing reversing to 19bps at the NY crossover.
- JPY is the poorest performer in G10. We noted USD/JPY upside was the dominant theme overnight, with just over $3 in calls trading for every $2 in puts Monday. Y142.50 call strikes have seen over $1bln notional in interest, despite the modest fade lower to pullback lows of 141.65 at the European open.
- Focus ahead turns to the MNI Chicago PMI release for September (seen at 46.0 from 46.1 prior) as well as the prelim German CPI stats after this morning's regionals. The central bank speaker slate should prove of more interest, with ECB's Lagarde appearing in front of parliament, Fed's Powell in front of the NABE (text and Q&A expected) as well as Fed's Bowman and BoE's Greene after the US close.
OPTIONS: Vols Tick Higher, USD/JPY Calls in Vogue
- Front-end vols are seeing early support Monday, with EUR, JPY and GBP 1m vols now north of the running September average. Options volumes are similarly above-average for this time of day, thanks to heightened trade in HKD and JPY in Asia-Pac hours, countering the quieter CNY options trade ahead of Golden Week holidays.
- USD/JPY upside was the dominant theme overnight, with just over $3 in calls trading for every $2 in puts Monday. Y142.50 call strikes have seen over $1bln notional in interest, despite the modest fade lower to pullback lows of 141.65 at the European open.
- Notable expiries at today's cut include: {EU} EUR/USD: $1.1120-25(E668mln), $1.1200(E959mln), $1.1250-65(E1.1bln), $1.1280-00(E1.4bln), {JN} USD/JPY: Y142.35-50($650mln), Y143.90-00($859mln)
OPTIONS: Expiries for Sep30 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1120-25(E668mln), $1.1200(E959mln), $1.1250-65(E1.1bln), $1.1280-00(E1.4bln)
- USD/JPY: Y142.35-50($650mln), Y143.90-00($859mln)
EQUITIES: Bull Cycle in E-Mini S&P Intact After Last Week's Climb to Cycle Highs
- Eurostoxx 50 futures traded sharply higher last week resulting in a clear break of 5024.00, the Sep 3 high. This confirms a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. Scope is seen for a climb towards 5138.24, a Fibonacci projection, and the 5200 handle further out. On the downside, key short-term support is seen at 4912.97, the 50-day EMA.
- A bull cycle in S&P E-Minis remains intact and last week’s fresh cycle highs, reinforce this theme. Moving average studies are in a bull-mode setup and this also reinforces the bullish theme. Scope is seen for a climb towards 5851.84, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5709.39, the 20-day EMA. Key support lies at 5641.58, the Sep 27 low.
COMMODITIES: Gold Trading Just Below All-Time Highs, Focus on $2690.20 Next
- WTI futures have reversed a large part of its recent gains. This affirms the strength of resistance at the 50-day EMA of 71.91, which remains the key upside hurdle for bulls. This price action confirms the recovery since Sep 9 as a correction. Note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A continuation lower would refocus attention on $64.61, the Sep 10 low and bear trigger.
- Gold bulls remain in the driver’s seat and the yellow metal is trading just below its recent all-time high. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2690.2 next, a Fibonacci projection. Firm support lies at $2585.1, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 30/09/2024 | 1200/1400 | *** |  DE | HICP (p) |
| 30/09/2024 | 1300/1500 |  EU | ECB's Lagarde at ECON hearing | |
| 30/09/2024 | 1345/0945 | *** |  US | MNI Chicago PMI |
| 30/09/2024 | 1430/1030 | ** | US | Dallas Fed manufacturing survey |
| 30/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 30/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 30/09/2024 | 1600/1200 | ** | US | USDA GrainStock - NASS |
| 30/09/2024 | 1755/1355 | US | Fed Chair Jerome Powell | |
| 30/09/2024 | 2010/2110 |  GB | BOE's Greene panellist on 'Perspectives on global MonPol' | |
| 01/10/2024 | 2300/0900 | ** |  AU | S&P Global Manufacturing PMI (f) |
| 01/10/2024 | 2301/0001 | * | GB | BRC Monthly Shop Price Index |
| 01/10/2024 | 2330/0830 | * |  JP | Labor Force Survey |
| 01/10/2024 | 2350/0850 | *** | JP | Tankan |
| 01/10/2024 | 0030/0930 | ** | JP | S&P Global Final Japan Manufacturing PMI |
| 01/10/2024 | 0130/1130 | ** | AU | Retail Trade |
| 01/10/2024 | 0130/1130 | * | AU | Building Approvals |
| 01/10/2024 | 0630/0830 | ** |  CH | Retail Sales |
| 01/10/2024 | 0700/0900 | EU | ECB's De Guindos at 5th Joint BoC - ECB - NY FED Conference | |
| 01/10/2024 | 0715/0915 | ** |  ES | S&P Global Manufacturing PMI (f) |
| 01/10/2024 | 0745/0945 | ** |  IT | S&P Global Manufacturing PMI (f) |
| 01/10/2024 | 0750/0950 | ** |  FR | S&P Global Manufacturing PMI (f) |
| 01/10/2024 | 0755/0955 | ** | DE | S&P Global Manufacturing PMI (f) |
| 01/10/2024 | 0800/1000 | ** | EU | S&P Global Manufacturing PMI (f) |
| 01/10/2024 | 0830/0930 | ** | GB | S&P Global Manufacturing PMI (Final) |
| 01/10/2024 | 0900/1100 | *** | EU | HICP (p) |
| 01/10/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 01/10/2024 | - | *** | US | Domestic-Made Vehicle Sales |
| 01/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 01/10/2024 | 1300/1500 | DE | MNI Connect Video Conference on German & Eurozone Economic & Policy Developments | |
| 01/10/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 01/10/2024 | 1400/1000 | *** | US | ISM Manufacturing Index |
| 01/10/2024 | 1400/1000 | * | US | Construction Spending |
| 01/10/2024 | 1400/1000 | *** | US | JOLTS jobs opening level |
| 01/10/2024 | 1400/1000 | *** | US | JOLTS quits Rate |
| 01/10/2024 | 1400/1500 | GB | BOE's Pill Speech at Q3 Confederation of British Industry Economic Growth Board | |
| 01/10/2024 | 1430/1030 | ** | US | Dallas Fed Services Survey |
| 01/10/2024 | 1500/1100 | US | Atlanta Fed's Raphael Bostic | |
| 01/10/2024 | 1510/1110 | US | Fed Governor Lisa Cook | |
| 01/10/2024 | 1530/1730 | EU | ECB's Schnabel lecture at Joint BoC - ECB - NY FED Conference | |
| 01/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 01/10/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 01/10/2024 | 2215/1815 | US | Fed's Bostic, Barkin, Collins |
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