Highlights:
- BoE decision imminent, 25bps cut expected
- FOMC rates sees further easing today well priced
- Focus switches back to data, with weekly jobless claims due
- Treasuries have increasingly pared earlier gains over the past hour, pushing back to little changed through 2-7Y tenors but with the longer end biased lower by German politics-driven pressure on EGBs.
- It sees Treasuries underperform Gilts ahead of the imminent BoE decision but firmly outperform EGBs.
- China stimulus will also increasingly come into focus with tomorrow’s conclusion of the NPC Standing Committee.
- Cash yields sit between 0.4bp lower (2s) and 2.2bps higher (30s). 30Y yields at 4.626% have drawn back close to 4.634% seen prior to the bid after yesterday’s solid 30Y auction.
- 2s10s at 19.0bps (+1.6bp) is at one of its highest readings from the past month. YTD highs of 24bps were seen in September.
- TYZ4 has given up earlier modest gains to trade at 109-16 (- 01+) on strong cumulative volumes of 465k.
- The trend needle points south, with yesterday’s low of 109-07 marking initial support shortly above 109-05 (76.4% retrace of Apr-Sep bull cycle, cont.). Resistance sits 110-21+ (Nov 6 high).
- Fed: FOMC decision (1400ET), Powell press conference (1430ET)
- Data: Weekly jobless claims (0830ET), Productivity/ULCs Q3 prelim (0830ET), Wholesale sales/inventories Sep/Sep F (1000ET), Consumer credit Sep (1500ET)
- Bill issuance: US Tsy $95B 4W, $90B 8W Bill auctions (1130ET)
STIR: Bulk Of US Steepening Held Ahead Of FOMC Decision
- Fed Funds implied rates sit up to 1.5bps lower overnight out to mid-2025 but mostly hold the post-election steepening with today’s FOMC decision eyed.
- Cumulative cuts from 4.83% effective: 25bp Nov, 43bp Dec, 53bp Jan and 90bp June (vs 99bp pre-election).
- That profile sees most of the easing cycle enacted by June, with SOFR implied yields bottoming out at ~3.80% in H6-U6 contracts for a little over 100bps of cuts from today.
- Labor data are watched in the interim today, with weekly jobless claims and productivity/ULCs for Q3, the latter after strong productivity growth in Q2 and a recent dovish surprise from the ECI.
- MNI Fed Preview: https://media.marketnews.com/Fed_Prev_Nov2024_With_Analysts_d4a81c3019.pdf
US TSY FUTURES: Net Short Setting Dominated Weds As Markets Prepped For Trump
OI points to net short setting across much of the curve on Wednesday, as markets reacted to the election result. The only round of apparent net long cover came in WN futures.
| 06-Nov-24 | 05-Nov-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,435,424 | 4,395,233 | +40,191 | +1,456,531 |
FV | 6,327,029 | 6,247,448 | +79,581 | +3,314,978 |
TY | 4,606,545 | 4,544,999 | +61,546 | +3,998,716 |
UXY | 2,203,160 | 2,180,449 | +22,711 | +1,969,291 |
US | 1,860,335 | 1,832,970 | +27,365 | +3,461,460 |
WN | 1,733,354 | 1,743,063 | -9,709 | -1,884,895 |
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| Total | +221,685 | +12,316,081 |
STIR: OI Suggests Net Short Setting Dominated In SOFR Futures On Wednesday
OI also suggests that net short setting dominated on the SOFR strip on Wednesday, as the pricing of Fed rate cuts eased in the wake of the election.
- Only limited, isolated pockets of net long cover were seen through the blues.
| 06-Nov-24 | 05-Nov-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,263,265 | 1,261,486 | +1,779 | Whites | +54,915 |
SFRZ4 | 1,176,992 | 1,148,917 | +28,075 | Reds | +117,740 |
SFRH5 | 1,000,525 | 1,008,674 | -8,149 | Greens | +12,629 |
SFRM5 | 919,820 | 886,610 | +33,210 | Blues | +6,960 |
SFRU5 | 706,556 | 704,347 | +2,209 |
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SFRZ5 | 918,110 | 839,502 | +78,608 |
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SFRH6 | 613,890 | 596,783 | +17,107 |
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SFRM6 | 599,506 | 579,690 | +19,816 |
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SFRU6 | 525,753 | 526,016 | -263 |
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SFRZ6 | 619,311 | 608,733 | +10,578 |
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SFRH7 | 395,759 | 392,416 | +3,343 |
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SFRM7 | 327,643 | 328,672 | -1,029 |
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SFRU7 | 273,125 | 273,307 | -182 |
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SFRZ7 | 261,374 | 258,721 | +2,653 |
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SFRH8 | 206,155 | 201,899 | +4,256 |
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SFRM8 | 157,490 | 157,257 | +233 |
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GERMANY: CDU's Merz Calls For Immediate Confidence Vote In Scholz Minority Gov't
Leader of the main opposition conservative Christian Democratic Union (CDU) Friedrich Merz has called for an immediate confidence vote in Chancellor Olaf Scholz's gov't following the collapse of the tripartite 'traffic light' coalition on 6 Nov. After the removal of Finance Minister Christian Lindner from office, and the withdrawal of Lindner's pro-business liberal Free Democrats (FDP) from the governing coalition, Scholz said that federal elections would be moved from September 2025 to March. However, Merz is demanding a confidence vote next week followed by an early election in January.
- On 7 Nov, Merz said “It is important that we now very quickly put responsibility for the composition of the German Bundestag back into the hands of the voters. That’s why I’m going to ask the chancellor in a conversation this afternoon to clear the way for this.”
- Opinion polling shows the CDU and its partners, Bavaria's Christian Social Union (CSU), set to win a plurality of seats. Their most likely coalition partners would be Scholz's centre-left Social Democrats (SPD). However, based on current polls there is no guarantee these two would carry a majority. A 'Kenya coalition' (CDU, SPD, Green) would be possible but not ideal for Merz's party, risking leaning too far left.
- The far-right Alternative for Germany (AfD) is on course for second place, but Merz has ruled out working with the party. The FDP would be the CDU's ideal coalition partner, but at present it is unclear if they will cross the 5% nationwide vote threshold.
Chart 1. Federal Election Opinion Polling, % and 6-Poll Moving Average
Source: INSA, Forsa, FGW, Allensbach, Ipsos, YouGov, Infratest dimap, Verian, Wahlkreisprognose, MNI
EUROPE ISSUANCE UPDATE:
Spain auction results
- E495mln of the 0.70% Nov-33 Obli-Ei. Avg yield 1.104% (bid-to-cover 2.20x).
- E2.385bln of the 2.70% Jan-30 Bono. Avg yield 2.749% (bid-to-cover 1.70x).
- E1.612bln of the 4.00% Oct-54 Obli. Avg yield 3.877% (bid-to-cover 1.77x).
France auction results
- E6.938bln of the 3.00% Nov-34 OAT. Avg yield 3.24% (bid-to-cover 1.98x).
- E2.35bln of the 4.75% Apr-35 OAT. Avg yield 3.24% (bid-to-cover 1.97x).
- E2.014bln of the 3.25% May-55 OAT. Avg yield 3.78% (bid-to-cover 2.84x).
- E1.195bln of the 0.50% Jun-44 Green OAT. Avg yield 3.55% (bid-to-cover 3.33x).
FOREX: USD Eases Off Post-Election Highs
- Following the acute post-election rally on Wednesday, the USD is easing off highs into the Thursday crossover, slipping against all others in G10. As a result, EURUSD is back above 1.0750 and USD/JPY has slipped back toward the Y154.00 handle.
- Should the Fed decision later today be absorbed smoothly enough, focus will remain on the sustainability of near-term USD/JPY given the proximity in price to levels at which the BoJ intervened to buy the currency during periods of financial instability earlier this year. Similarly, we see 155.27, a Fibonacci projection, as the next upside target, with initial firm support at 151.29, the 20-day EMA.
- NOK is leading the G10 bounce following the unchanged Norges Bank rate decision this morning, at which the Bank gave no firm indication that their hawkish stance on policy would ease in the immediate future. Conversely, the Riksbank cut rates by 50bps which, while alongside expectations, helped NOK/SEK print a new multi-month high today.
- The Bank of England rate decison set for 1200GMT/0700ET is expected to see a further 25bps rate cut, with much market focus on the extent to which the BoE are baking in risks from the UK Budget into their forecast for the coming years.
- US data picks back up today with the weekly jobless claims release, with the Fed rate decision set to follow. The FOMC are expected to back a 25bps rate cut at today's meeting, and are unlikely to comment directly on this week's election results - although will certainly be questioned on them at the press conference with Fed Chair Powell.
EQUITIES: E-Mini S&P Continues to Trade Above Bull Trigger
- Eurostoxx 50 futures are volatile. A bearish condition remains intact and yesterday’s sell-off reinforces current conditions. The contract has traded to a fresh cycle low and pierced 4815.50, the 50.0% retracement of the Aug 5 - Sep 30 bull cycle. This exposes 4757.00, the Sep 6 / 10 low and a key support. Initial firm resistance has been defined at 5015.00, the Oct 29 high, where a break would highlight a reversal.
- Bullish conditions in S&P E-Minis remain intact. A key short-term support has been defined at 5724.25, Nov 4 low. Price is trading above both the 20- and 50-day EMAs and this week’s gains have resulted in a breach of the bull trigger at 5927.25, Oct 17 high. Clearance of this level confirms a resumption of the primary uptrend and opens the 6000.0 psychological handle. A breach of 5724.25, the Nov 4 low is required to reinstate a bearish threat.
COMMODITIES: Trend Condition in WTI Futures Still Bearish Despite Recent Gains
- A bearish theme in WTI futures remains intact and the latest recovery, including this week’s gains, appears to be a correction. A resumption of weakness would expose $65.99, the Oct 1 low, and $64.16, the Sep 10 low and key support. For bulls, a clear reversal would instead refocus attention on the key S/T resistance at $77.70, the Oct 8 high. Clearance of this level would resume the recent uptrend. Initial resistance is $72.67, the Nov 5 high.
- The trend condition in Gold is unchanged, it remains bullish and the latest pullback is considered corrective. The yellow metal has cleared the 20-day EMA and this highlights potential for an extension of the corrective cycle. Attention is on a key support at $2643.4, the 50-day EMA. A clear break of this average would expose $2604.9, the Oct 8 low. For bulls a reversal higher would refocus attention on the bull trigger at $2790.1, the Oct 31 high.
| Date | GMT/Local | Impact | Country | Event |
| 07/11/2024 | 1200/1200 | *** |  GB | Bank Of England Interest Rate |
| 07/11/2024 | 1230/1230 | GB | BoE Press Conference | |
| 07/11/2024 | 1330/0830 | *** |  US | Jobless Claims |
| 07/11/2024 | 1330/0830 | ** | US | Preliminary Non-Farm Productivity |
| 07/11/2024 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 07/11/2024 | 1330/1430 |  EU | ECB's Lane speech on Public Debt | |
| 07/11/2024 | 1400/1400 | GB | Monthly Decision Maker Panel Data | |
| 07/11/2024 | 1400/0900 |  CA | BOC Deputy Mendes gives opening remarks before a lecture. | |
| 07/11/2024 | 1430/1530 | EU | ECB's Lane in panel on Lesson Learnt in Past Crises | |
| 07/11/2024 | 1500/1000 | ** | US | Wholesale Trade |
| 07/11/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 07/11/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 07/11/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 07/11/2024 | 1900/1400 | *** | US | FOMC Statement |
| 07/11/2024 | 2000/1500 | * | US | Consumer Credit |
| 08/11/2024 | 2330/0830 | ** |  JP | Household spending |
| 08/11/2024 | 0001/0001 | ** | GB | KPMG/REC Jobs Report |
| 08/11/2024 | 0230/0230 | GB | BOE's Breeden at Singapore Fintech Festival | |
| 08/11/2024 | 0700/0800 | ** |  SE | Private Sector Production m/m |
| 08/11/2024 | 0745/0845 | * |  FR | Foreign Trade |
| 08/11/2024 | 0900/1000 | * |  IT | Industrial Production |
| 08/11/2024 | 0900/1000 | EU | ECB's Cipollone moderating event on Italy and the World Bank Group | |
| 08/11/2024 | 1000/1100 | * | IT | Retail Sales |
| 08/11/2024 | 1110/0610 | CA | BOC Deputy Gravelle speaks on panel at ECB conference. | |
| 08/11/2024 | 1215/1215 | GB | BOE's Pill and Shortfall hold MPC Agency briefing | |
| 08/11/2024 | 1330/0830 | *** | CA | Labour Force Survey |
| 08/11/2024 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 08/11/2024 | 1600/1100 | US | Fed Governor Michelle Bowman | |
| 08/11/2024 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 08/11/2024 | 1930/1430 | US | St. Louis Fed's Alberto Musalem |