Highlights:
- Uncertainty over the Fed’s decision this week and associated downward pressure on US yields has weighed on the greenback.
- Canada manufacturing sales and US Empire State manufacturing headlines a quiet economic calendar. Markets await major central bank decisions from US, UK and Japan later this week.
- A reminder that both Japan and China remain out for national holidays on Monday.
US TSYS: Low Volumes With Markets on Headline Watch
- Treasuries have pulled back from highs seen in the shortened session after a Japan holiday but remain firmer on the day, bull steepening as odds of a 50bp cut from the Fed on Wednesday has pushed higher.
- Cash yields are 0.5-2bps lower on the day, with declines unsurprisingly led by 2s against this backdrop.
- 2s10s sits at 8.6bps (+1.3bps) having earlier broadly matched Friday’s fresh ytd high of 9.6bps for the steepest since mid-2022.
- TYZ4 is back unchanged 115-13+ but has remained within Friday’s range throughout, holding below a high of 115-18+ on particularly low volumes of 220k ahead of a quiet docket and markets instead on headline watch.
- Resistance is seen at 115-23+ (Sep 11 high) with the trend needle continuing to point north.
- Data: Empire mfg survey Sep (0830ET)
- Bill issuance: US Tsy $76B 13W & $70B 26W bill auctions (1130ET)
STIR: Another Step Closer to a 50bp Cut on Wednesday
- Fed Funds implied rates sit with a 50bp cut from the FOMC as more likely than not on Wednesday, with 40bp priced vs 36bp late Fri (OIS meanwhile showing 37.5bp).
- It continues to be influenced by Thursday’s WSJ and FT articles on the decision being a “close call”, which prompted a significant shift away from 28bp priced after CPI and PPI data.
- Former NY Fed President Dudley says he thinks the Fed should and will cut 50bp.
- At current pricing, the FOMC is set to ‘surprise’ markets by the most in many years no matter whether it cuts by 25bp or 50bps.
- As such, markets will be on tenterhooks for any further blackout steers in the press today in what’s otherwise a quiet session before tomorrow’s retail sales report.
- Cumulative cuts from 5.33% effective: 40bp Sep, 78bp Nov, 119bp Dec, 157bp Jan and 232bp June.
STIR: Long Setting in SFRU4 Dominated Friday as Odds of 50bp Cut Reasserted
Long setting in SFRU4 dominated from a positioning standpoint on Friday, with the dovish WSJ & FT articles covering this week’s FOMC reasserting odds of a potential 50bp cut.
- Long setting was also the most prominent factor further out the strip, with pockets of short cover seen.
- Market pricing covering the impending FOMC is unusually balanced heading into the event (see prior bullet for greater details), keeping participants attuned to the risk of the potential for further unofficial guidance during the pre-FOMC blackout period.
- J.P.Morgan reaffirmed their out of consensus call for a 50bp cut late Friday.
| 13-Sep-24 | 12-Sep-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRM4 | 1,135,867 | 1,133,208 | +2,659 | Whites | +82,991 |
SFRU4 | 1,414,233 | 1,350,979 | +63,254 | Reds | +1,840 |
SFRZ4 | 1,240,908 | 1,237,882 | +3,026 | Greens | +12,695 |
SFRH5 | 1,031,475 | 1,017,423 | +14,052 | Blues | +3,924 |
SFRM5 | 869,022 | 887,553 | -18,531 |
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SFRU5 | 742,007 | 753,976 | -11,969 |
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SFRZ5 | 995,705 | 977,200 | +18,505 |
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SFRH6 | 637,871 | 624,036 | +13,835 |
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SFRM6 | 596,657 | 602,062 | -5,405 |
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SFRU6 | 532,185 | 532,693 | -508 |
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SFRZ6 | 549,174 | 537,493 | +11,681 |
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SFRH7 | 344,507 | 337,580 | +6,927 |
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SFRM7 | 311,921 | 310,182 | +1,739 |
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SFRU7 | 228,708 | 230,849 | -2,141 |
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SFRZ7 | 216,756 | 214,700 | +2,056 |
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SFRH8 | 169,716 | 167,446 | +2,270 |
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US TSY FUTURES: Net Shorts Extended in Most Contracts in Latest CFTC
The latest CFTC CoT showed non-commercials setting fresh shorts in all contracts outside of UXY, which saw a trimming of net shorts.
- Within investor subcategories, hedge funds added to shorts in most contracts, although covered some existing shorts in FV & UXY futures.
- Asset mangers generally added to net longs, although trimmed existing longs in both UXY & WN futures.
- While the reporting period covered the most recent NFP release, it didn’t capture last week’s CPI report, nor the reaction to the dovish Fed press reports from the likes of the WSJ & FT, which reasserted more balanced odds of a 50bp cut at this week's FOMC.
- A reminder that CFTC positioning metrics will be skewed by basis trades.
Source: MNI/CFTC/Bloomberg
US TSY FUTURES: Net Long Setting Slightly More Prominent in Friday's Rally
OI data points to a mix of net long setting and short cover on Friday, as markets reacted to the dovish reports covering this week’s FOMC, courtesy of the WSJ & FT.
- Net long setting provided the dominant positioning factor in curve-wide DV01 equivalent terms, with the most prominent positioning swings coming via fresh longs being set in FV & WN futures.
| 13-Sep-24 | 12-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,344,842 | 4,357,270 | -12,428 | -491,847 |
FV | 6,428,491 | 6,381,335 | +47,156 | +2,104,985 |
TY | 4,845,122 | 4,859,113 | -13,991 | -947,858 |
UXY | 2,119,193 | 2,122,848 | -3,655 | -345,028 |
US | 1,737,312 | 1,731,384 | +5,928 | +838,791 |
WN | 1,709,128 | 1,704,067 | +5,061 | +1,142,972 |
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| Total | +28,071 | +2,302,016 |
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 here to see the full preview.
EUROZONE DATA: Labour Cost Revised Higher, But Moderation from Q1 Remains Intact
Eurozone Q2 hourly labour cost growth was 4.7% Y/Y, an upward revision of six tenths versus last month’s flash release.
- The flash release was compiled before the final Q2 national accounts data was available, meaning Eurostat had to estimate many inputs (e.g. compensation and hours worked) using flash/incomplete data from member states.
- As such, we wouldn’t read into the upward revision too much (and would instead advise caution when interpreting the flash release). The general theme of moderating labour costs remains intact, with Q2’s reading below last quarter’s 5.0%.
- The wages and salaries component eased to 4.5% Y/Y (vs 5.2% prior), while the smaller non-wage component was 5.2% Y/Y (vs 4.6% prior).
- At a country level, Germany (5.1% vs 5.7% prior) and Spain (3.9% vs 4.8% prior) saw the largest decelerations in overall Q2 labour cost growth, though France and Italy saw small accelerations to 3.7% and 3.3% respectively.
- At an industry level, services labour costs eased to 4.5% Y/Y (vs 4.8% prior), while “industry and construction” accelerated a tenth to 4.9%.
EUROPEAN ISSUANCE UPDATE
Slovakia auction review:
- E127mln of the 3.00% Feb-26 SlovGB. Avg yield 2.7971% (bid-to-cover 1.84x).
- E109mln of the 3.00% Feb-28 SlovGB. Avg yield 2.6236% (bid-to-cover 1.63x).
- E158mln of the 3.625% Jun-33 SlovGB. Avg yield 3.1883% (bid-to-cover 1.63x).
- E118mln of the 3.75% Feb-35 SlovGB. Avg yield 3.3857% (bid-to-cover 1.96x).
FOREX: USDJPY Trades Below 140.00 as Fed & BOJ Decisions Loom
- The continued uncertainty over the Fed’s decision this week and the associated downward pressure on US yields has weighed on the greenback Monday, with the USD index down 0.42% mid-way through the European session. As expected, the Japanese Yen is the main beneficiary here, and USDJPY (-0.75%) trades below the 140.00 mark for the first time since July 2023.
- The tilt towards 50bp being a very possible scenario has seen the pair fall as low as 139.58, although we have bounced around 40 pips in recent trade as major equity benchmarks remain buoyant, providing some support for cross/JPY.
- While the JPY outperforms, the greenback weakness is broad across the G10 basket, with most majors rising around 0.5% against the dollar and the Canadian dollar a relative underperformer ahead of domestic inflation data on Tuesday.
- As such, EURUSD finds itself back above 1.11 and bridging the gap to key short-term resistance at 1.1155, the Sep 6 high. A break of which would be a bullish development. For GBPUSD, the pair extends the bounce from last week’s low around 1.3000 to roughly 1.5%. A stronger reversal higher would refocus attention on key short-term resistance ahead of the BOE decision this week. This resides at 1.3266, the Aug 27 high.
- Canada manufacturing sales and US Empire State manufacturing headlines a quiet economic calendar. A reminder that both Japan and China remain out for respective national holidays on Monday.
EQUITIES: E-Mini S&P Remains Firm, Holding Onto Last Week's Gains
- Eurostoxx 50 futures are holding on to their recent gains. Despite the latest recovery, a bear threat remains present. The move down 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 4864.94, the 50-day EMA. A clear break of this average would strengthen a bullish condition.
- S&P E-Minis remains firm. Last week’s recovery highlights a bullish reversal and the end of the corrective cycle between Sep 3 - 6. The contract is trading above the 20- and 50-day EMAs and a continuation higher would signal scope for a test of 5730.50, Sep 3 high. Clearance of this level would open 5785.00, the Jul 16 high and bull trigger. On the downside, a reversal lower and a breach of 5451.25, the Sep 6 low, would reinstate a bearish theme.
COMMODITIES: Bearish Conditions in WTI Futures Remains Intact
- WTI futures remain in a bearish condition. Last Tuesday’s strong sell-off reinforces current conditions and this confirmed an extension of the bear cycle. The most recent bounce appears to be a short-term correction that is allowing an oversold condition to unwind. A resumption of the downtrend would open $63.93 next, a Fibonacci projection point, ahead of the psychological $60.00 handle. Firm resistance is at $71.06, the 20-day EMA.
- A bullish structure in Gold remains intact and the metal is starting the week on a firm note, trading once again, to a fresh all-time high. 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. The focus is on $2600.0 next. Firm support lies at $2508.5, the 20-day EMA.
MNI (LONDON)
| Date | GMT/Local | Impact | Country | Event |
| 16/09/2024 | 1200/1400 |  EU | ECB's Lane Speech at European Investment Bank Chief Economists' Meeting | |
| 16/09/2024 | 1230/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 16/09/2024 | 1230/0830 | ** |  US | Empire State Manufacturing Survey |
| 16/09/2024 | 1300/0900 | * | CA | CREA Existing Home Sales |
| 16/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 16/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 17/09/2024 | - | US | FOMC Meeting / S.E.P. | |
| 17/09/2024 | 0900/1100 | *** |  DE | ZEW Current Conditions Index |
| 17/09/2024 | 0900/1100 | *** | DE | ZEW Current Expectations Index |
| 17/09/2024 | 0900/1000 | ** |  GB | Gilt Outright Auction Result |
| 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. |
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