Highlights:
- Fresh Chinese monetary easing aims to stimulate domestic demand and promote the achievement of the country’s annual growth target.
- The USD index is little changed on the session, with just US consumer confidence on the data calendar.
- Potential comments from hawkish Fed dissenter Bowman will be monitored, while BoC Gov. Macklem participates in a fireside chat.
US TSYS: Yesterday’s Recovery Rally Unwinds, Curves Steepen to Fresh ’24 Highs
Tsys lower during pre-NY hours as a Chinese monetary easing package weighed on bonds, while driving a rally in equities and oil.
- The latest round of Chinese policymaker support aims to stimulate domestic demand and promote the achievement of the country’s annual growth target.
- Much of Monday’s second-half rally (driven by heightened risk surrounding Israel & Lebanon) has been unwound.
- TY last -0-10+ at 114-14, 0-01+ off lows.
- Yesterday’s base (114-11+) protects the Sep 4 low (114-00+).
- Bulls need to retake the Sep 19 high (115-02+) to start to reassert their control.
- Yields 1-5bp higher, curve bear steepens.
- 2s10s hit a fresh cycle high at 19.2bp, 5s30s did the same, printing 60.6bp.
- On the data front, regional Fed activity indicators and various house price indices will be released today.
- We will get comments from hawkish Fed dissenter Bowman, although we don’t think we will get much new there, as the detailed explanation of her dissent has already been provided.
- $69bln of 2-Year Tsy supply will also have to be digested.
STIR: Fed Rates Steady, Bowman Might Struggle to Out-Hawk Herself
- Fed Funds implied rates for meetings out to mid-2025 have seen relatively little impetus from the China stimulus overnight that has helped underpin steepening moves in core FI.
- The November implied rate is unchanged, still hovering close to an implied 40bps of cuts, whilst subsequent meetings out to Jun’25 are only 1-1.5bp higher.
- Cumulative cuts from 4.83% effective: 39bp Nov, 75bp Dec, 109bp Jan and 176bp June.
- Today’s sole schedule Fedspeak comes from Gov Bowman (voter) at 0900ET (text + Q&A), the most hawkish member on the FOMC having dissented against last week’s 50bp cut.
- There’s little scope for surprises here as she explained why she dissented on Friday (remarks here), noting that she’d have preferred to cut by 25bps for a measured return to a more neutral policy stance having not yet achieved the inflation goal.
- She was very likely one of the two FOMC members who pencilled in the Fed Funds target range of 4.75-5.0% (i.e. where it now is) for end-2024. One member then saw rates only 75bp lower from current levels by end-2025 and one saw 100bps lower.
STIR: Mix of Positioning Swings Seen on Monday
The combination of yesterday’s twist steepening of the SOFR futures strip and preliminary OI data points to long setting dominating in the whites, while short setting seemed to dominate further out the strip.
- Pockets of cover were also seen.
- A mix of Fedspeak, heightened geopolitical risk and soft Eurozone PMI data had to be accounted for on the day.
| 23-Sep-24 | 20-Sep-24 | Daily OI Change |
| Daily OI Change In Packs |
|---|---|---|---|---|---|
SFRU4 | 1,380,556 | 1,387,385 | -6,829 | Whites | +42,525 |
SFRZ4 | 1,355,925 | 1,326,804 | +29,121 | Reds | +7,387 |
SFRH5 | 1,122,223 | 1,112,516 | +9,707 | Greens | +16,045 |
SFRM5 | 910,625 | 900,099 | +10,526 | Blues | +2,728 |
SFRU5 | 680,435 | 689,298 | -8,863 |
|
|
SFRZ5 | 992,555 | 984,302 | +8,253 |
|
|
SFRH6 | 726,564 | 718,194 | +8,370 |
|
|
SFRM6 | 638,074 | 638,447 | -373 |
|
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SFRU6 | 543,390 | 543,373 | +17 |
|
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SFRZ6 | 622,700 | 616,741 | +5,959 |
|
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SFRH7 | 349,786 | 347,273 | +2,513 |
|
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SFRM7 | 306,288 | 298,732 | +7,556 |
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SFRU7 | 238,407 | 242,168 | -3,761 |
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SFRZ7 | 237,869 | 233,391 | +4,478 |
|
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SFRH8 | 177,989 | 176,825 | +1,164 |
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SFRM8 | 153,199 | 152,352 | +847 |
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US TSY FUTURES: Light Bias Towards Short Setting on Monday
Yesterday’s downtick in Tsy futures and movement in OI data points to short setting across most contracts, with only modest long cover in UXY breaking that theme.
- Contract-specific net DV01 equivalent swings were quite limited, with the recovery from session lows that came on the back of heightened tension between Israel and Lebanon likely introducing grater balance during the second half of NY trade.
| 23-Sep-24 | 20-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
|---|---|---|---|---|
TU | 4,403,522 | 4,384,848 | +18,674 | +730,664 |
FV | 6,415,029 | 6,409,991 | +5,038 | +222,738 |
TY | 4,898,212 | 4,883,003 | +15,209 | +1,018,398 |
UXY | 2,122,861 | 2,123,196 | -335 | -31,164 |
US | 1,751,797 | 1,744,868 | +6,929 | +957,193 |
WN | 1,703,838 | 1,703,578 | +260 | +56,564 |
|
| Total | +45,775 | +2,954,394 |
CHINA: PBOC Announces Cut to Key Policy Rate and RRR
MNI (Beijing) The People’s Bank of China will cut its 7-day reverse repo rate by 20 basis points to 1.5% and the reserve requirement rate by 50bp to support the economy, Governor Pan Gongsheng told reporters on Tuesday.
- The 7-day rate cut will also guide down the Loan Prime Rate by 20bp and MLF by 30bp, representing the first reduction since July when the Bank reduced the key rate by 10bp, Pan said. The RRR cut will unlock CNY1 trillion of long-term liquidity into the interbank market, and is also the first cut since February when the Bank reduced the rate 50bp, he continued.
- The Bank plans to cut the RRR another 25bp-50bp later this year if necessary, he said, noting it will maintain accommodative policy to strengthen and support the economy.
- The Bank will lower interest rates on existing mortgages and standardise the minimum down-payment ratios for home loans, he added. Banks will be guided to reduce interest rates on existing mortgages to levels close to those of newly issued loans, with the average expected reduction about 50bp. The minimum down-payment ratio for first and second homes will be unified, with the national minimum down payment for second homes lowered to 15% from 25%.
POLITICAL RISK: Hezbollah Launches Rocket Strikes With Little Sign of De-Escalation
Following the deadliest day in cross-border attacks in nearly 20 years, this morning has seen over 65 rockets launched by Hezbollah towards targets in northern Israel. According to the Lebanese health ministry, at least 492 individuals were killed and 1,645 wounded in Israeli airstrikes that come as part of a major effort by Israeli forces to degrade Hezbollah as a fighting entity.
- Global focus is now turned squarely towards Israel and Lebanon amid the prospect of a wider escalation. Iran's response will be closely watched. Speaking on the evening of 23 Sep, Iranian President Masoud Pezseshkian said that Israel is laying 'traps' for Iran in attacking Hezbollah so forcefully, adding “They are dragging us to a point where we do not wish to go, There is no winner in warfare. We are only fooling ourselves”
- As MNI noted on 23 Sep, the 'decapitation' strategy that Israel seems to be implementing against Hezbollah (targeting senior commanders to damage the organisational structure) has so far knocked out a significant level of Hezbollah leadership.
- This is not to say that Hezbollah is on the verge of a defeat. The organisation is much larger in scope than Hamas in Gaza, with up to 20k active personnel and this amount again in reservists. Despite Israel's bombardments, Hezbollah's military arsenal is far more extensive than Hamas' ever was. As such, should a full conflict break out it is unlikely to prove short-term in nature.
GERMANY DATA: September IFO Reaffirms Weak Growth Narrative
Germany's IFO Business Climate Index fell for the fourth consecutive month in September to 85.4 (lowest value since January; August 86.6), also missing expectations of 86.0. This was a similar miss to yesterdays' September's German flash PMIs (where both services and manufacturing were lower than expected). The print affirms the narrative of further deterioration of German business sentiment, and increases downside risks to analyst estimates for the remainder of the year (MNI consensus curerntly standing at -0.1% Y/Y for Q3, and +0.4% for Q4).
- The fall compared to August's print was predominantly driven by the current assessment figure, which came in at 84.4 (vs 86.0 cons; 86.5 August which was revised a tenth lower). Expectations also declined, but less so and more broadly in line with expectations, to 86.3 (vs 86.4 cons; 86.8 August). Both measures remain on a downtrend.
- Across sectors, declines were broad-based. Manufacturing overall printed the weakest since the beginning of the pandemic (diffusion balance -21.6 vs -17.8 Aug), but services sentiment also deteriorated, moving further into contractionary territory (-3.5 vs -1.3 Aug). Only construction saw a slight increase, but from a very low level.
FOREX: PBOC Stimulus Boosts Equity Sentiment & Recovery for EURJPY
- Despite today’s poor German IFO data adding to the weaker-than-expected flash PMIs on Monday, the Chinese stimulus announcement overnight has boosted sentiment in equity markets, which in turn has provided support for the single currency, and in particular EURJPY (+0.80%).
- The cross briefly traded back above 161.00 in recent trade, from a 159.24 low overnight, and is now approaching the 50-day EMA at 161.73, an average we have not traded above since late July.
- EURUSD (+0.28%) has also been steadily grinding higher, rising back towards the US session highs from yesterday. Above here, 1.1169 is the high this week and a resumption of gains would refocus the market’s attention on 1.1202, the Aug 26 high and bull trigger.
- Countering the narrative is EURGBP, which continues to consolidate at depressed levels, following a range breakout to the downside during yesterday’s session. Alongside the breach of key support at 0.8383, we have also breached 0.8340 overnight, the Aug 2 ’22 low, placing the pair at the lowest level since April 2022.
- AUD would usually have thrived with today’s developments, however, with the RBA not discussing a rate hike at today’s meeting, the AUD (-0.04%) underperforms on the modestly dovish tilt.
- The USD index is little changed on the session, with just US consumer confidence on the data calendar. Potential comments from hawkish Fed dissenter Bowman will be monitored, while BoC Gov. Macklem participates in a fireside chat.
OIL: Chinese Stimulus & Geopolitical Risk Drives Rally, 50-Day EMAs Eyed
Both Brent and WTI are through their initial resistance levels, printing above $75.50 and $72.00, respectively.
- The Chinese monetary easing package, aiming to stimulate domestic demand as policymakers look to achieve their annual growth target, has been the key driver of the rally.
- Elsewhere, our commodities team has noted that the market also remains nervous when it comes to the threat of an escalation in tensions between Israel and Hezbollah. That situation will likely be discussed at the UN today.
- Bulls now target the 50-day EMAs, $76.45 in Brent & $72.38 in WTI.
- Recoveries in crude are deemed corrective at this stage but breaks above those EMAs would aid bullish technical arguments.
EUROPEAN ISSUANCE UPDATE
Spain syndication: Final terms
- E4bln (MNI expected a E3-5bln range) of the new 12-year Nov-36 ObliEi. Spread set at 0.70% Nov-33 ObliEi RY + 22bps (guidance was 0.70% Nov-33 ObliEi RY + 25bps area then +23bps +/-1bp WPIR). Books closed in excess of E51bln pre-rec.
Slovenia syndication: Update
- EUR benchmark size tap increase of the 3.00% Mar-34 SLOREP. Guidance revised to MS+60bp (was MS+62bps area), Books in excess of E2.5bln.
UK auction review
- GBP1.5bln of the 0.75% Nov-33 linker. Avg yield 0.486% (bid-to-cover 3.17x).
German auction review
- E4.5bln (E3.708bln allotted) of the 2.70% Sep-26 Schatz. Avg yield 2.14% (bid-to-offer 1.96x; bid-to-cover 2.37x).
EQUITIES: E-Mini S&P Remains Close to Recent Highs and Above Major Resistance
- Eurostoxx 50 futures traded higher last week as the contract extended the recovery from the Sep 10 low. It is still possible that recent gains are corrective. MA studies are in a bear-mode position and this highlights a downtrend. A reversal lower would refocus attention on key support at 4757.00, the Sep 6 / 10 lows. Key resistance is 5024.00, the Sep 3 high. A break would cancel a bearish theme and strengthen bullish conditions.
- A bull cycle in S&P E-Minis remains in play and last week’s gains reinforce the current bullish condition. The contract has traded through a key and major resistance at 5785.00, the Jul 16 high and a bull trigger. A clear break of this hurdle would confirm a resumption of the long-term uptrend. Sights are on the 5800.00 handle next. First key support is 5615.51, the 50-day EMA. Initial support lies at 5668.73, the 20-day EMA.
COMMODITIES: Bullish Structure in Gold Intact, Hits Fresh Record High
- WTI futures are holding on to their recent gains. The recovery since Sep 9, appears - for now - to be a correction. The 20-day EMA, at $70.28, has been pierced. The next key resistance to watch is $72.38, the 50-day EMA. Note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A reversal lower would refocus attention on $64.61, the Sep 10 low and bear trigger.
- A bullish structure in Gold remains intact and the metal has traded, once again, to a fresh all-time high. The move higher confirms a resumption of the primary uptrend and maintains 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 $2642.7 next, a Fibonacci projection. Firm support lies at $2547.5, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 24/09/2024 | 1230/0830 | ** |  US | Philadelphia Fed Nonmanufacturing Index |
| 24/09/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 24/09/2024 | 1300/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 24/09/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 24/09/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 24/09/2024 | 1300/1500 | ** |  BE | BNB Business Sentiment |
| 24/09/2024 | 1300/0900 | US | Fed Governor Michelle Bowman | |
| 24/09/2024 | 1400/1000 | *** | US | Conference Board Consumer Confidence |
| 24/09/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 24/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 24/09/2024 | 1655/1255 |  CA | BOC Governor Macklem fireside chat on "Growth During Uncertainty" | |
| 24/09/2024 | 1700/1300 | * | US | US Treasury Auction Result for 2 Year Note |
| 24/09/2024 | 2210/1810 | US | New York Fed's Roberto Perli | |
| 25/09/2024 | 2301/0001 | * |  GB | Brightmine pay deals for whole economy |
| 25/09/2024 | 0130/1130 | *** |  AU | CPI Inflation Monthly |
| 25/09/2024 | 0600/0800 | ** |  SE | PPI |
| 25/09/2024 | 0600/1400 | ** |  CN | MNI China Money Market Index (MMI) |
| 25/09/2024 | 0645/0845 | ** |  FR | Consumer Sentiment |
| 25/09/2024 | 0700/0900 | ** |  ES | PPI |
| 25/09/2024 | 0730/0930 | *** | SE | Riksbank Interest Rate Decison |
| 25/09/2024 | 0800/0900 | GB | BOE's Greene Speech on Consumption | |
| 25/09/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 25/09/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 25/09/2024 | 1300/1500 |  EU | MNI Connect Video Conference on ‘The EU and Global Trade Challenges’ | |
| 25/09/2024 | 1400/1000 | *** | US | New Home Sales |
| 25/09/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 25/09/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 25/09/2024 | 1700/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 25/09/2024 | 2000/1600 | US | Fed Governor Adriana Kugler |
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