MNI US MARKETS ANALYSIS - German Inflation Could Come in Lower

US TSYS: On Session Lows, With FOMC, Tsy Refunding And BoJ Eyed

Treasuries are easily underperforming global core FI counterparts in overnight Monday trade, with the belly underperforming early.

• Futures are on session lows as we write though still within Friday's ranges, with Treasury Refunding and Fed decisions taking most focus, and the Bank of Japan tonight also highly anticipated.
• Tsys saw gains in early European trade as Eurozone inflation data (Spain and German state-level prints) has come in below forecasts.
• While EGBs have maintained gains, Tsys have headed lower alongside USD weakness and as equities have found a footing. US STIR futures point to a modest pickup in implied rates for 2024 (FF +3bp for Dec 2024, helping explain belly underperformance), in contrast to Eurozone futs eyeing more cuts over next year.
• Latest levels: 2-Yr yield is up 4.4bps at 5.0457%, 5-Yr is up 5.5bps at 4.8164%, 10-Yr is up 4.7bps at 4.8815%, and 30-Yr is up 2.3bps at 5.0371%. Dec 10-Yr futures (TY)are down 9.5/32 at 106-04 (L: 106-03.5 / H: 106-14.5)
  
• In a quiet session for US data (Dallas Fed manufacturing at 1030ET), the key release of the session is Treasury's quarterly marketable borrowing estimates at 1500ET.
• This release will provide a sense of how much Tsy supply is set to increase in the upcoming quarter (the full refunding announcement incl coupon sizes is on Wednesday). MNI will

CANADA: Politics Week - Macklem In Hot Seat, Waiting For Fall Fiscal Update

• Lawmakers schedule extra hour of testimony for BOC Governor Macklem to talk about the role of policy in driving up housing costs, House committee set for 330pm EST Monday
• Macklem speaks at Senate hearing Wednesday at 415pm, where in the past he's also faced questions over housing, fiscal policy's role in boosting inflation and the Bank's balance sheet
• Government backtracks on carbon pricing measures in Atlantic Canada around home heating after public outcry, playing to Conservative attack lines
• Relations with India appear to thaw with some consular services resuming. Trudeau said India may have been involved in the murder of a Canadian Sikh activist earlier this year in in British Columbia
• Liberal government members fraying on Middle East message as some focus on Israel's right to defend itself and others call for a humanitarian pause or ceasefire
• Finance Minister Freeland expected to schedule fall fiscal update soon. She's said it will narrowly focus on housing. NDP allies demand expanded public healthcare
• Polling aggregator 338Canada shows Conservatives likely to win a majority government if an election were held now. Election is due in 2025 under a traditional four-year mandate
• Recent headlines: With plunging polling numbers, chatter of potential Liberal leadership election to succeed Trudeau starts again (Hill Times); Trudeau government’s own polling program is saying it’s in trouble (Global); Are the Liberals trapped with Justin Trudeau, even if he falls? (Globe and Mail)

GERMANY: MNI Projects National Oct CPI Soft At 3.7-3.8% Y/Y, Core 4.3%

We have now received state data that equates to 86.7% weighting of the national October flash German CPI print (due at 1300 BST / 1400 CET).

• MNI calculations estimate that national CPI fell by -0.05% m/m and rose by 3.74% y/y. This is based on the published index values for available state data. The data implies readings softer than expectations (of 4.0% Y/Y and 0.2% M/M).
• Today's state data points to core CPI (ex-energy and food) of roughly 4.3% Y/Y, vs 4.6% in September. Core CPI data is only available for 6 states accounting for 50.0% of the headline index so this is a rough estimate.
• Note: these estimates are in relation to the national CPI print, not the HICP print which feeds into the Eurozone HICP print that the ECB targets. The magnitude of surprises to consensus can sometimes be different due to the different methodologies and weights used in national CPI vs HICP - but the direction of the surprise is normally the same.

FOREX: AUD Sits Firmer as Retail Sales Tops Estimates

• Regional German CPI numbers are all posting a step lower from the previous for the month of October, supporting expectations for a slowdown in the national print later today. Backing up the disinflationary pressure was the Spanish inflation print, which came in below expectations as the core print missed consensus by 0.4ppts.
• Nonetheless, EUR/USD sits higher to tip the USD Index into negative territory, however support at the Friday low holds at the beginning of the week. CHF and SEK are the poorest performers, with GBP and JPY more mixed.
• AUD, NZD are among the session's best performers, market moves follow Australia's September retail sales, which topped expectations at 0.9% vs. Exp. 0.3%. Resultingly, AUD/USD trades back above 0.6350 and is narrowing in on the 50-dma resistance of 0.6395. Clearance here could be one of the first signs of a bullish reversal off the 0.6270 bottom, however the medium-term downtrend remains intact.
• Focus for the session ahead turns to the national print of German CPI, at which markets expect Y/Y inflation to slow to 4.0% from 4.5%. Dallas Fed Manufacturing also crosses, although US focus rests on the Fed decision later this week and the Quarterly Refunding Announcement from the US Treasury. Central bank speakers include ECB's de Guindos, BoC's Macklem & Rogers as well as RBA's Jones.

FX OPTIONS: Expiries for Oct30 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0540-50(E2.2bln), $1.0600(E572mln), $1.0630-50(E1.3bln)
• USD/JPY: Y149.00($629mln), Y149.50($1.5bln), Y150.50($809mln), Y151.00($756mln)
• AUD/USD: $0.6140-50(A$1.8bln)
• USD/CAD: C$1.3820($606mln)

BONDS: EGBs Lead Core FI as Inflation Softens, With USTs Underperforming

Softer than expected inflation prints out of Spain and German states allow EGBs to firm in Monday trade, though Bunds are seen off highest levels at typing.

• Bund futures are up 0.41 today at 129.06 with 10y Bund yields down -3.1bp at 2.799% and Schatz yields down -2.4bp at 3.007%.
• With a light domestic data calendar, Gilts follow EGBs and are up 0.11 today at 93.00 with 10y yields down -0.5bp at 4.537% and 2y yields down -2.1bp at 4.725%.
• Spanish October flash headline and core CPI undershot consensus, reflecting a more broad-based disinflation than expected, while the three German states (most importantly NRW, which is 21% of the basket) that have released data so far also undershot the national consensus.
• Peripheries outperform on the back of the soft inflation data, with the 10-Yr BTP/Bund spread 4bps tighter at 193.2bps on the day. On Friday, DBRS Morningstar maintained Italy's credit rating at BBB (stable trend), which will have also helped BTPs on the margin.
• Developments in the Middle East this weekend have been seen as more cautious than expected r.e. Israel's ground invasion of Gaza, which helped cheapen core FI overnight and likely aided spread tightening this morning.
• ECB-speak over the weekend from Vujcic signalled his view that rates have been hiked sufficiently, while comments from the more hawkish Kazimir on wires recently note that further rate hikes are possible and H1 2024 rate cut bets are "entirely misplaced".
• USTs underperform European counterparts, with TY1 futures are down -0-3 today at 106-10+ and 10y UST yields up 2.0bp at 4.857%. The impending Q4 refunding announcement this week appears to be weighing on USTs thus far.

EQUITIES: E-Mini S&P Maintains Softer Tone Having Traded to Fresh Cycle Low Friday

• A bearish theme in Eurostoxx 50 futures remains in play and price is trading just above its recent lows. The recent breach of support at 4082.00, the Oct 4 low and a bear trigger, confirmed a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. The focus is on the 4000.00 handle. Initial firm resistance is at 4125.00, the 20-day EMA.
• S&P e-minis maintain a softer tone. The contract traded to a fresh cycle low Friday and bears remain in the driver’s seat. Last week’s breach of support at 4235.50, Oct 4 low and bear trigger, confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. The focus is on 4100.00. Initial firm resistance is at 4295.88, the 20-day EMA.

COMMODITIES: WTI Futures Extend Pullback From Oct 20 High

• WTI futures traded lower this week as the pullback from $89.85, the Oct 20 high, extends. The medium-term trend condition is unchanged and remains bullish plus the recent move lower appears to be a correction. A resumption of gains would expose the bull trigger at $92.48, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $80.20, the Oct 6 low, would instead highlight a short-term top.
• Gold conditions are unchanged - the metal remains firm and traded to a fresh cycle high on Friday. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The continuation higher strengthens a bullish theme and opens $2022.20 next, the May 15 high. Initial firm pivot support lies at $1921.5, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.