Highlights:
- ECB seen going back-to-back with a 25bps rate cut, December messaging will be key
- UK budget continues to take shape, with media cycle in overdrive
- USD Index crests at new cycle high, as US exceptionalism buoys currency
- Treasuries sit lower across the curve amidst some risk-on flows with equity futures gaining, modestly underperforming EGBs and Gilts in the process.
- It’s ahead of an important session including both retail sales and jobless claims (with initial for a payrolls reference period) plus potential spillover from the ECB decision at 0815ET.
- Cash yields are 1-2bp lower, with declines led by 20s.
- 10Y yields at 4.032% hold their reversal after dipping below 4% yesterday.
- 2s10s at 9bps (+1bp) lifts a little off yesterday’s lows but remains within ranges over the past month.
- TYZ4 has lifted off lows of 112-11 but at 112-13 (-04) holds a decline away from yesterday's highs of 112-22 that mark initial resistance. Volumes are subdued at 250k with those risk events ahead.
- A renewed push higher could open resistance at 113-12 (Sep 3 low) but the trend structure remains bearish with support at 111-22 (Oct 10 low).
- Fed Funds implied rates are 0-1.5bp higher for meetings out to mid-2025, implying cumulative cuts of 24bp for Nov, 46bp for Dec and 65bp for Jan from an effective rate of 4.83%.
- Data: Retail sales Sep (0830ET), Jobless claims (0830ET), Philly Fed mfg Oct (0830ET), IP/cap util Sep (0915ET), Business inventories Aug (100ET), NAHB index Oct (1000ET), TIC flows Aug (1600ET)
- Fedspeak: Goolsbee opening remarks at careers event (1100ET)
- Bill issuance: US Tsy to sell $95bn 4-w, $90bn 8-w bills (1130ET)
US TSY FUTURES: OI Points To Net Short Cover In Most Contracts On Wednesday
OI suggests that net short cover was seen in all contracts outside of WN futures during Wednesday’s rally.
- WN futures saw net long setting.
- All of the net OI DV01 equivalent swings were sub-$2mln, extending the run of relatively modest positioning swings.
| 16-Oct-24 | 15-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,449,306 | 4,460,989 | -11,683 | -440,043 |
FV | 6,216,229 | 6,229,762 | -13,533 | -581,130 |
TY | 4,695,172 | 4,700,712 | -5,540 | -360,757 |
UXY | 2,170,346 | 2,191,505 | -21,159 | -1,912,630 |
US | 1,772,592 | 1,780,432 | -7,840 | -1,046,513 |
WN | 1,732,941 | 1,727,248 | +5,693 | +1,188,076 |
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| Total | -54,062 | -3,152,996 |
STIR: OI Points to Limited Positioning Swings In SOFR Futures On Wednesday
OI suggests that long setting dominated through the greens during Wednesday’s rally across most SOFR futures, with pockets of net short cover seen.
- Note that SFRU4 seemed to see fresh net shorts set.
- Both net contract-specific and pack OIs only saw relatively modest adjustments.
| 16-Oct-24 | 15-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,240,620 | 1,236,685 | +3,935 | Whites | +15,091 |
SFRZ4 | 1,053,432 | 1,043,543 | +9,889 | Reds | +15,930 |
SFRH5 | 981,631 | 989,734 | -8,103 | Greens | +6,089 |
SFRM5 | 862,405 | 853,035 | +9,370 | Blues | -1,552 |
SFRU5 | 696,862 | 697,065 | -203 |
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SFRZ5 | 908,331 | 895,675 | +12,656 |
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SFRH6 | 609,445 | 604,290 | +5,155 |
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SFRM6 | 601,779 | 603,457 | -1,678 |
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SFRU6 | 546,337 | 545,601 | +736 |
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SFRZ6 | 614,089 | 614,489 | -400 |
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SFRH7 | 356,906 | 361,926 | -5,020 |
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SFRM7 | 312,313 | 301,540 | +10,773 |
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SFRU7 | 253,563 | 248,907 | +4,656 |
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SFRZ7 | 252,774 | 257,265 | -4,491 |
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SFRH8 | 181,093 | 181,635 | -542 |
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SFRM8 | 150,701 | 151,876 | -1,175 |
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UK FISCAL: Updates on latest Budget measures
- Multiple media reports are suggesting that Chancellor Reeves is seeking to fund GBP40bln - for a combination of filling the fiscal "black hole" and also funding Labour's election spending pledges / public sector pay rises.
- The Times has reported that there is a "backlash" from some of the non-protected government departments (i.e. outside of health, defence, childcare and foreign aid) about the scale of some of the cuts that they have been asked to model. The report also notes that no decisions have yet been made on the scale of these cuts but departmental spending is only expected to be settled for the 2025/26 fiscal year with the multi-year spending review likely to start early next year (we suspect this may be associated with some spending measures that more explicitly break manifesto commitments - more on that in our upcoming budget preview).
- The Times also reports that there is likely to be no increase in capital gains tax (CGT) on residential property as the OBR estimates that any increase in the rate would lose money. Note that the previous Conservative government reduced the rate for higher rate taxpayers from 28% to 24% in the Spring Budget earlier this year.
- However, there is still uncertainty around how much CGT will be increased for share sales. The Guardian report last week noted that the Treasury was modelling an increase to rates between 33-39% for higher rate taxpayers (up from 20% currently). However, Prime Minister Starmer described the 39% rate as "getting to the area which is wide off the mark."
- The Times also reiterates previous reports that CGT on carried interest (which is currently 28%) is unlikely to be changed as it would likely lose money as firms relocate out of the UK.
- It also appears over recent days from various media outlets that employer national insurance contributions are increasingly likely be introduced for pension contributions. The Labour government is stating that this keeps its manifesto pledge not to raise national insurance. Although this would probably have an adverse impact on pensions saving if these costs get passed on through less employee matching over the minimum amounts.
- In terms of gilt remit estimates, we have only seen a handful of estimates for a revision to the remit so far but these range from GBP14bln to almost GBP40bln increases so far.
UK DATA: MNI Inflation and Labour Market Insight: October 2024 Release
- We think that markets have overstated the significance of this week’s data. Given that a large part of the surprise was driven by air fares, inflation data is not as big a surprise as at first glance and underlying services only improved marginally this month.
- On the labour market data, regular private sector wages continue to move in the right direction and have already reached the BOE’s Q3 forecast a month early. The quantity side is still holding up better than survey data suggest - but the validity of the LFS data remains questionable at best.
- Overall, we don't think this data opens up a 50bp cut any time soon. We also don't think given the underlying drivers that it really opens up a more "activist" MPC (to use Bailey's words). We would only really view the data as moving in the right direction and making slow and steady progress on an underlying basis. However, sequential cuts are becoming more likely but, but we think that markets will probably continue to overreact in the short-term.
For the full document click here.
EUROPE ISSUANCE UPDATE:
Spain auction results
- E1.226bln of the 3.10% Jul-31 Obli. Avg yield 2.646% (bid-to-cover 2.19x).
- E2.487bln of the 3.45% Oct-34 Obli. Avg yield 2.921% (bid-to-cover 1.74x).
- E1.402bln of the 2.70% Oct-48 Obli. Avg yield 3.507% (bid-to-cover 1.87x).
France MT OAT auction results
- E3.932bln of the 2.50% Sep-27 OAT. Avg yield 2.42% (bid-to-cover 2.46x).
- E1.396bln of the 0.75% May-28 OAT. Avg yield 2.45% (bid-to-cover 3.52x).
- E3.64bln of the 2.75% Feb-29 OAT. Avg yield 2.53% (bid-to-cover 2.44x).
- E3.027bln of the 2.75% Feb-30 OAT. Avg yield 2.61% (bid-to-cover 2.58x).
France I/L OAT auction results
- E843mln of the 0.10% Mar-29 OATei. Avg yield 0.69% (bid-to-cover 2.25x).
- E548mln of the 0.60% Jul-34 OATei. Avg yield 0.86% (bid-to-cover 2.37x).
- E351mln of the 1.80% Jul-40 OATei. Avg yield 1.06% (bid-to-cover 2.54x).
- E513mln of the 0.10% Mar-36 OATi. Avg yield 1.03% (bid-to-cover 2.68x).
FOREX: Bearish Euro Momentum in Focus Ahead of ECB
- The EURUSD selloff has picked up following Tuesday’s daily close below the 1.0900 handle, compounded by the subsequent break of 1.0881 Fibonacci support. Overall bearish trend momentum remains firmly intact, albeit at a gradual pace, and spot has reached a fresh two and a half month low at 1.0849. In the attached document, we look at the most relevant technical levels for several EUR crosses:
- FX Market Analysis - EUR 17-10.pdf
USD: Greenback Looks Further Down the Curve for Source of Strength
- As mentioned this morning, broad greenback strength across Asia-Pac trade and a further push higher in USD/JPY has tipped the USD Index through yesterday's highs, meaning the index has now posted higher highs in 11 of the past 15 sessions. This puts the ICE USD Index at it's strongest since early August, a pattern repeated in the slightly less narrow BBG Dollar Index, signalling broader USD strength rather than being more closely tied to e.g. EUR weakness.
- US equity exceptionalism is lending background support - this quarter's earnings are providing another tailwind (we see average S&P 500 EPS running 8% ahead of expectations so far) and contrast with European performance (the EuroStoxx50's two largest constituents are down 18% and 8% this week alone). The S&P 500 is outperforming the MSCI World Index by ~5ppts this year.
- Persistent Dollar buying also comes despite general stability in the front-end of the US curve across October - with the growing gap between OIS-implied Fed and ECB rates further up the curve underpinning greenback demand: the Sep'25 Fed-ECB spread has risen ~40bps month-to-date.
- Elevated USD implied vols in maturities covering the election make Nov 5th the focus. Druckenmiller late yesterday said he sees the Fed "much more hawkish" under Trump, and that the market is "convinced" Trump will win - which will also be tilting focus to the upside.
FOREX: USD Index Crests at New High, AUD Firms on Solid Jobs Stats
- Broad greenback strength across Asia-Pac trade and a further push higher in USD/JPY has tipped the USD Index through yesterday's highs, meaning the index has now posted higher highs in 11 of the past 15 sessions. This puts the ICE USD Index at it's strongest since early August, with strong US equity performance and the widening gap between Sep'25 Fed-ECB OIS-implied rates lending considerable support.
- AUD trades well on the back of better-than-expected jobs data overnight. Australia added 64.1k jobs over the month, well ahead of expectations, and the unemployment came in lower than forecast, with a downward revision to the August print. RBA easing expectations have been pushed back as a result, aiding AUD/USD's recovery off weekly lows today. This has kept AUD/NZD north of the $1.10 handle, but October's high of 1.1092 is out of reach for now.
- The ECB decision takes focus ahead, with markets primed for a further 25bps rate cut from the ECB. It's signalling for the December decision that could prove more price-sensitive, and a suggestion that back-to-back rate cuts are becoming the norm would prove dovish relative to consensus, and could spell further downside risk for the EUR.
- Weekly jobless claims data in the US will also be a focus, and will be eyed for any further hurricane impacts. Evidence showed Hurricane Helene took a toll on last week's numbers, and it may be the same case for Hurricane Milton in today's release.
OPTIONS: Expiries for Oct17 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0735-45(E1.9bln), $1.0800(E988mln), $1.0845-50(E695mln), $1.0975(E914mln), $1.0990-10(E2.8bln), $1.1065(E1.3bln)
- USD/JPY: Y147.60($1.1bln), Y149.50($575mln), Y150.00-05($1.2bln)
- EUR/JPY: Y162.00(E530mln), Y165.00(E808mln)
- AUD/USD: $0.6690-00(A$1.2bln)
- AUD/NZD: N$1.0950(A$775mln)
- USD/CAD: C$1.3600-10($1.0bln)
- USD/CNY: Cny6.9867($1.3bln), Cny6.9913-18($2.0bln), Cny6.9934($1.0bln), Cny7.0056($1bln)
COMMODITIES: Gold Continues to Hover Close to Record Highs
- WTI futures gapped lower Tuesday and this resulted in a break of the Oct 9 low. A bearish extension would threaten the recent bullish theme and expose support at $66.33, the Oct 1 low, and $64.61, the Sep 10 low and a key support. For bulls, a resumption of gains would instead refocus attention on the key short-term resistance at $78.46, the Oct 8 high. Clearance of this level would resume to the recent uptrend.
- Gold is trading higher this week and the recent short-term retracement appears to have been a correction. The trend condition is unchanged and remains bullish. Moving average studies are in a bull-mode set-up too, highlighting a clear uptrend. Sights are on $2690.2, a Fibonacci projection. Firm support lies at $2631.1, the 20-day EMA. It has been pierced, a clear break would signal scope for a deeper retracement.
EQUITIES: E-Mini S&P Trend Condition Unchanged, Outlook Bullish
- Eurostoxx 50 futures traded sharply lower Tuesday, reversing recent gains. The contract has pierced support around the 50-day EMA, at 4944.00. A clear break of this average would undermine a recent bullish theme and highlight a stronger reversal. This would open 4884.06, a Fibonacci retracement. Key resistance and bull trigger is unchanged at 5106.00, the Sep 30 high. A break of this level would resume the uptrend.
- S&P E-Minis trend conditions are unchanged and the outlook remains bullish. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Sights are on 5961.00, a Fibonacci projection. Initial support to watch is 5789.86, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 17/10/2024 | 1100/0700 | *** |  TR | Turkey Benchmark Rate |
| 17/10/2024 | 1215/1415 | *** |  EU | ECB Deposit Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Main Refi Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Marginal Lending Rate |
| 17/10/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 17/10/2024 | 1230/0830 | * |  CA | International Canadian Transaction in Securities |
| 17/10/2024 | 1230/0830 | *** | US | Retail Sales |
| 17/10/2024 | 1230/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 17/10/2024 | 1245/1445 | EU | ECB Monetary Policy Press Conference | |
| 17/10/2024 | 1315/0915 | *** | US | Industrial Production |
| 17/10/2024 | 1400/1000 | * | US | Business Inventories |
| 17/10/2024 | 1400/1000 | ** | US | NAHB Home Builder Index |
| 17/10/2024 | 1415/1615 | EU | ECB Podcast: Lagarde presents MonPol Decision | |
| 17/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 17/10/2024 | 1500/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 17/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 17/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 17/10/2024 | 2000/1600 | ** | US | TICS |
| 17/10/2024 | 2000/2100 |  GB | BOE's Woods Speech at Mansion House | |
| 18/10/2024 | 2330/0830 | *** |  JP | CPI |
| 18/10/2024 | 0200/1000 | *** |  CN | GDP |
| 18/10/2024 | 0200/1000 | *** | CN | Fixed-Asset Investment |
| 18/10/2024 | 0200/1000 | *** | CN | Retail Sales |
| 18/10/2024 | 0200/1000 | *** | CN | Industrial Output |
| 18/10/2024 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |
| 18/10/2024 | 0600/0800 | ** |  SE | Unemployment |
| 18/10/2024 | 0600/0700 | *** | GB | Retail Sales |
| 18/10/2024 | 0800/1000 | ** | EU | EZ Current Account |
| 18/10/2024 | 0900/1100 | ** | EU | Construction Production |
| 18/10/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 18/10/2024 | 1230/0830 | *** | US | Housing Starts |
| 18/10/2024 | 1330/0930 | US | Atlanta Fed's Raphael Bostic | |
| 18/10/2024 | 1400/1000 | US | Minneapolis Fed's Neel Kashkari | |
| 18/10/2024 | 1610/1210 | US | Fed Governor Christopher Waller | |
| 18/10/2024 | 1630/1230 | US | Atlanta Fed's Raphael Bostic | |
| 18/10/2024 | 1800/1400 | ** | US | Treasury Budget |
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