Highlights:
- Core yields drift lower, helping usher in phase of risk-off
- EUR/AUD downtrend targets key support and bear trigger
- ISM Manufacturing expected to mirror stagnant MNI Chicago PMI
US TSYS: Following EGB Lead, Tsys Back to Friday's Levels, Risk-Off Support
- Treasuries rebound overnight following EGB's lead on strong risk-off support with Israeli ground assault in southern Lebanon underway. Contributing factors include decline in German, French Mfg PMI data from August levels, and start of port worker strike on US East Coast and Gulf of Mexico rekindle wider supply disruption concerns.
- Tsy futures fully recover from Monday's post-Chair Powell sell-off to near late Friday levels, Dec'24 10Y futures climbing to 114-22.5 (+13.5), 114-21.5 last; 10Y yield -.0399 at 3.7410. Initial technical resistance at 115-02.5 (Sep 19 high) followed by 115-23.5 (Sep 11 high and bull trigger).
- Curves retain much of Monday's flattening, however, 2s10s -1.529 at 12.250 after climbing over 19.68 yesterday as projected rate cuts into year end consolidated after Fed Chairman Powell walked back post FOMC pace of rate cuts comments that spurred heavy selling in short end rates Monday. Projected cuts for December less than 75bp at the moment.
- Focus on this morning's data: S&P Global US Manufacturing flash PMI at 0945ET, followed by Construction Spending, JOLTS job openings, ISMs at 1000ET and Dallas Fed Services at 1030ET. Fed Bostic & Gov Cook moderated discussion at 1110ET, Fed Barkin joining event for moderated discussion late this evening at 1815ET.
US TSY FUTURES: OI Points To Mix Of Long Cover & Short Setting On Monday
Yesterday’s move lower in Tsy futures and preliminary OI data points to a mix of long cover and short setting.
- Long cover was slightly more prominent in curve-wide DV01 equivalent terms, although that was solely driven by TY futures, with offsetting net positioning swings seen across the remainder of the curve.
- Fed Chair Powell’s late NY comments weighed, before month-end extension flow pulled contracts away from session lows.
- Signs of quarter-end repo tension seemed to generate contained vol. in Tsys during early NY trade.
| 30-Sep-24 | 27-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,462,979 | 4,449,869 | +13,110 | +507,704 |
FV | 6,389,385 | 6,379,720 | +9,665 | +425,704 |
TY | 4,956,415 | 4,996,436 | -40,021 | -2,679,399 |
UXY | 2,128,960 | 2,128,240 | +720 | +67,130 |
US | 1,749,318 | 1,751,084 | -1,766 | -245,789 |
WN | 1,721,351 | 1,724,056 | -2,705 | -596,641 |
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| Total | -20,997 | -2,521,291 |
STIR: Short Setting Dominated In SOFR Front End During Monday's Sell Off
OI points to a mix of short setting and long cover during Monday’s sell off in SOFR futures.
- Short setting dominated in the front 5 contracts, after Fed Chair Powell noted that that the central planned to lower interest rates “over time”.
- This removed some rate cut premium from the front end of the U.S. curve, as odds of a 50bp follow up cut in Nov fell.
- Fed funds now price 35bp of cuts for November, with ~167bp of easing showing through June.
| 30-Sep-24 | 27-Sep-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,336,485 | 1,302,853 | +33,632 | Whites | +74,459 |
SFRZ4 | 1,406,139 | 1,370,897 | +35,242 | Reds | -20,691 |
SFRH5 | 1,089,926 | 1,089,528 | +398 | Greens | -6,352 |
SFRM5 | 923,901 | 918,714 | +5,187 | Blues | -362 |
SFRU5 | 696,745 | 689,450 | +7,295 |
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SFRZ5 | 996,345 | 1,016,875 | -20,530 |
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SFRH6 | 699,718 | 702,985 | -3,267 |
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SFRM6 | 634,680 | 638,869 | -4,189 |
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SFRU6 | 563,479 | 552,092 | +11,387 |
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SFRZ6 | 606,404 | 627,500 | -21,096 |
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SFRH7 | 369,917 | 365,695 | +4,222 |
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SFRM7 | 318,383 | 319,248 | -865 |
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SFRU7 | 261,250 | 259,043 | +2,207 |
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SFRZ7 | 227,180 | 229,717 | -2,537 |
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SFRH8 | 181,169 | 180,168 | +1,001 |
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SFRM8 | 154,792 | 155,825 | -1,033 |
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EURAUD: Downside Extends, Terms of Trade Could Provide Next Leg for AUD
- The EUR/AUD downtrend extended this morning with another lower low printed at 1.6058 - extending the losing streak to 14 of the past 17 sessions - narrowing the gap with key support and the bear trigger at the cycle low of 1.5998.
- We wrote yesterday that spot AUD's rally in recent weeks has been driven by aggressive short-covering - the improvement in the net position off the deep net short in mid-March has been the most acute since 2014. Now the short-covering tailwind has likely concluded and China stimulus news appears largely priced in, AUD bulls will need to pick up fresh catalysts for a push through 1.60 in EUR/AUD.
- That said, terms of trade could play a bigger part on any next leg higher for AUD - beneficial export prices have pushed terms of trade to the best levels of the year so far - and any further progress will likely stem from iron ore prices, which followed China equities with a >15% rally in recent weeks.
FOREX: Risk-Off Footing Favours USD & JPY
- Markets underwent a broad, but shallow, phase of risk-off alongside the European open Tuesday, with a dip in the belly of the US yield curve helping trigger a phase of equity selling and USD buying. As a result, EUR/USD has opened a >100 pip gap with the recent cycle high, aided by building expectations of a back-to-back 25bps rate cut at the ECB's October meeting. Eurozone CPI estimate came in alongside expectations for the Y/Y and Y/Y core reading, but downside risks were present in the monthly reading, which came in negative (-0.1% M/M) for the first time since January.
- NOK is among the session's poorest intraday performers, slipping alongside general weakness in core global equity markets, and as the dollar strength and risk-off theme weighs on oil prices. WTI and Brent crude futures are off by over 2% apiece at typing, limiting any intraday bounce in commodity-tied FX.
- GBP trades poorly as markets cap recent sharp gains - EUR/GBP yesterday crossed to new pullback lows, hitting 0.8313 before today's very modest bounce. The broader technical theme remains lower for the cross as the 100- and 50-dmas diverge further from the 200-dma. This indicates building short-term negative momentum, which exposes support at 0.8311 and the bear trigger further out at 0.8203.
- ISM Manufacturing data set for release later today should be the highlight going forward, and is expected to continue to point to decelerating economic activity - mimicking the patterns laid out in yesterday's MNI Chicago PMI numbers.
OPTIONS: Expiries for Oct01 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1050(E527mln), $1.1080-00(E2.6bln), $1.1155-60(E612mln), $1.1200(E944mln), $1.1265-70(E1.1bln)
- USD/JPY: Y142.00($525mln), Y143.30-50($1.0bln), Y143.80-00($1.2bln)
- EUR/JPY: Y155.75(E1.3bln)
- AUD/USD: $0.6790-08(A$1.8bln)
EQUITIES: Bull Cycle in E-Mini S&P Remains Intact, Focus on $5868.50
- Eurostoxx 50 futures traded sharply higher last week resulting in a clear break of 5024.00, the Sep 3 high. This confirms a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. Scope is seen for a continuation of the trend with sights on 5138.24, a Fibonacci projection, and the 5200 handle further out. On the downside, key short-term support is seen at 4917.56, the 50-day EMA.
- A bull cycle in S&P E-Minis remains intact and last week’s fresh cycle highs, reinforce this theme. Moving average studies are in a bull-mode setup and this highlights a dominant uptrend. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5709.39, the 20-day EMA. Key support lies at 5641.58, the Sep 27 low.
COMMODITIES: WTI Futures Close to Recent Lows, MA Studies in Bear Mode
- WTI futures have reversed a large part of their recent gains. This affirms the strength of resistance at the 50-day EMA of $71.77, which remains the key upside hurdle for bulls. The latest sell-off also highlights the fact that the recovery since Sep 9 is likely a correction. Note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A continuation lower would refocus attention on $64.61, the Sep 10 low and bear trigger.
- Gold bulls remain in the driver’s seat and the yellow metal is trading just below its recent all-time high. Recent gains confirm a resumption of the primary uptrend and maintain 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 $2690.2 next, a Fibonacci projection. Firm support lies at $2589.8, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 01/10/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 01/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 01/10/2024 | 1300/1500 |  DE | MNI Connect Video Conference on German & Eurozone Economic & Policy Developments | |
| 01/10/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 01/10/2024 | 1400/1000 | *** | US | ISM Manufacturing Index |
| 01/10/2024 | 1400/1000 | * | US | Construction Spending |
| 01/10/2024 | 1400/1000 | *** | US | JOLTS jobs opening level |
| 01/10/2024 | 1400/1000 | *** | US | JOLTS quits Rate |
| 01/10/2024 | 1400/1500 |  GB | BOE's Pill Speech at Q3 Confederation of British Industry Economic Growth Board | |
| 01/10/2024 | 1430/1030 | ** | US | Dallas Fed Services Survey |
| 01/10/2024 | 1500/1100 | US | Atlanta Fed's Raphael Bostic | |
| 01/10/2024 | 1510/1110 | US | Fed Governor Lisa Cook | |
| 01/10/2024 | 1530/1730 |  EU | ECB's Schnabel lecture at Joint BoC - ECB - NY FED Conference | |
| 01/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 01/10/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 01/10/2024 | 2215/1815 | US | Fed's Bostic, Barkin, Collins | |
| 02/10/2024 | 0715/0915 | EU | ECB's De Guindos speech at SUERF and Latvijas Bankas conference | |
| 02/10/2024 | 0730/0930 | EU | ECB's De Guindos in panel discussion on financial architecture | |
| 02/10/2024 | 0900/1100 | ** | EU | Unemployment |
| 02/10/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 02/10/2024 | 0930/1130 | EU | ECB's Lane chairing policy panel at Joint BoC - ECB - NY FED Conference | |
| 02/10/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 02/10/2024 | 1200/1400 | EU | ECB's Elderson participates in European Affairs Webinar | |
| 02/10/2024 | 1215/0815 | *** | US | ADP Employment Report |
| 02/10/2024 | 1300/0900 | US | Cleveland Fed's Beth Hammack | |
| 02/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 02/10/2024 | 1500/1100 | US | Fed Governor Michelle Bowman | |
| 02/10/2024 | 1615/1215 | US | Richmond Fed's Tom Barkin | |
| 02/10/2024 | 1645/1845 | EU | ECB's Schnabel Walter Eucken Lecture |
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