Highlights:
- Columbus Day Treasury weakness more than reversed
- FX options turnover picks up after quiet Monday trade
- JPY back on top, while oil slips on lower geopolitical risk
- Treasuries have more than unwound yesterday’s Columbus Day sell-off, aided by large declines in oil futures on a combination of demand concerns and a fading of geopolitical risk premium on reports Israel won’t target Iranian oil and nuclear facilities.
- Today sees a light docket with added attention on earnings results plus potential spillover from CAD CPI at 0830ET. More notable US releases are to come with international prices on Wed and retail sales on Thu.
- Cash yields are 1-5bp lower from Friday’s close after yesterday’s closures.
- 2s10s drops to 11.9bps (-2.7bps) but remains within recent ranges.
- TYZ4 is close to session highs of 112-08+ (+13) for a sizeable turnaround from yesterday’s holiday-thinned low of 111-23, along with a decent rise in volumes to a cumulative 330k at typing.
- That low stopped short of support at 111-22 (Oct 10 low) with recent declines keeping the bear threat intact, whilst to the upside sits resistance at 112-21 (Oct 9 high).
- Data: Empire mfg Oct (0830ET), NY Fed inflation expectations Sep (1100ET)
- Fedspeak: Daly (1130ET), Kugler (1300ET), Bostic (1900ET)
- Bill issuance: US Tsy to sell $81B 13-w bills, $72B 26-w bills, US Tsy to sell $80B 43-day CMB
STIR: Fed Cut Expectations See Modest Boost From Lower Oil
- Fed Funds implied rates are 0.5-2.5bp lower on the day for meetings out to mid-2025, with moves helped by large declines for WTI futures as geopolitical risk premium fades.
- Cumulative cuts from 4.83% effective: 22.5bp Nov, 45bp Dec, 65bp Jan and 121bp June.
- Today’s three scheduled Fed speakers have already appeared since the strong payrolls report whilst Bostic has also spoken since Thursday's CPI. Considering Kugler’s subject matter, Daly is likely of most note - on Oct 9 saying she saw one or two more cuts as spanning the range of likely moves this year. Recall that Bostic was most hawkish, being “totally comfortable” with skipping a cut this year as his dot from the September SEP only had one more cut.
- 1130ET - Daly (’24 voter) keynote remarks (text + Q&A)
- 1300ET – Kugler (voter) in discussion on careers and diversity (no text)
- 1900ET – Bostic (’24) on economic outlook and small business (no text)
- For those out yesterday, Gov. Waller (voter) later on conveyed a more cautious tone on policy easing ahead, compared with his Sept 20 post-50bp rate cut comments when he sounded very open to another 50bp cut. He appears to have ruled out a 50bp cut on the basis of recent data, though says his "baseline" of "reducing the policy rate gradually over the next year" remains unchanged.
- In Q&A, he wouldn’t be drawn on whether his call for "proceed[ing] with more caution" meant a move to quarterly cuts/a skip in November: "I don't think I used the word quarterly"... [those terms are] "in the eye of the beholder".
US TSY FUTURES: Oi Points To Modest Rounds Of Long Cover & Short Setting Monday
OI points to a modest rounds of net long cover and short setting during yesterday’s sell off (come settlement), although the weakness in oil and Chinese equity markets has since pushed Tsys higher.
- Reaction to comments from Fed Governor Waller pulled futures away from lows into the close on Monday.
| 14-Oct-24 | 11-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,456,125 | 4,452,794 | +3,331 | +125,522 |
FV | 6,238,638 | 6,250,520 | -11,882 | -510,217 |
TY | 4,714,615 | 4,736,096 | -21,481 | -1,396,794 |
UXY | 2,198,798 | 2,196,957 | +1,841 | +166,011 |
US | 1,777,149 | 1,777,336 | -187 | -24,851 |
WN | 1,718,461 | 1,719,987 | -1,526 | -320,851 |
|
| Total | -29,904 | -1,961,179 |
STIR: OI Also Points To Long Cover & Short Setting In SOFR Futures On Monday
OI data points to a mix of net short setting and long cover during yesterday's sell off in SOFR futures, akin to positioning adjustments in Tsys.
- Comments from Fed Governor Waller (pointing to plenty of room to cut rates, albeit with a preference for gradual steps) helped SOFR futures away from lows ahead of the close, while subsequent weakness in oil markets and Chinese equities has provided further support in pre-NY trade.
- Cumulative cuts priced into Fed Funds futures from 4.83% effective: 22.5bp Nov, 45bp Dec, 65bp Jan and 121bp June.
| 14-Oct-24 | 11-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,230,333 | 1,230,037 | +296 | Whites | -13,320 |
SFRZ4 | 1,035,784 | 1,052,932 | -17,148 | Reds | -15,781 |
SFRH5 | 983,886 | 985,522 | -1,636 | Greens | +1,398 |
SFRM5 | 844,283 | 839,115 | +5,168 | Blues | -3,988 |
SFRU5 | 676,776 | 676,268 | +508 |
|
|
SFRZ5 | 881,013 | 897,552 | -16,539 |
|
|
SFRH6 | 603,760 | 604,249 | -489 |
|
|
SFRM6 | 606,324 | 605,585 | +739 |
|
|
SFRU6 | 546,354 | 544,144 | +2,210 |
|
|
SFRZ6 | 617,288 | 616,837 | +451 |
|
|
SFRH7 | 363,884 | 363,518 | +366 |
|
|
SFRM7 | 298,164 | 299,793 | -1,629 |
|
|
SFRU7 | 250,357 | 250,159 | +198 |
|
|
SFRZ7 | 263,739 | 267,822 | -4,083 |
|
|
SFRH8 | 182,739 | 182,839 | -100 |
|
|
SFRM8 | 156,394 | 156,397 | -3 |
|
|
EUROPE ISSUANCE UPDATE:
Luxembourg syndication: Launched
- E1.25bln (in line with MNI expectation) of the new Oct-34 LGB. Books closed in excess of E6.1bln (exc JLM interest), spread at MS+25bps (guidance was MS+29bps area then MS+27bps area).
UK auction results
- A decent 30-year auction with a tight 0.3bp tail and the lowest accepted price of 94.232 coming in above the prevailing market mid-price.
- The 4.375% Jul-54 gilt moves to its highest levels of the day following the auction. Gilt futures also hitting their intraday highs.
- GBP2.25bln of the 4.375% Jul-54 Gilt. Avg yield 4.735% (bid-to-cover 3.08x, tail 0.3bp).
Finland auction results
- E900mln of the 2.50% Apr-30 RFGB. Avg yield 2.438% (bid-to-cover 1.68x).
- E600mln of the 3.00% Sep-34 RFGB. Avg yield 2.713% (bid-to-cover 2.35x).
FOREX: JPY Gains on Soft Asia-Pac Equities, Oil-tied FX Fades Further
- JPY strength gathered pace overnight on the mixed performance for Asia-Pac equities, as Hong Kong names are headed for a particularly weak close. Hang Seng is lower by over 4% just ahead of the local close, and a close at current or lower levels would reverse the rally posted since end-September, with concerns over the potential minimal impacts of stimulus, geopolitical risk and soft China data out yesterday and over the weekend continuing to weigh on sentiment.
- USD/JPY now targets the week's low at 148.98 initially, but support is seen stronger into 147.53, the 23.6% retracement for the recovery off the mid-September low.
- GBP/USD building well off the overnight pullback lows of 1.3036, with volumes picking up across both the jobs data this morning as well as the European open. Cumulative futures activity now sits just over 30% ahead of average for this time of day. The 20- and 50-day EMAs are converging to form layered resistance between 1.3104-51 - clearance here is needed to firm any recovery - which could be triggered by an upside surprise in tomorrow's inflation print and the read-through for year-end BoE pricing (currently ~35bps of cuts showing in OIS by Dec-31).
- Oil-tied FX is suffering from the broad pullback in crude oil prices, keeping NOK and CAD offered. Source reports this morning suggested that Israel would not target Iran’s oil and nuclear infrastructure but would focus on military sites in any future strikes.
- Canadian inflation data for September crosses later today, with markets expecting the Y/Y headline to fade to 1.8% from 2.0% although the BoC's preferred core inflation measure is seen unchanged at 2.4% - any variance here could help drive market conviction for the BoC's October decision, with pricing keenly split between a 25 or a 50bp rate cut.
OPTIONS: Hedging Turnover Picks Up After Monday's Partial Close
- With US markets only partially open Monday, options turnover was considerably below average yesterday, clocking the lowest total notional since Sept 16th - however markets are busier so far Tuesday thanks to decent interest in EUR, SGD, HKD and CHF hedges.
- Upside USD/HKD hedges have traded in size, with over $2 in USD/HKD calls trading for every $1 in puts so far Tuesday. 7.75 and 7.85 strikes have seen the most interest, potentially positioned to gain from onshore HKD weakness, or a near-term uptick in implied vols.
- One-month USD vols remain well elevated as the contracts capture the early November US elections, with EUR/USD vols looking comfortable either side of 7.5 points, although USD/JPY vols have faded off last week's 14 points. Meanwhile the front-end of the EUR vol curve has seen scant interest despite the looming ECB decision, suggesting that a well-telegraphed 25bps cut this week would prompt little market volatility.
- More sizeable expiries set to roll off at today's cut include €1.1bln in EUR/USD at $1.0850-75, $1.4bln in USD/JPY at Y149.70-90, A$1.2bln in AUD/USD at $0.6675 & A$3.5bln at $0.6775-00.
EQUITIES: E-Mini S&P Trading Close to Record Highs, Focus on $5961.00
- Eurostoxx 50 futures are trading higher this week. Key short-term support to watch is 4943.25, the 50-day EMA. A clear break of this EMA would signal scope for a deeper retracement. Recently, the contract breached resistance at 5024.00, the Sep 3 high. This confirmed a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. Key resistance and bull trigger is unchanged 5106.00, the Sep 30 high. A break resumes the uptrend.
- A bull cycle in S&P E-Minis remains intact and Monday’s gains reinforce the current trend condition. The move higher confirms a resumption of the primary uptrend and maintains 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 5782.19, the 20-day EMA.
COMMODITIES: Extension Lower in WTI Futures Would Threaten Recent Bullish Theme
- WTI futures have gapped lower today and this has resulted in a break of the Oct 9 low. An extension lower 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 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.
- The recent short-term retracement in Gold appears to have been a correction. The trend condition is unchanged and remains bullish. MA studies are in a bull-mode set-up too, highlighting a clear uptrend and positive market sentiment. A resumption of gains would refocus attention on $2690.2, a Fibonacci projection. Firm support lies at $2622.9, the 20-day EMA. It has been pierced, a clear break would signal scope for a deeper retracement.
| Date | GMT/Local | Impact | Country | Event |
| 15/10/2024 | 1230/0830 | *** |  CA | CPI |
| 15/10/2024 | 1230/0830 | ** | CA | Wholesale Trade |
| 15/10/2024 | 1230/0830 | ** |  US | Empire State Manufacturing Survey |
| 15/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 15/10/2024 | 1300/0900 | * | CA | CREA Existing Home Sales |
| 15/10/2024 | 1500/1100 | ** | US | NY Fed Survey of Consumer Expectations |
| 15/10/2024 | 1530/1130 | US | San Francisco Fed's Mary Daly | |
| 15/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 15/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 15/10/2024 | 1700/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 15/10/2024 | 1700/1300 | US | Fed Governor Adriana Kugler | |
| 16/10/2024 | 2145/1045 | *** |  NZ | CPI inflation quarterly |
| 15/10/2024 | 2300/1900 | US | Atlanta Fed's Raphael Bostic | |
| 16/10/2024 | 2350/0850 | * |  JP | Machinery orders |
| 16/10/2024 | 0600/0700 | *** |  GB | Consumer inflation report |
| 16/10/2024 | 0600/0700 | *** | GB | Producer Prices |
| 16/10/2024 | 0800/1000 | ** |  IT | Italy Final HICP |
| 16/10/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 16/10/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 16/10/2024 | 1215/0815 | ** | CA | CMHC Housing Starts |
| 16/10/2024 | 1230/0830 | ** | US | Import/Export Price Index |
| 16/10/2024 | 1230/0830 | ** | CA | Monthly Survey of Manufacturing |
| 16/10/2024 | 1840/2040 |  EU | ECB's Lagarde Speech at Banka Slovenije Dinner |
1681 words