Highlights:
- Heavy issuance takes market focus, with Fed in media blackout, data schedule light
- Election day nears, but UK Budget the highlight this week
- LDP coalition undermined, Ishiba faces tough task of forming government
- Treasuries hold a little cheaper on the day, with the main driver being some risk-on after the relatively limited nature of Israel’s strikes on Iranian military targets at the weekend.
- They are however off lows having been aided by spillover from a second step lower in oil futures which has spurred EGB outperformance.
- Cash yields are 0.5-2bp higher, steepening with 2s10s at 15bps (+1.1bp).
- TYZ4 is at 110-27+ (- 06+) but off 110-18+ seen with the Asia open, on strong cumulative volumes approaching 440k. The bear trend has extended with second support at 110-13 (61.8% retrace of Apr-Sep bull cycle, cont.).
- Today’s docket is heavily centered around 2Y and 5Y supply, tests of demand for the front end to belly. Both came in on the screws last month but with less favorable details, although WI yields are currently tracking 58bp and 56bp higher than last month’s high yield.
- Data: Dallas Fed manufacturing Oct (1030ET)
- Note/bond issuance: US Tsy $69B 2Y Note (1130ET), $70B 5Y Note (1300ET)
- Bill issuance: US Tsy $72B 26W Bills (1130ET), $81B 13W Bills (1300ET)
- Fedspeak: FOMC blackout
STIR: Fed Rate Path Fades Step Lower In Oil
- Fed Funds implied rates are unchanged to 1.5bp higher for meetings out to mid-2025.
- That’s in contrast to up to 2-3bp declines for ECB-dated OIS over the same period, reflecting greater sensitivity to the step lower in oil futures on the relatively restrained nature of weekend Israel strikes on Iranian military targets along with markets still awaiting greater details on China stimulus.
- Cumulative cuts from 4.83% effective: 24bp Nov, 44bp Dec, 60bp Jan and 105bp June.
- We’re now in the FOMC media blackout ahead of the Nov 6-7 meeting. Today’s data is limited to Dallas Fed manufacturing but it picks up notably from tomorrow. See our latest US Macro Weekly including what to watch for this week: https://media.marketnews.com/US_week_in_macro_241025_5a539c2429.pdf
JAPAN: Ishiba Vows To Stay On After Election Disaster, But PM On Thin Ice
Japan entered an unfamiliar period of political instability following the 27 October general election that delivered a stinging rebuke to PM Shigeru Ishiba and his governing conservative Liberal Democratic Party (LDP). As we noted earlier (see 'JAPAN: JPY Weaker, With Political Uncertainty Just Beginning', 0752GMT) the vote marks the first time since the 2009 general election that the party has lost its majority in the House of Representatives.
- Arguably, this time around the situation is more prone to instability. In 2009, the Democratic Party of Japan won an outright majority. However, this time the LDP remains the largest party and with its Komeito allies holds 215 seats, 18 short of the 233 required for a majority.
- As such, the next gov't will either be a minority LDP-Komeito administration reliant on outside support on a vote-by-vote basis, or a tripartite coalition with either the right-wing libertarian Ishin or the centrist Democratic Party for the People. Bringing either of these parties into gov't will need policy concessions from the LDP and there is no guarantee such an untested agreement would prove durable.
- Ishiba has claimed that he intends to remain in office, saying “In light of the severe criticism we have received from the public, we will endeavour to ensure that the national government remains stable,” However, eventually that decision may be taken out of his hands.
- Winning 233 seats had been talked of as the 'victory line' for the LDP. Falling well below this with just 191 seats could see internal opponents (such as his closest rival in the September leadership election Sanae Takaichi) begin to raise the prospect of yet another change in leader following such a disastrous result.
Chart 1. House of Representatives Election Result, Seats
Source: NHK
EQUITIES: MNI US EARNINGS SCHEDULE - Busiest Week of the Quarter
- Q3 earnings season continues to exceed expectations, with the average name (of the ~170 to have reported) beating EPS forecasts by 7.4%, although expectations for revenues have been generally inline.
- Near 45% of the S&P 500 is set to report this week (the largest week of the quarter), and this week’s megacap names – Alphabet, Microsoft, Meta Platforms, Amazon and Apple – should hold the most sway over the index.
- Other highlights include McDonald’s, Visa, Eli Lilly, Mastercard, Chevron and ExxonMobil.
Full earnings schedule including timings, EPS and revenue expectations here: https://mni.marketnews.com/40kbzb9
UK: MNI UK Budget Preview - Impact on BoE Policy Will Likely Be Subdued
- Our overall expectation ahead of the Budget is that the impact on MPC policy will likely be more subdued than the market currently fears, given that we expect infrastructure spending to be ramped up more gradually.
- We look at the changes to fiscal rules and what they mean as well as the expected measures that will be announced, as well as the implications for the financing situation and the gilt remit and potential market implications.
- On the political risk side, this will be the first major test of Labour's economic stance. We look at the wider political implications of the Budget.
Full PDF including Gilt issuance profile here: https://mni.marketnews.com/3YBr39n
FOREX: JPY Slips Again as Election Implications Weigh
- USD/JPY gapped higher on the resumption of trade after the weekend, and remains the weakest performer in G10 - touching 153.88 and a new multi-month high overnight, marking a >10% rally off the mid-Sept lows. This opens 155.27 as the next major resistance. Moves triggered by the surprise weekend election results, in which Ishiba's LDP-led coalition lost their majority in parliament for the first time in 15 years - a result that's brought considerable uncertainty to Japanese politics.
- Markets now anticipate a greater likelihood of a near-term additional budget to shore up local confidence, and partly because it raises questions over Ishiba's future role, raising the risk of another leadership contest after
the Ishiba - Takaichi run in September prompted further market volatility. - The EUR trades well, firmer against most others in G10 as the single currency reverses a very small part of recent losses. EUR/USD remains below the Friday highs, but has opened a ~50 pip buffer with the recent pullback low.
- Focus for GBP rests on the Budget due on Wednesday. UK PM Starmer continues to prep for tax raises targeting those with "broader shoulders", while looking to avoid raising the tax burden on working people. Our full Budget preview is found here: https://mni.marketnews.com/3YBr39n
- The Monday schedule is typically light, with no notable data releases and the Fed inside their pre-meeting media blackout - which should reduce headline risk. ECB's de Guindos is set to speak, however not until after the European market close.
EQUITIES: Short-Term Weakness in E-Mini S&P Considered Corrective
- Eurostoxx 50 futures are in consolidation mode and continue to trade closer to their recent lows. For now, a bear threat is present. The contract traded sharply lower on Oct 15 and pierced the 50-day EMA, at 4948.02. 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 the bull trigger is 5106.00, the Sep 30 high.
- S&P E-Minis continues to trade below its recent highs. Short-term weakness is considered corrective and the uptrend remains intact. Price has recently traded through support at the 20-day EMA, at 5854.44, but is - for now - trading above this average. A clear bearish break of the EMA would open 5753.57, the 50-day EMA. A stronger resumption of gains would refocus attention on 5961.00, a Fibonacci projection.
COMMODITIES: Gap Lower in WTI Futures Reinforces Bearish Theme
- A bearish theme in WTI futures remains intact and today’s gap lower reinforces this theme. A continuation down would expose $65.99, the Oct 1 low, and $64.16, the Sep 10 low and a key support. For bulls, a clear reversal would instead refocus attention on the key short-term resistance at $77.70, the Oct 8 high. Clearance of this level would resume to the recent uptrend. Initial resistance is at $72.34, the Oct 24 high.
- Gold bulls remain in the driver’s seat and price continues to trade closer to its recent highs. The latest climb has resulted in a break of $2685.6, the Sep 26 high, confirming a resumption of the primary uptrend. Sights are on $2767.1 next, a Fibonacci projection point, ahead of the $2800.0 handle. Firm support is $2680.3 the 20-day EMA. A clear break of this EMA would signal scope for a deeper retracement.
| Date | GMT/Local | Impact | Country | Event |
| 28/10/2024 | 1100/1100 | ** |  GB | CBI Distributive Trades |
| 28/10/2024 | 1430/1030 | ** |  US | Dallas Fed manufacturing survey |
| 28/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 28/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 2 Year Note |
| 28/10/2024 | 1700/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 28/10/2024 | 1700/1300 | * | US | US Treasury Auction Result for 13 Week Bill |
| 28/10/2024 | 1945/2045 |  EU | ECB's De Guindos speech and Q&A at Foros Reflexión | |
| 29/10/2024 | 2330/0830 | * |  JP | Labor Force Survey |
| 29/10/2024 | 0001/0001 | * | GB | BRC Monthly Shop Price Index |
| 29/10/2024 | 0700/0800 | * |  DE | GFK Consumer Climate |
| 29/10/2024 | 0700/0800 | ** |  SE | Retail Sales |
| 29/10/2024 | 0700/0800 | SE | Flash GDP | |
| 29/10/2024 | 0930/0930 | ** | GB | BOE M4 |
| 29/10/2024 | 0930/0930 | ** | GB | BOE Lending to Individuals |
| 29/10/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 29/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 29/10/2024 | 1300/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 29/10/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 29/10/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 29/10/2024 | 1400/1000 | *** | US | Conference Board Consumer Confidence |
| 29/10/2024 | 1400/1000 | ** | US | housing vacancies |
| 29/10/2024 | 1400/1000 | *** | US | JOLTS jobs opening level |
| 29/10/2024 | 1400/1000 | *** | US | JOLTS quits Rate |
| 29/10/2024 | 1430/1030 | ** | US | Dallas Fed Services Survey |
| 29/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 29/10/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 29/10/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 7 Year Note |
| 29/10/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 29/10/2024 | 1930/1530 |  CA | BOC Governor Macklem at House finance committee |
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