Highlights:
- US curve sits steeper, shrugging off looming short-end supply
- PepsiCo kicks off quarterly earnings cycle
- Greenback lower as Kugler looks through labour market strength
US TSYS: Twist Steeper With No Sign Of Upcoming 3Y Auction Weighing
- Treasuries have increasingly pared earlier gains as US desks filter in, shrugging off oil futures having eased away from yesterday’s highs.
- Cash yields are 2bp lower (2s) to 0.5bp higher (30s), with the steepening on the day not suggesting any concerns about absorbing today’s $58bn 3Y auction. The latter can see added attention considering a lighter docket.
- 2s10s sits at 5.3bps (+2bp) after yesterday’s fleeting inversion, but remains comfortably off last month’s ytd high of 24bps.
- TYZ4 has just touched session lows of 112-16 for almost unchanged on the day, with cumulative volumes at a reasonable but certainly not elevated 350k. It’s off an earlier high of 112-24 but has remained within yesterday’s range throughout.
- Yesterday’s extension of a bearish theme sees support at 112-13+ (Oct 7 low) after which lies the round 112-00.
- Data: Trade balance Aug (0830ET)
- Fedspeak: Bostic on economic outlook (1245ET, just Q&A), Collins at a banking conference (1600ET, text + Q&A), Jefferson on discount window (1930ET, text + Q&A)
- Note/bond issuance: US Tsy $58B 3Y Note auction - 91282CLQ2 (1300ET)
- Bill issuance: US Tsy $80B 42D CMB auction (1130ET)
STIR: 50bp Of Fed Cuts To Year-End
- Fed Funds implied rates have cooled a little off yesterday’s highs, but the path remains at the high end of the range over the past two months and is in-line with the median 2024 dot.
- Cumulative cuts from 4.83% effective: 23bp Nov, 50bp Dec, 71bp Jan and 121bp June.
- A recap of overnight Fedspeak from some prominent members either side of median:
- Gov. Kugler (voter) unsurprisingly maintained a dovish tone, having already revealed she “strongly supported” the 50bp cut last month. She noted the healthy level of jobs creation is very welcome (following Friday’s payrolls) but sees several metrics pointing toward market cooling. She’ll back more cuts if inflation progress continues and whilst she isn’t sure where the neutral rate is, policy is currently way above it.
- NY Fed’s Williams (voter) told the FT in an interview that the 50bp cut in September was not a “rule of how we act” in the future, echoing Powell. The jobs report shows the economy is in good health with the current stance of policy well positioned. The goal is to move interest rates to a neutral setting with forward looking indicators closer to target.
- St Louis Fed’s Musalem (’25) viewed further gradual rate reductions as appropriate over time whilst penciling in a rate path “slightly above” the median dot. The jobs report showed the labor market is strong, with both the labor market and inflation in a “good place”.
- Bostic (’24) seems likely to headline today’s STIR-related Fedspeak in a moderated conversation on the economic outlook at 1245ET (no text). They’ll be the first relevant comments since payrolls for the hawkish-leaning FOMC member.
- Note that VP Jefferson (voter) is set to give his first public remarks since May but will dwell on financial stability, talking on the discount window at 1930ET.
US TSY FUTURES: Long Cover Dominated during Monday's Sell Off
OI data points to long cover dominating in most contracts on Monday, as Friday's post-NFP weakness extended.
- Modest rounds of net short setting were seen in TU & UXY futures.
| 07-Oct-24 | 04-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,501,807 | 4,491,119 | +10,688 | +406,597 |
FV | 6,286,719 | 6,289,562 | -2,843 | -122,777 |
TY | 4,867,693 | 4,892,352 | -24,659 | -1,613,147 |
UXY | 2,211,115 | 2,201,915 | +9,200 | +834,863 |
US | 1,759,718 | 1,765,686 | -5,968 | -799,297 |
WN | 1,707,975 | 1,717,127 | -9,152 | -1,912,747 |
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| Total | -22,734 | -3,206,508 |
STIR: OI Points To Mix Of Short Setting & Long Cover In SOFR Futures On Monday
OI suggests that there was a relatively balanced mix of net short setting and long cover during Monday’s sell off in SOFR futures.
- Long cover was slightly more prominent in the front end of the strip, while short setting was more prominent further out.
- Friday’s post-NFP sell off extended, as Fed rate cut pricing faded further.
- Upcoming STIR bullet will give exacts when it comes to the latest Fed pricing.
| 07-Oct-24 | 04-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,264,083 | 1,283,233 | -19,150 | Whites | -12,675 |
SFRZ4 | 1,126,522 | 1,148,143 | -21,621 | Reds | -7,169 |
SFRH5 | 1,009,178 | 1,008,738 | +440 | Greens | +8,560 |
SFRM5 | 866,183 | 838,527 | +27,656 | Blues | +23,378 |
SFRU5 | 681,580 | 682,670 | -1,090 |
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SFRZ5 | 956,620 | 965,695 | -9,075 |
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SFRH6 | 598,878 | 605,598 | -6,720 |
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SFRM6 | 608,740 | 599,024 | +9,716 |
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SFRU6 | 571,985 | 545,806 | +26,179 |
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SFRZ6 | 619,793 | 620,656 | -863 |
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SFRH7 | 357,277 | 358,094 | -817 |
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SFRM7 | 310,560 | 326,499 | -15,939 |
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SFRU7 | 255,795 | 261,506 | -5,711 |
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SFRZ7 | 244,806 | 229,932 | +14,874 |
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SFRH8 | 194,606 | 188,135 | +6,471 |
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SFRM8 | 164,697 | 156,953 | +7,744 |
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EQUITIES: MNI US EARNINGS SCHEDULE - Banks Take Early Focus
- Earnings season informally begins today with Pepsi's midweek report, before BlackRock, Wells Fargo and JP Morgan on Friday.
- Unfortunately for net interest margins, the Fed's first rate cut since the pandemic will have come too late in the quarter to provide any material relief for banks - leaving initial focus on FICC revenues and general cost reduction.
- Just over half of the S&P 500 by market cap will have reported by the end of October – although significant releases still cross through November, with NVIDIA scheduled for 21st November.
Full schedule for the quarter including timings, EPS & revenue expectations here: https://mni.marketnews.com/4eVW8tG
EUROPE ISSUANCE UPDATE:
EU dual-tranche syndication: Final terms
- E5bln tap of the 2.875% Dec-27 EU-bond (MNI had expected E3-5bln). Books at above E68bln, spread: MS+11bps (guidance was MS+14 bps area).
- E6bln tap of the 3.375% Oct-39 EU-bond (E5bln original guidance, MNI had expected E3-5bln). Books at above E74bln, spread: MS+66bps (guidance MS+68 bps area).
Netherlands auction results
- E2.49bln of the 2.50% Jul-34 DSL. Avg yield 2.54%.
UK auction results
- GBP1bln of the 0.125% Mar-39 linker. Avg yield 1.044% (bid-to-cover 3.14x).
Austria auction reuslts
- E805mln (E700mln allotted) of the 2.90% Feb-34 RAGB. Avg yield 2.748% (bid-to-cover 2.57x; bid-to-issue 2.23x).
E920mln (E800mln allotted) of the 3.15% Oct-53 RAGB. Avg yield 3.14% (bid-to-cover 2.22x; bid-to-issue 1.93x).
Germany auction results
- E1bln (E954mln allotted) of the 2.30% Feb-33 Green Bund. Avg yield 2.16% (bid-to-offer 2.25x; bid-to-cover 2.36x).
FOREX: AUD Undermined by Soft Iron Ore, China Presser
- A press conference held by China's NDRC appeared to disappoint markets in stopping short of material commitments to considerable stimulus - helping drive risk sentiment lower via soft equities in Asia-Pac trade - although the impact moderated sharply into the European open. Nonetheless, a softer view of China's growth push has worked against AUD, undermined by the softer iron ore price, keeping the EUR/AUD bounce in tact as price shows above the 1.6344 100-dma.
- The USD was offered through the European open, aided by a break above the overnight low in USD/JPY and the NY high in EUR/USD - at 147.51 and 1.0987 respectively.
- ECBspeak has been thick and fast across the morning, with both Vasle and Nagel talking up the openness of the October meeting for the next rate cut step - the firm consensus for markets. This has kept EUR/GBP pressured toward recent lows - but further downside conviction may need to emerge outside of the ECB monpol channel.
- Fed's Kugler made her first post-NFP comments on FOMC policy today, sticking to a dovish theme in flagging the "serious" reduction in inflation as well as citing several metrics that point toward a cooling labour market, affirming that Kugler is likely to opt for further rate cuts ahead "if inflation recedes".
- Focus for the duration of Tuesday trade rests on US/Canadian trade balance data as well as appearances from ECB's Centeno & Nagel and Fed's Bostic & Collins.
EM FX: Emerging Market Currencies Mixed Amid Lack of Additional China Stimulus
Emerging market currencies are mixed at the start of Tuesday trade, despite a mildly softer course for the USD this morning. Comments from Fed’s Kugler's leant dovish - flagging the "serious" reduction in inflation as well as citing several metrics that point toward a cooling labour market. Meanwhile, China said it’s confident in reaching its economic targets this year and promised to further support growth, but fell short of announcing any major additional stimulus measures.
- CNH performance closely tracked the performance of onshore equities across Asia-Pac trade, with initial equity weakness helping push USD/CNH higher, and prompting Hong Kong-listed equities to sharply retrace last week’s gains. Since then, USD/CNH has faded from intra session highs, last near 7.05, as equity sentiment stabilised. The CSI 300 ended the session up 6%.
- The accompanying slump in metals has prompted notable underperformance for the South African rand - with iron ore futures in Singapore down around 5% and copper trading at a multi-week low.
- On the other hand, CE3 currencies have shown resilience and have partially moderated some of yesterday’s losses, with regional focus shifting to CPI data out of Hungary and Czechia later in the week.
- USDMXN is trading around 0.2% higher, though price is well-contained within Monday’s ranges. Yesterday evening, Bloomberg reported that Mexico’s Supreme Court has agreed to review the judicial overhaul passed by Congress last month in what is the last resort to appeal the controversial decision.
COMMODITIES: Rally in WTI Futures Undermines Recent Bearish Theme
- WTI futures traded higher Monday as the pair extended the rally that started on Oct 1. The climb undermines a recent bearish theme and suggests potential for a continuation higher near-term. Sights are on $77.40, the 76.4% retracement of the Jul 5 - Sep 10 bear leg. This level has been pierced, a clear break of it would strengthen a bullish condition. On the downside, initial firm support to watch is $71.18, the 20-day EMA.
- Gold remains in consolidation mode. The trend condition is unchanged and bulls remain in the driver’s seat. The latest pause appears to be a flag formation - a bullish continuation pattern, reinforcing the current trend condition. Moving average studies are in a bull-mode set-up too, highlighting a clear uptrend and positive market sentiment. The focus is on $2690.2 next, a Fibonacci projection. Firm support lies at $2615.0, the 20-day EMA.
EQUITIES: Latest Pullback in Eurostoxx 50 Futures Appears to Be a Correction
- The latest pullback in Eurostoxx 50 futures appears to be a correction. Key short-term support to watch is 4927.81, the 50-day EMA. A clear break of this average 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 the bull trigger is 5106.00, the Sep 30 high.
- A bull cycle in S&P E-Minis remains intact and the latest shallow pullback still appears to be a correction. Moving average studies are in a bull-mode setup, highlighting a dominant uptrend and positive market sentiment. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. Initial support to watch is 5736.55, the 20-day EMA. It has been pierced. Key support lies at 5669.25 the 50-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 08/10/2024 | - |  EU | ECB's de Guindos at ECOFIN meeting | |
| 08/10/2024 | 1230/0830 | ** |  US | Trade Balance |
| 08/10/2024 | 1230/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 08/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 08/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 08/10/2024 | 1645/1245 | US | Atlanta Fed's Raphael Bostic | |
| 08/10/2024 | 1700/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 08/10/2024 | 2000/1600 | US | Boston Fed's Susan Collins | |
| 09/10/2024 | - |  NZ | Reserve Bank of New Zealand Meeting | |
| 08/10/2024 | 2330/1930 | US | Fed Vice Chair Philip Jefferson | |
| 09/10/2024 | 0030/1130 | * |  AU | Building Approvals |
| 09/10/2024 | 0100/1400 | *** | NZ | RBNZ official cash rate decision |
| 09/10/2024 | 0600/0800 | ** |  DE | Trade Balance |
| 09/10/2024 | 0830/1030 | EU | ECB's Elderson in 'true cost of green...' session | |
| 09/10/2024 | 0900/1000 | ** |  GB | Gilt Outright Auction Result |
| 09/10/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 09/10/2024 | 1200/0800 | US | Atlanta Fed's Raphael Bostic | |
| 09/10/2024 | 1315/0915 | US | Dallas Fed's Lorie Logan | |
| 09/10/2024 | 1400/1000 | ** | US | Wholesale Trade |
| 09/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 09/10/2024 | 1630/1230 | US | Fed Vice Chair Philip Jefferson | |
| 09/10/2024 | 1700/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 09/10/2024 | 1800/1400 | *** | US | FOMC Minutes |
| 09/10/2024 | 2100/1700 | US | Boston Fed's Susan Collins | |
| 09/10/2024 | 2200/1800 | US | San Francisco Fed's Mary Daly |
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