Highlights:
- Russia's tweaks nuclear doctrine, sending risk sentiment lower
- Kyiv reportedly uses US-long range missiles in Russian territory for first time
- Low bar for market reaction at today's CAD CPI
US TSYS: Firmer On Geopol Risks, State Payrolls and A Hawkish Schmid Ahead
- Treasuries are off highs but are still supported primarily by geopolitical spillover from Russia’s updated nuclear doctrine and Ukraine striking targets in Russian territory with ATACMS for the first time.
- Cash yields are 4.7-5.9bp lower, with largest decline in 3s.
- Curves are within recent ranges, including 2s10s at 13.5bps.
- TYZ4 trades at 109-31+ (+ 11+) off an earlier high of 110-04. It sees strong cumulative volumes of 665k that are boosted by earlier than usual rolling activity owing to next week’s Thanksgiving holiday (earlier today a third of front month volumes were spread-related).
- Resistance is seen at 110-12 (20-day EMA), which closely ties with a 4.30% 10Y yield equating to 110.11+, but the trend needle still points south with support at 108-18+ (1.236 proj of Oct 1-10-16 price swing).
- Data: Housing starts/building permits Oct (0830ET), State-level payrolls and unemployment Oct (1000ET).
- Fedspeak: Schmid on economic outlook and mon pol (1310ET)
- Bill issuance: US Tsy $80B 42D CMB auction (1130ET)
STIR: Geopol Risk Shifts Fed Path Lower
- Fed Funds implied rates are off earlier lows but still sit firmly lower in geopolitical spillover from Russia’s updated nuclear doctrine and Ukraine striking targets in Russian territory with ATACMS for the first time.
- Implied rates are 1bp lower for Dec, 2.5bp lower for Mar and 4bp lower for June. Near-term implied rates still hold the bulk of last week's increase on hawkish Fedspeak but mid-2025 implied rates are now back at post-CPI levels.
- Cumulative cuts from 4.58% effective: 16bp Dec, 24bp Jan, 40bp Mar and 62p June.
- Today sees Schmid (’25 voter, hawk) speak on the economic outlook and monetary policy at 1310ET.
- His comments last week were limited, noting the depth of eventual Fed cutting remains undetermined. Expect greater focus tomorrow on both the near-term outlook after a typically dovish Governor Kugler talked on pausing prospects last week as well as continued debate over how restrictive policy currently is along with longer-term neutral rate estimates.
- Before then, expect greater focus than usual on the state-level payrolls and unemployment data at 1000ET after the surprisingly weak October payrolls report and its potential storm disruption.
RUSSIA: Putin Updates Nuclear Text, Retaliation If Russia Hit By LR Missiles
State-run media reports that President Vladimir Putin has confirmed an update to the country's 'nuclear doctrine', the parameters by which the use of nuclear weapons is dictated. The decree means "the category of states and military alliances subject to nuclear deterrence has been expanded. The list of military threats for the neutralization of which such actions are needed has been supplemented."
- "Aggression by any non-nuclear state, but with the participation or support of a nuclear country, will be considered a joint attack on the Russian Federation. In addition, a nuclear response from Russia is possible in the event of a critical threat to its sovereignty even with conventional weapons, [...], in the event of a massive launch of military aircraft, cruise missiles, drones, other aircraft and their crossing the Russian border."
- The updated doctrine comes after US President Joe Biden approved Ukraine using long-range US-made ATACMS missiles against the Russian Federation. The UK is also expected to allow the use of the Franco-British-made Storm Shadow missiles.
- This is not the first time that Russia has updated its nuclear doctrine in the 1,000 days of the war to date. It is also not the first time it has threatened Ukraine's allies as they increase support for Kyiv. As such it is difficult to tell where the 'red line' for Putin is in terms of retaliation. What can be said is that the use of long-range missiles on Russia increases the prospect of a direct retaliation against NATO or a tactical nuclear strike on Ukraine, both of which would alter the fundamentals of the war significantly.
SECURITY: Ukrainian Media-Ukraine Makes 1st ATACMS Strike On Russia
Ukrainian outlet Censor.net is reporting that Ukraine's armed forces have made their first long-range ATACMS missile strike inside Russia since US President Joe Biden approved their use against the territory of the Russian Federation. The report claims that an arsenal near to the city of Karachev in the Bryansk region was hit. There has been no official comment from Ukrainian armed forces on the claim. RBC Ukraine reports comments from an unnamed military source: "Indeed, ATACMS was used for the first time to strike the territory of the Russian Federation. The strike was carried out on a facility in the Bryansk region, it was successfully destroyed,"
- If confirmed, this would be a breach of Russia's updated nuclear doctrine published earlier today (see 'RUSSIA: Putin Updates Nuclear Text, Retaliation If Russia Hit By LR Missiles' 0854GMT).
- Hitting Bryansk would appear to be outside the scope of what the US had envisaged for Ukrainian long-range missile strikes, with Russian and North Korean troops in the Kursk oblast seen as the primary target of any such attack.
BOE: TSC: What have we learned about monpol today?
Some really interesting parts from the testimony to the Treasury Select Committe from four MPC members this morning.
- Governor Bailey and Deputy Governor for Monpol Lombardelli both see risks to inflation as broadly balanced - but see greater consequences if inflation becomes more entrenched.
- Bailey said that a month ago he was close to Taylor's view. Reading between the lines at the MPR press conference when he said that the Budget will not have significant impacts on monpol - it seems as though it hasn't impacted his central case significantly, but has changed his view of the balance of risks.
- Lombardelli says we will get a lot more info on the labour market early next year.
- Taylor could potentially be the second most dovish member now based on today's comments (after Dhingra). He has said that 100bp over the next year is consistent with "gradual" and that he sees risks that the BOE will need to cut more. We haven't heard from Ramsden for a while - we will hear from him tomorrow - so it will be interesting to see which of the two are more dovish.
- Mann sounds as far away from a cut as ever - but that is nothing new - she has spoken multiple times recently.
- What does this mean for monpol overall? Taylor seems more dovish than market pricing now - there are less than 3x25bp cuts full priced in by the end of 2025 (69bp at writing). Bailey and Lombardelli don't seem to be guiding away from a quarterly path - but will probably want to see more on wage data and how much of the wage growth and employer NI increase are passed on next year.
- So based on current conditions February and May cuts seem likely (market is pricing a cumulative 43bp by May).
- But beyond then it really depends on your view on how inflation / wage growth evolves over the next 6-7 months or so.
- The market's view so far seems to be that there will be higher inflation than the central case of Bailey and Lombardelli.
- It's unclear what can really be the trigger to change that view in the near term - but surveys of wage growth as well as the DMP survey and Agents survey will be increasingly important going forward.
EUROPE ISSUANCE UPDATE:
EU dual tranche syndication: Final Terms
- E4bln WNG tap of the 2.50% Dec-31 EU-bond (MNI had expected E4-5bln). Books in excess of E55bln, spread at MS+47 (Guidance MS+50 area)
- E3bln WNG tap of the 1.25% Feb-43 Green EU-bond (MNI had expected E4-5bln). Books in excess of E70bln, spread at MS+95 (Guidance MS+98 area)
Gilt auction results:
- That's a relatively poor auction with a 0.6bp tail - much wider than the 0.1bp seen last time (the auction size is marginally bigger).
- The lowest accepted price (LAP) of 91.991 was below the pre-auction mid-price (despite the average price being above) and the 3.75% Jan-38 gilt moved to it's lowest level in around 45 minutes on the publication of the results.
- Bear in mind that the DMO will hold a 15-20 year syndication in FQ4 (Jan-Mar).
- That could be partly behind the weakness in today's auction if market participants would rather wait for that issue rather than buy at today's auction.
- Gilt futures only really moved a couple of ticks - indicating that the wider gilt market isn't too concerned by today's auction result.
- GBP3.25bln of the 3.75% Jan-38 Gilt. Avg yield 4.558% (bid-to-cover 2.74x, tail 0.6bp).
Finland auction results
- E421mln of the 2.875% Apr-29 RFGB. Avg yield 2.372% (bid-to-cover 2.89x).
- E414mln of the 3.00% Sep-34 RFGB. Avg yield 2.763% (bid-to-cover 2.47x).
CANADA: BOC Close Call Leaves CAD in Short-Term Focus
- External factors have recently seen Bank of Canada market pricing shift moderately in favour of reverting to a 25bp cut rather than a second 50bp cut on December 11. However, given it’s still close to a 50/50 decision, the bar appears low for a market surprise on today’s release of Canada CPI. The ongoing strength of the US dollar in the aftermath of the US election and the relative weakness of the Euro will keep close market attention on both USDCAD and EURCAD following the data.
- Higher-than-expected data and an accompanied hawkish repricing may provide further impetus for EURCAD (shown below) to have a deeper correction lower. With headlines surrounding Russia and Ukraine thrusting European geopolitical uncertainty back into the spotlight this morning, EURCAD may be particularly vulnerable to a more protracted move lower for the single currency.
- Full piece here: FX Market Analysis - CAD 19-11.pdf
FOREX: JPY Adopts Haven Status as Russia-West Tensions Ratchet Higher
- JPY is comfortably the outperformer in G10 FX, with the currency re-adopting a safe haven status amid an upturn in geopolitical risk and escalated tensions between Russia and the West. The Kremlin have formally approved a further tweak to their nuclear doctrine, allowing for use of nuclear weaponry in the case of long-range missiles used to strike inside Russian territory. The new doctrine was tested almost immediately, as the Ukrainian military confirmed a strike on a warehouse in a military facility in Karachev, Russia - reportedly using US-supplied ATACMS weapons.
- A bout of EUR sales came alongside the Ukraine headlines - prompting EUR/USD to hit new lows and show through the 1.0550 level. EUR/CHF came under pressure in tandem, through the October lows to pierce the mid-September support of 0.9307 - thereby exposing 0.9211.
- EUR/JPY's risk-off triggered slide made light work of yesterday's lows on the Russia headlines, putting the cross at the lowest level since mid-October. The Oct21 low provides first support here at the Y162.00 handle, which coincides with the 38.2% retracement for the recovery off the post-intervention low - making support crowded at current prices. GBP/JPY has traded through the 50-dma for the first time since September, looking to 192.28 as next major support.
- Focus for the session ahead turns to US housing starts and building permits data for October as well as the Canadian CPI print. The speaker slate is considerably quieter relative to yesterday, with just Fed's Schmid on the docket to speak on the economic and monetary policy.
OPTIONS: Expiries for Nov19 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0500-20(E707mln), $1.0540-50(E1.1bln), $1.0590-00(E973mln), $1.0650(E2.0bln)
- AUD/USD: $0.6600(A$1.7bln)
EQUITIES: Eurostoxx 50 Futures Reapproach Recent Lows, Bearish Theme Intact
- Despite recent gains, a bearish condition in Eurostoxx 50 futures remains intact. The move lower last week marked a resumption of the downtrend that started Sep 30. Price has breached 4746.94, 61.8% of the Aug 5 - Sep 30 bull cycle. This exposes 4662.12, the 76.4% retracement point. Initial firm resistance has been defined at 4961.00, Nov 6 high, where a break would highlight a reversal. First resistance is at 4857.19, the 20-day EMA.
- The latest move lower in the S&P E-Minis contract appears corrective. Medium-term trend signals such as moving average studies, continue to highlight a dominant uptrend. The contract has traded through the 20-day EMA. The next key support to monitor is 5830.35, the 50-day EMA. A clear break of this level would signal scope for a deeper retracement. A resumption of gains would refocus attention on the bull trigger at 6053.25, Nov 11 high.
COMMODITIES: Long-Term Trend Condition in Gold Unchanged and Bullish
- A bearish theme in WTI futures remains intact and the move lower from the Nov 7 high has reinforced current conditions. Attention is on $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support. For bulls, a clear reversal to the upside would instead refocus attention on the key short-term resistance at $77.04, the Oct 8 high. Clearance of this level would resume the recent uptrend. Initial firm resistance is $72.41, the Nov 7 high.
- The long-term trend condition in Gold is unchanged, it remains bullish and the latest move down is considered corrective. The bear phase has resulted in a breach of the 20- and 50-day EMAs, and the metal is trading closer to its recent lows. The breach of the EMAs signals scope for a deeper retracement and sights are on $2511.1 next, the Sep 18 low. Firm resistance is seen at $2653.3, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 19/11/2024 | 1330/0830 | *** |  CA | CPI |
| 19/11/2024 | 1330/0830 | *** |  US | Housing Starts |
| 19/11/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 19/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 19/11/2024 | 1810/1310 | US | Kansas City Fed's Jeff Schmid | |
| 20/11/2024 | 2350/0850 | ** |  JP | Trade |
| 20/11/2024 | 0001/0001 | * |  GB | Brightmine pay deals for whole economy |
| 20/11/2024 | 0700/0800 | ** |  DE | PPI |
| 20/11/2024 | 0700/0700 | *** | GB | Consumer inflation report |
| 20/11/2024 | 0700/0700 | *** | GB | Producer Prices |
| 20/11/2024 | 1000/1100 | ** |  EU | Construction Production |
| 20/11/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 20/11/2024 | 1300/1400 | EU | ECB's Lagarde address on financial stability | |
| 20/11/2024 | 1500/1000 | US | Fed Vice Chair Michael Barr | |
| 20/11/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 20/11/2024 | 1600/1600 | GB | BOE's Ramsden speech on monetary policy | |
| 20/11/2024 | 1600/1100 | US | Fed Governor Lisa Cook | |
| 20/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 20/11/2024 | 1715/1215 | US | Fed Governor Michelle Bowman | |
| 20/11/2024 | 1800/1900 | EU | ECB's De Guindos speech on financial stability | |
| 20/11/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 20/11/2024 | 2100/1600 | US | Boston Fed's Susan Collins |
2251 words