Highlights:
- Markets further price a slower pace of Fed easing, aiding USD/JPY to new highs
- USD/CNH only major pair to reverse NFP rally as China sentiment firms further
- Light data schedule keeps ECB, Fed speakers in focus
US TSYS: Large Bear Flattening Extends With 2s10s Tilting Inverted
- Treasuries have seen an extension of Friday’s beat flattening pressure in a combination of overseas reaction to the strong payrolls report plus sharp increase in oil futures.
- Cash yields are 2bp (30s) to 8.8bps (2s) higher, with 2Y yields breaching 4.00% for the first time since Aug 23, currently 4.01%.
- 2s10s has dropped to -0.2bps (-4.3bp) having been close to 15bp prior to payrolls and seen ytd highs of 24bp earlier in September.
- It was last more notably inverted prior to the August payrolls report on Sep 6.
- TYZ4 sits at 112-17+ (- 09+) close to earlier lows of 112-16+ on heavy volumes of 580k. Recent moves have undermined a prior bullish theme and highlight potential for a continuation lower with support at 112-14+ (38.2% retrace of Apr – Sep bull cycle) before a round 112-00.
- Data: Consumer credit Aug (1500ET)
- Fedspeak: Gov. Bowman in banking Q&A (1300ET), Kashkari in Q&A (1350ET), Bostic moderates Q&A (1800ET), Musalem speaks on the economy and policy (1830ET, incl text).
STIR: Further Hawkish Post-Payrolls Adjustment
- Fed Funds implied rates have kicked higher again since Friday’s close in a combination of overseas reaction to the strong payrolls report plus sharp increase in oil futures.
- Cumulative cuts from 4.83% effective: 23bp Nov, 50bp Dec, 70bp Jan and 116bp June.
- The cumulative 50bp over the two meetings left this year is now consistent with the median FOMC dot from last month’s SEP.
- Three analysts in the minority who had been looking for a second 50bp cut in Nov have switched to 25bp cut calls (BofA, CIBC and JPM), but odds of a November ‘skip’ are still deemed low -- the MNI Employment Insight will follow a little later.
- There are multiple Fed speakers offering post-payrolls reaction today, tilted later in the session starting with Gov. Bowman at 1300ET (hawk, dissenter) before Kashkari (non-voter) at 1350ET, Bostic (’24) at 1800ET and then Musalem (’25) likely going into the most detail with a speech on the economy and policy at 1830ET.
US TSY FUTURES: Short Setting Dominated During NFP-Driven Sell Off
OI points to net short-setting dominating in most contracts during Friday’s NFP-driven sell off.
- The only exception came via apparent long cover in FV futures.
- Nearly $10mn of net short DV01 equivalent was added across the curve on Friday.
| 04-Oct-24 | 03-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,493,282 | 4,444,021 | +49,261 | +1,875,416 |
FV | 6,296,373 | 6,332,241 | -35,868 | -1,548,883 |
TY | 4,903,749 | 4,857,685 | +46,064 | +3,015,017 |
UXY | 2,202,472 | 2,163,115 | +39,357 | +3,578,749 |
US | 1,765,796 | 1,745,589 | +20,207 | +2,719,789 |
WN | 1,717,127 | 1,716,462 | +665 | +142,376 |
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| Total | +119,686 | +9,782,464 |
STIR: Mix Of Long Cover & Short Setting Seen In SOFR Futures Following NFPs
Friday’s hawkish reaction to the NFP release saw long cover dominate in 11/12 of the front SOFR futures, while the blues all saw short setting dominate.
- The data triggered an aggressive unwind of Fed rate cut pricing, with Fed funds futures now showing 23bp of easing for November, 50bp through December, 70bp through January and 116bp of cumulative cuts through June.
| 04-Oct-24 | 03-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,283,238 | 1,307,335 | -24,097 | Whites | -306,439 |
SFRZ4 | 1,147,607 | 1,332,182 | -184,575 | Reds | -127,513 |
SFRH5 | 1,008,740 | 1,059,537 | -50,797 | Greens | -1,222 |
SFRM5 | 839,184 | 886,154 | -46,970 | Blues | +18,522 |
SFRU5 | 682,620 | 714,351 | -31,731 |
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SFRZ5 | 963,094 | 1,017,524 | -54,430 |
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SFRH6 | 605,627 | 627,039 | -21,412 |
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SFRM6 | 599,057 | 618,997 | -19,940 |
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SFRU6 | 545,811 | 548,801 | -2,990 |
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SFRZ6 | 620,656 | 598,971 | +21,685 |
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SFRH7 | 358,094 | 364,075 | -5,981 |
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SFRM7 | 306,881 | 320,817 | -13,936 |
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SFRU7 | 261,506 | 258,282 | +3,224 |
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SFRZ7 | 229,932 | 221,659 | +8,273 |
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SFRH8 | 188,135 | 184,919 | +3,216 |
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SFRM8 | 156,953 | 153,144 | +3,809 |
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US TSY FUTURES: CFTC Shows Hedge Funds Covering Some Shorts In US Futures
The latest CFTC CoT report pointed to a mix of net short setting and trimming, with net short non-commercial positioning remaining evident in all contracts.
- Levered names pared some of their shorts in US futures but added to shorts across the remainder of the curve. Levered names remain net short across the curve.
- Asset managers generally took the other side of those trades, paring net longs in US futures, while adding to net longs across the remainder of the curve. Asset mangers remain net long across the curve.
- A reminder that the survey captured reaction to Fed Chair Powell’s address at the NABE, PCE data and the ISM manufacturing survey.
- CFTC positioning metrics will be skewed by the presence of basis trades.
Source: MNI - Market News/CFTC/Bloomberg
EU-BOND SYNDICATION: Long 3-year / 15-year dual tranche: Mandate
- "The EU (EUROPEAN UNION) has mandated Barclays, BNP Paribas, Goldman Sachs Bank Europe SE, LBBW and Nordea as Joint Lead Managers for its upcoming EUR Fixed Rate RegS Bearer dual tranche transaction comprising an increase of the EU 2.875% benchmark due 6 December 2027 (EU000A3K4EW6) and an increase of the EU 3.375% benchmark due 4 October 2039 (EU000A3LZ0X9). There will be a co-lead group comprised of Banca MPS, Danske Bank, Intesa Sanpaolo, KBC, Natixis and Santander. The transaction will be launched tomorrow, subject to market conditions."
- MNI looks for E3-5bln of each issue (with a combined issue size of E7-9bln).
FOREX: Further Pricing of Less Easy Fed Leads USD/JPY (Briefly) Above 149
- JPY trades stronger off lows early Monday, with USD/JPY initially extending the NFP-inspired rally on the resumption of trade - helping the pair touch 149.13, before reversing through the European open to trade lower. Risk sentiment is mixed as markets continue to price in a lower likelihood of a second Fed 50bps rate cut, with the US 10y yield popping back above the 4.00% mark for the first time since early August.
- Elsewhere, NOK and CAD sit stronger on the back of continued tensions in the Middle-east. Further strength in oil prices this morning puts WTI at new multi-month highs, helping press EUR/NOK toward first support at the 11.6637 100-dma.
- USD/CNH now the only major currency pair to have reversed the NFP-inspired USD rally, with the pair now below 7.07 mark to narrow in on the Friday low of 7.0471. This firms the 50-dma as notable resistance on any further rally (today at 7.1128), while 7.0377 marks the first major downside target (50% retracement of upleg off the cycle low at 6.9713.
- Tier one data releases are few and far between Monday, keeping focus on the much busier speaker schedule. Markets are expecting appearances from ECB's Escriva & Nagel, as well as Fed's Bowman, Kashkari, Bostic and Musalem - the last of which should prove most relevant for policy expectations - although comes after the close.
OPTIONS: Expiries for Oct07 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0950-55(E1.4bln), $1.0990(E535mln), $1.1100-15(E2.3bln), $1.1265(E1.1bln), $1.1300(E875mln)
- USD/JPY: Y143.00-05($2.1bln), Y143.20-30($2.8bln), Y144.00($3.3bln), Y144.50($2.0bln), Y144.75-85($1.5bln), Y145.00($2.1bln), Y145.75-95($1.2bln), Y146.85-00($1.7bln)
- AUD/USD: $0.6755(A$500mln), $0.6900(A$994mln)
EQUITIES: Eurostoxx 50 Futures Narrow Gap to Key Support at 50-Day EMA
- Eurostoxx 50 futures recently 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. It also suggests that the pullback last week is likely a correction. Key short-term support to watch is 4925.27, the 50-day EMA. A clear break of this average would signal scope for a deeper retracement. 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 appears to have been a correction. Note that 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. On the downside, initial support to watch is 5735.68, the 20-day EMA. Key support lies at 5666.17 the 50-day EMA.
COMMODITIES: WTI Futures Rally at the Start of the Week
- WTI futures traded higher Thursday, extending the rally that started on Oct 1. Short-term gains appear to be corrective, however, the break of the 50-day EMA suggests potential for an extension near-term. This has exposed $76.40, the Aug 26 high. On the downside, initial support to watch is $70.56, the 20-day EMA. A clear break of this level would highlight a potential reversal and a resumption of the downtrend.
- Gold remains in consolidation mode. The trend condition is also unchanged and bulls remain in the driver’s seat. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. MA 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 $2612.1, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 07/10/2024 | - |  EU | ECB's Lagarde & Cipollone in Eurogroup meeting | |
| 07/10/2024 | 1530/1130 | * |  US | US Treasury Auction Result for 26 Week Bill |
| 07/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 07/10/2024 | 1700/1300 | US | Fed Governor Michelle Bowman | |
| 07/10/2024 | 1750/1350 | US | Minneapolis Fed's Neel Kashkari | |
| 07/10/2024 | 1900/1500 | * | US | Consumer Credit |
| 07/10/2024 | 2200/1800 | US | Atlanta Fed's Raphael Bostic | |
| 07/10/2024 | 2230/1830 | US | St. Louis Fed's Alberto Musalem | |
| 08/10/2024 | 2301/0001 | * |  GB | BRC-KPMG Shop Sales Monitor |
| 08/10/2024 | 2330/0830 | ** |  JP | average wages (p) |
| 08/10/2024 | 2330/0830 | ** | JP | Household spending |
| 08/10/2024 | 0500/1400 | JP | Economy Watchers Survey | |
| 08/10/2024 | 0600/0800 | ** |  DE | Industrial Production |
| 08/10/2024 | 0600/0800 |  SE | Flash CPI | |
| 08/10/2024 | 0645/0845 | * |  FR | Foreign Trade |
| 08/10/2024 | 0700/0900 | EU | ECB's Schnabel chairing ECB MonPol session | |
| 08/10/2024 | 0700/0300 | US | Fed Governor Adriana Kugler | |
| 08/10/2024 | 0900/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 08/10/2024 | 1000/0600 | ** | US | NFIB Small Business Optimism Index |
| 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 |
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