MNI US MARKETS ANALYSIS - Powell Tops Agenda

US TSYS: Twist Flatter With Fedspeak incl Powell and 10Y Supply Ahead

• Cash Treasuries trade twist flatter, ranging from 3bp cheaper to 1bp richer with the pivot at 20s. Cheapening pressure is led by 3s, after yesterday’s supply came in almost on the screws and was digested well.
• TYZ3 at 108-01+ trades towards the middle of the overnight range to consolidate yesterday’s climb, with again solid volumes of 400k. The short-term bull theme is still seen in play with resistance at 108-25 (Nov 3 high).
• Fed Funds still show just 3.5bp of cumulative tightening over the next two meetings, followed by 91bp of cuts to end-2024 with the Dec’24 rate sitting 3bp higher on the day.
• Fedspeak: Chair Powell opening remarks at 0915ET, Williams (voter) keynote address at 1340ET, VC Supervision Barr (voter) at 1400ET, Jefferson (voter) closing remarks at 1645ET.
• Data: Weekly MBA data Nov 3 (0700ET), Wholesale trade sales/inventories Sep/Sep F (1000ET).
• Note/bond issuance: US Tsy $40B 10Y note auction (91282CJJ1) – 1300ET
• Bill issuance: US Tsy $56B 17W Bill auction – 1130ET

OI Points To Notable Short Cover In SOFR Whites & Reds On Tuesday

The combination of yesterday’s bull flattening of the SOFR strip and preliminary OI data points to the following positioning swings on Tuesday:

• Whites: Notable short cover seemingly seen, with the largest net pack OI swing on the strip.
• Reds: Slightly more contained, but still notable, short cover when compared to the whites.
• Greens: Long setting seemed to dominate, with SFRM6 the only contract that seemingly saw short cover on net.
• Blues: Little net change in OI means that any long setting virtually offset any apparent pockets of short cover in that pack.

OI Suggests Long Setting Dominated On Tuesday

The combination of yesterday’s rally in Tsy futures and preliminary open interest data points to a mix of long setting and short cover across the Tsy futures curve on Tuesday.

• FV, UXY, US and WN futures seemingly saw longs added on net.
• Meanwhile, TU & TY futures seemingly saw net short cover, although the move in TY OI was miniscule.
• FV futures saw the largest DV01-adjusted swing in OI.
• The apparent rounds of net long setting flagged above more than offset the apparent rounds of short cover.

EUROPE ISSUANCE UPDATE

UK Auction Results, 0.125% Mar-51 linker:

• GBP900mln of the 0.125% Mar-51 linker. Avg yield 1.314% (bid-to-cover 3.18x).

• E4bln (E3.304bln allotted) of the 2.60% Aug-33 Bund. Avg yield 2.64% (bid-to-cover 2.11x).

FOREX: Markets on Course to Erase Entirety of NFP USD Dip

• The USD Index trades firmer for a third consecutive session, re-taking the 50-dma and putting the greenback on course to erase the entirety of the NFP-inspired dip posted on Friday. The moves coincide with a generally risk-off theme across asset prices, with both equity futures and core bond yields on the back foot.
  
• GBP/USD's slippage to new pullback lows comes amid light futures volumes across G10 currency futures. Most major currency futures contracts are seeing participation running 15-20% below average for this time of day. In spot, a close at current or lower levels in GBP/USD would secure a finish below the 50-dma, proving Friday's rally in the pair as corrective in nature, and would work in favour of a resumption of a medium-term downtrend. 1.2185 marks next support in focus, with markets shrugging off the speech from Bailey as non-monpol related.
  
• This leaves USD, CNY as the session's best performers so far, while EUR and GBP sit toward the bottom of the G10 table.
• Data is light Wednesday, with just the Bank of Canada summary of deliberations on the docket alongside September final wholesale trade sales data from the US.
• This should keep the focus on the speaker slate, with Fed's Cook, Williams, Barr and Jefferson set to make appearances as well as the Fed Chair Powell, who delivers opening remarks at a statistical conference at 1415GMT/0915ET. ECB's de Cos & Vujcic are also on the docket.

FX OPTIONS: Expiries for Nov08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E781mln), $1.0520-30(E1.2bln), $1.0565-80(E1.3bln), $1.0600(E1.2bln), $1.0650(E724mln), $1.0700-20(E2.2bln)
• USD/JPY: Y149.50-60($1.8bln), Y150.00($1.3bln), Y151.00($1.8bln)
• AUD/USD: $0.6380-00(A$1.3bln)
• USD/CAD: C$1.3500($520mln)
• USD/CNY: Cny7.3000($2.5bln), Cny7.3140($1.2bln), Cny7.3160($1.1bln)

EGBS: Sit Off Session Bests, Long End Yields Remain Lower on Day

Core EGBs are off strongest levels but yields on cash benchmarks at the mid/long end remain lower on the day, with Bunds outperforming USTs across the curve.

• The uptick in 1Y inflation expectations to 4.0% (from 3.5%) in the ECB's latest consumer survey aided the move off session bests, but we note that the 0.5pp rise appears to be largely due to a sizeable jump in Spanish expectations .
• Bund futures are up 0.22 ticks today at 130.55, with 10y generic Bund yields down -1.2bp at 2.646% and Schatz yields up 1.9bp at 2.003%. E4bln supply of the benchmark 10Y Bund at 1030GMT will have also weighed.
• There has been little market impact from ECB-speak this morning, though Lane stating that we "should not take a lot of comfort from inflation at 2.9%" is of some note given his dovish leanings. Eurozone retail sales fell broadly in line with expectations.
• Periphery spreads sit wider to Bunds at typing, most notably in Portugal, as political uncertainty arising from ex-PM Costa's resignation yesterday continues to weigh on PGBs. The generic 10Y PGB/Bund spread sits 1.9bps wider on the day at 75.3bps while the BTP/Bund spread is 0.9bps wider at 190.1bps.
• The remainder of today's docket includes ECB-speak from Nagel, De Cos and Vujcic.

GILTS: Back From Best Levels, Curve Flatter, BoE Pricing Off Dovish Extremes

Gilt futures operate 15-20 ticks shy of best levels after topping out just ahead of 96.00.

• A quick reminder that local labour market matters and continued worry re: the health of the consumer probably factored into the early bid, which garnered further momentum as gilt futures broke through their October high.
• Next technical resistance is seen at 96.05, the Sep 25 high, while the next point of interest on the 10-Year yield front comes in at the September low, 4.212% (which equates to 96.14 in futures today).
• Cash gilt yields are 1-4bp lower, with the curve flattening a touch on the day.
• The rally in bonds also fed into the short end before the pull back from best levels. That leaves SONIA futures -0.5 to +2.0 through the blues, with the reds outperforming.
• BoE-dated OIS also flattened, before moving off dovish extremes alongside the move away from best levels in gilts. Liquid contracts on that strip are flat to ~1bp softer on the day as a result. The early dovish move saw yesterday’s extremes tested, although there were no substantial breaks.
• Comments from BoE Governor Bailey were relatively inconsequential for markets, although may have helped limit/counter the dovish move in OIS, He underscored the need to maintain the BoE’s interest rate policy in the fight against inflation, while stressing that it is too early to start discussing the idea of rate cuts.

EQUITIES: E-Mini S&P Remains Close to Mid-October Highs

• Eurostoxx 50 futures traded higher last week as the correction from recent lows extends. Price has traded through resistance at both the 20- and 50-day EMAs. The broader trend condition is bearish, however, a clear break of the 50-day average, at 4183.40, would signal scope for a stronger bull cycle and open 4256.00, the Oct 12 high. On the downside, key support and the bear trigger lies at 4001.0, the Oct 27 low.
• S&P e-minis traded higher last week and the contract is holding on to its recent gains. The latest recovery still appears to be a correction, however, price has cleared the 20- and 50-day EMAs. The break of the 50-day average - a key short-term pivot level - has strengthened bullish conditions. Sights are on 4430.50, the Oct 12 high. Key support and the bear trigger has been defined at 4122.25, the Oct 27 low.

COMMODITIES: WTI Futures Reach Lowest Level Since July as Bearish Theme Strengthens

• A bearish theme in WTI futures remains in play and the contract traded lower again yesterday. This week’s move down has resulted in a break of support at $80.20, the Oct 6 low. The breach highlights a stronger short-term reversal and a continuation lower would pave the way for a move towards $74.26, a Fibonacci retracement. On the upside, initial firm resistance has been defined at $83.60.
• The uptrend in Gold remains intact and the latest pullback appears to be a correction. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The continuation higher strengthens a bullish theme and opens $2022.20 next, May 15 high. Initial firm pivot support lies at $1936.6, the 50-day EMA. Clearance of this level is required to signal a short-term top.