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MNI US MARKETS ANALYSIS - Prices Steady as Escalation Fails to Materialize

Highlights:

  • Treasury curve sits modestly bear steeper
  • US futures point to higher equity open on lack of material Israel-Hamas escalation
  • Fed speakers due, with Empire Manufacturing the sole data release

US TSYS: Bear Steeper With Geopolitics Still At Forefront

  • Cash Tsys trade bear steeper, 1.5-9.5bp cheaper across the curve. The move came in early trading as a lack of meaningful weekend escalation in the Israeli-Hamas conflict (albeit seeming a matter of time until we do see that) allowed Tsys to ease further move from Friday's peak.
  • Medium-term liquidity injections from the PBoC (with an eye on government bond supply), as well as political headlines out of Europe & NZ, provided the highlights of the weekend news flow from elsewhere.
  • TYZ3 trades at the very low end of Friday’s range, currently at 107-11+ (-11+ ticks) off decent cumulative volumes of 325k. Latest flow has included a 2.5k block suggested buy at 107-10, coming in just above yesterday’s low of 107-09, whilst support remains at 106-14 (2.0% lower Bollinger band) before greater focus at 106-03+ (Oct 4 low).
  • Data: Empire Fed mfg for Oct (0830ET)
  • Fedspeak: Harker at 1030ET and 1630ET, both including prepared text.
  • Bill issuance: US Tsy $75B 13W, $68B 26W bill auctions (1130ET)

STIR FUTURES: Fed Cut Expectations Hovering at Post-CPI Levels

  • Fed Funds implied rates are unchanged since Friday’s close for Nov but otherwise marginally higher for subsequent meetings, pushing a little further off pre-CPI recent lows.
  • Cumulative hikes from 5.33% effective: +2bp Nov and +9bp to a terminal 5.42% in Dec/Jan (+1bp/+1.5bp).
  • Cuts from terminal: 27bp to Jun’24 and 78bp to Dec’24, with both keeping to similar levels post-CPI.
  • Fedspeak: Goolsbee (’23 voter) told the FT this morning that the slowdown in inflation is undeniably a trend. 2 x Harker (’23) ahead at 1030ET and 1630ET, both with text, closely following Friday’s remarks which included that higher rates are putting pressure on the US budget and a point where that pressure becomes an issue isn’t far off.

TSY OI: Short Cover The Apparent Marginal Dominant Positioning Factor On Friday

The combination of Friday’s geopolitical-angst inspired rally and preliminary open interest data point to a mix of short cover and long setting across the Tsy futures curve ahead of the weekend.

  • TU, TY, UXY and WN seemingly saw light long setting in net terms.
  • Meanwhile, short cover was seemingly seen in FV and US futures, with the DV01 equivalent there more than outweighing the apparent long setting seen elsewhere.
13-Oct-2312-Oct-23Daily OI ChangeOI DV01 Equivalent Change ($)
TU3,995,6153,994,241+1,374+51,327
FV5,710,2245,718,223-7,999-331,751
TY4,697,1194,695,934+1,185+74,939
UXY1,909,4451,908,203+1,242+109,467
US1,368,8871,379,837-10,950-1,426,786
WN1,551,7351,550,989+746+138,487
Total-14,402-1,384,317

STIR OI: Long Setting Seemed To Dominate On SOFR Strip On Fri, Pockets Of Short Cover Also Seen

The combination of Friday’s bull flattening of the SOFR strip and preliminary open interest data point to the following positioning swings ahead of the weekend:

  • Whites: Short cover was seemingly the dominant theme on a pack basis, with net flows in SFRU3 and SFRZ3 outweighing apparent long setting in SFRH4 and SFRM4.
  • Reds: Long setting seemed to dominate on a pack basis, but that was only because of one large round of OI movement in SFRZ4.
  • Greens: Long setting seemed to dominate on a pack basis, although short cover was seemingly seen in SFRM6.
  • Blues: Long setting seemed to dominate comfortably in net terms.
13-Oct-2312-Oct-23Daily OI ChangeDaily OI Change In Packs
SFRU3952,590955,506-2,916Whites-11,371
SFRZ31,440,2151,456,681-16,466Reds+18,740
SFRH4977,418973,382+4,036Greens+6,862
SFRM4942,344938,369+3,975Blues+24,112
SFRU4840,394841,930-1,536
SFRZ4973,663954,361+19,302
SFRH5538,570538,083+487
SFRM5573,171572,684+487
SFRU5490,531483,820+6,711
SFRZ5508,021504,554+3,467
SFRH6314,704314,278+426
SFRM6288,614292,356-3,742
SFRU6226,803229,140-2,337
SFRZ6223,769210,788+12,981
SFRH7136,331128,488+7,843
SFRM7140,314134,689+5,625

EUROPE ISSUANCE UPDATE:

SlovGB auction results

  • E92mln of the 0.125% Jun-27 SlovGB. Avg yield 3.5393% (bid-to-cover 1.32x).
  • E150mln of the 4.00% Oct-32 SlovGB. Avg yield 4.0158% (bid-to-cover 2.57x).
  • E139mln of the 3.625% Jun-33 SlovGB. Avg yield 4.03% (bid-to-cover 1.83x).
  • E50mln of the 0.375% Apr-36 SlovGB. Avg yield 4.316% (bid-to-cover 2.64x).
Spain syndication announcement:
  • Spain has announced a mandate for a new 15-year Obli-Ei maturing on 30 November 2039. "The transaction will be launched in the near future subject to market conditions." MNI expects the transaction to take place tomorrow.

FOREX: Greenback Off Highs, But Few Signs of Reversal in Muted Trade

  • The greenback is moderately lower early Monday, reflecting the lack of any material escalation in tensions across the middle-east. Resultingly, haven currencies are offered and helping keep the likes of JPY and CHF well off recent highs. Both EUR/USD and GBP/USD are modestly correcting off last week's pullback lows, however there are few signs of any bullish breaks across the USD pairs at present.
  • As such, there's a wait-and-see feel across G10 markets, however more action is noted across CEE, as the PLN rallies on the back of a surprising likely victory for the pro-EU opposition in the weekend's leadership elections. EUR/PLN has corrected lower, erasing the entirety of the rally that followed the central bank's surprise 75bps cut two months ago.
  • SEK is benefiting from the calmer backdrop, rising against all others in G10, as US futures point to a positive open on Wall Street Monday. NZD is similarly firm, however NZD/USD remains well within range of the Friday lows at 0.5884 and below the 50-dma resistance of 0.5946.
  • Focus Monday turns to the US empire manufacturing data for October, due alongside speeches from Fed's Harker and ECB's de Cos. Looking later in the week, UK and New Zealand inflation releases as well as the continuation of US quarterly earnings season should keep markets busy.

FX OPTIONS: Expiries for Oct16 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0550(E990mln), $1.0540-50(E763mln), $1.0685-95(E2.6bln)
  • USD/JPY: Y148.00($544mln), Y149.35-55($554mln)
  • GBP/USD: $1.2755(Gbp584mln)
  • AUD/USD: $0.6400(A$968mln), $0.6480-00(A$620mln)
  • USD/CAD: C$1.3550($1.0bln)
  • USD/CNY: Cny7.3200($1.1bln)

EQUITIES: Bearish Theme in Eurostoxx 50 Futures Remains in Play

  • A bearish theme in Eurostoxx 50 futures remains in play and last week’s reversal from 4256.00, the Oct 12 high, signals the end of the recent corrective cycle. Note too that resistance at the 50-day EMA, at 4253.10, remains intact. A clear break of this average is required to signal scope for a stronger correction. The bear trigger lies at 4082.00, the Oct 4 low. Clearance of this level would confirm a resumption of the downtrend.
  • S&P E-Minis found resistance last week at 4430.50 (Oct 12 high). The pullback means that - for now - resistance at the 50-day EMA, at 4427.45, remains intact. A clear breach of this average is required to strengthen bullish conditions and this would open 4496.25, trendline resistance drawn from the Jul 27 high. A deeper pullback would refocus attention on 4235.50, the Oct 4 low and bear trigger.

Gold Trading Above 20- and 50-Day EMAs, Strengthening Recent Rally

  • WTI futures traded higher Friday and the contract is holding on to its recent gains. The latest recovery has highlighted a key support at $81.50, the Oct 6 low. The medium-term trend condition remains bullish and an extension higher would expose the bull trigger at $95.03, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $81.50, would instead highlight potential for a stronger bear cycle.
  • Gold traded sharply higher Friday, clearing both the 20- and 50-day EMAs. The rally strengthens the recent reversal and exposes the next key resistance at $1953.0, the Sep 1 high. Clearance of this level would further strengthen a bullish theme. Note that moving average studies continue to highlight a broader bear trend condition, however, prices would need to trade below Friday's low of $1868.8 to signal a reversal.

MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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