MNI US MARKETS ANALYSIS - Stacked Fedspeak Slate Compensates on Light Data Day

US TSYS: Modestly Richer On Elevated Volumes, Fedspeak and 3Y Supply Ahead

• Cash Treasuries have pulled back off earlier highs heading into the NY crossover but still sit 2.5-3.5bps richer on the day, led by 7s. The RBA’s dovish 25bp rate hike triggered a rally in Aussie bonds but there was only very limited spill over for Tsys at the time.
• It’s a move that sees the front end reverse the additional sell-off seen after the Fed’s SLOOS yesterday, whilst the longer end reverses the day's sell-off that built through the session before relatively little impact from SLOOS. Accordingly, 2s10s sits 1bp lower at -30bps off yesterday's most recent high of -25bps.
• TYZ3 at 107-30 trades close to an earlier high of 108-03+ but is within yesterday’s range, amidst elevated volumes of almost 450k. A bull cycle is still in play, with resistance at 108-25+ (Sep 25 high).
• Fedspeak: Today’s focus is on 7 different FOMC participants speaking -- see the separate STIR bullet for who to watch out for.
• Data takes a backseat, with the Trade Balance for Sep (0830ET) and Consumer Credit for Sep (1500ET).
• Note/bond issuance: US Tsy $48B 3Y note auction (1300ET)
• Bill issuance: US Tsy $75B 42-day CMB bill auction (1130ET)

STIR FUTURES: Fed Rate Path Unwinds SLOOS Lift, Fedspeak Deluge Ahead

• Fed Funds implied rates have reversed the lift seen to 2H24 meetings on yesterday’s SLOOS report. A dovish leaning RBA 25bp hike had regional impact but very limited spillover for Tsys at the time.
• There remains very limited hiking impetus building to just 3bp of cumulative tightening over the next two meetings, followed by a cumulative 34bp of cuts to Jun’24 and 93bp of cuts to Dec’24.
• Kashkari spoke again late yesterday, both to the WSJ (indications inflation may land north of 2% and “that would be very concerning to me”) and Fox News (nervous to declare victory on inflation too soon, Fed needs to assess more data and see how the economy evolves).
• Today sees a deluge of Fedspeak. In chronological order: Kashkari (’23 voter) on BBG TV, Goolsbee (’23) on CNBC, VC Supervision Barr (voter) on fintech, Schmid (non-voter) opening remarks at Dallas & Kansas Fed energy & economy conference, Waller (voter) on economic data including text, Williams (voter) moderates a discussion at Economic Club of NY and Logan (’23) in a fireside chat at the Dallas & Kansas Fed energy & economy conference.
• We suspect the more market moving commentary is likely to come from first post-FOMC speak from Waller, Goolsbee and Logan. Schmid is likely limited by opening remarks and is set to vote this year or next, but any comments would still be watched in his newly appointed role.

OI Points To Mix Of Short Setting & Long Cover Across SOFR Strip On Monday

The mix of yesterday’s bear steepening of the SOFR strip and preliminary open interest data points to a blend of short setting and long cover across the SOFR strip on Monday.

• Whites: Apparent notable long cover in SFRZ3 was enough to tilt overall white pack positioning in that direction.
• Reds: Saw the most sizable net OI swing on a pack basis, with apparent net short setting seen in each contract.
• Greens & Blues: Seemingly saw relatively modest net short setting on a pack basis, with pockets of net long cover seen within each pack.

OI Suggests Long Cover Dominated On Monday

The mix of yesterday’s sell off in futures and preliminary open interest data point to a mix of short setting and long cover across the futures curve to start the week.

• TU, TY, US & WN futures seemingly saw longs cover in net terms.
• FV & UXY futures seemingly saw fresh shorts set on net.
• The largest DV01 equivalent OI swing came in TY futures.
• The net impact of the aforementioned long cover outweighed the net impact of the previously flagged instances of short setting, meaning that net OI across the Tsy futures curve fell on Monday.

EUROPE ISSUANCE UPDATE

• GBP3.75bln of the 4.625% Jan-34 Gilt. Avg yield 4.405% (bid-to-cover 2.9x, tail 0.4bp).

• E633mln (E550mln allotted) of the 0% Oct-28 RAGB. Avg yield 3.016% (bid-to-cover 3.45x).
• E633mln (E550mln allotted) of the 2.90% Feb-33 RAGB. Avg yield 3.293% (bid-to-cover 3.66x).

FOREX: AUD Sinks as RBA Move to Temper Hawkish Outlook Post-Hike

• The greenback is the strongest performer in G10, helping the USD Index post a second consecutive session of gains to partially reverse Friday's sharp pull lower. The USD Index remains below the 50-dma resistance at 105.727, which provides the first upside level.
• Equity futures are a touch lower, with the e-mini S&P off by 7 points or so and pointing to a lower cash open on Wall Street later today. This has helped aide the USD strength, while AUD sits as the poorest performer after the RBA's 25bps rate hike (as expected) was accompanied by a switch to data-dependency, moderating the tightening message from the bank. AUD/USD erased Friday's rally in response, with 0.6394 marking the next support (50-dma).
• Meanwhile, NOK/SEK has plumbed new multi-month lows, with the March 21 low of 0.9725 the next downside level to watch. Moves coincide with a further weakening in the oil price, as Brent and WTI crude futures both post multi-week lows early Tuesday. Focus for Scandi currencies turns to Friday's inflation release (one of only 2 remaining CPI prints before the December policy meeting and fresh set of path projections). A lower than expected October CPI could result in markets pricing out a December hike, posing renewed risks to NOK.
• US and Canadian trade balance data takes focus Tuesday, while the speakers schedule is long: Kashkari, Goolsbee, Barr, Waller, Williams and Logan are all set to speak as well as ECB's Nagel.

FX OPTIONS: Expiries for Nov07 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0490-00(E2.1bln), $1.0575(E510mln), $1.0650(E1.8bln), $1.0695-00(E556mln)
• USD/JPY: Y149.00($765mln), Y149.50($583mln), Y150.00($882mln), Y150.50($570mln)
• GBP/USD: $1.2168-85(Gbp530mln)

GILTS: Gilts Outperform as BoE's Pill Fails to Push Back on Idea of Summer '24 Rate Cut

Gilt futures have shown above Monday’s high on a few occasions, although bulls haven’t managed to get near closing Monday’s opening gap lower.

• Futures last +60, just shy of best levels, with bulls eying the October high (95.66) as the next level of meaningful resistance.
• Cash gilt yields are 6.5-9.5bp lower, bull steepening.
• Gilts have outperformed core global FI peers across most of the curve.
• The main factor driving the outperformance has been the delayed digestion of late Monday comments from BoE chief economist Pill.
• A quick reminder that Pill gave a bit of a green light to market pricing of 25bp rate cut come the end of August ’24.
• Elsewhere, his words on inflation and the latest slowing in the domestic Kantar food price inflation metric (which fell into single digits in Y/Y terms) also provided support.
• More widely, weaker oil prices will have also helped the bid.
• The presence of the bidding deadline for the latest round of 10-Year supply helped futures away from best levels, before the clearance of the auction above prevailing mid prices, with a reasonably strong cover ratio, provided fresh support.
• SONIA futures are flat to +11.5 through the blues, with the front of the reds outperforming on the strip.
• BoE-dated OIS is 0.5-12bp softer through the liquid contracts, with terminal policy rate pricing ~6bp above current effective SONIA levels. Pill’s comments have allowed markets to fully discount a 25bp cut come the end of the Aug ’24 MPC.

EQUITIES: E-Mini S&P Holds Onto Recent Gains Though Recovery Still Appears Corrective

• 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 4184.10, 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 Breach Support at $80.20

• The medium-term trend condition in WTI futures remains bullish and the recent move lower still appears to be a correction. However, the contract has breached support at $80.20, the Oct 6 low. The break highlights a stronger short-term reversal. A continuation lower would pave the way for a move towards $77.03, the Aug 24 low. On the upside, a break of resistance at $85.90, the Oct 27 high, is required to reinstate a bullish theme.
• The trend condition in Gold is unchanged - the uptrend 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 $1935.3, the 50-day EMA. Clearance of this level is required to signal a short-term top.