MNI US MARKETS ANALYSIS - Treasuries Consolidate Large Part of Monday Rally

Modest Paring Of Yesterday’s Sizeable Gains With Solid Docket Ahead

• Cash Tsys trade between 0.5-3bp cheaper, bear steepening as the front-end leads the sell-off although with curve metrics distorted by yesterday’s new 2Y issue.
• The moves mostly consolidate yesterday’s sizeable rally (primarily following EGBs and with Tsys continuing to catch up after 2Y and 5Y supply had been absorbed somewhat smoothly) ahead of a heavy docket with Fedspeak, multiple second tier data releases and supply from both 7Y paper and two bills ahead.
• TYZ3 at 108-30 trades in the middle of the day’s range having touched a new recent high of 109-03+ in London trade. It marks another increase towards the bull trigger at 109-08+ (Nov 17/22 high).
• Data: FHFA Home prices Sep (0900ET), S&P CoreLogic Home Prices Sep (0900ET), Conf Board consumer confidence Nov (1000ET), Richmond Fed mfg Nov (1000ET), Dallas Fed services Nov (1030ET)
• Fedspeak: See separate below bullet for the schedule.
• Note issuance: US to sell $39B 7-year notes (1300ET)
• Bill issuance: US to sell $44B 52-week bills, $70B 42-Day CMBs (1130ET)

2H24 Rates Lift, Waller and Bowman Watched For Post-CPI Clues

• Fed Funds implied rates are near unchanged for the next three FOMC meetings but further out push higher to push back above pre-Thanksgiving levels (but still within yesterday's range after rallying through the session).
• Peak tightening is seen with a cumulative 3.5bp for January, with a first cut from current levels in June (26bp cumulative) and 86bp of cumulative cuts to end-2024.
• There is a heavy Fedspeak schedule today including Governors Waller and Bowman, both with text and on monetary policy specific areas.
• Neither of these permanent voters have spoken on policy since softer than expected US CPI on Nov 14. Bowman has been at the most hawkish end of the FOMC spectrum and last said Nov 7 and 9 that she expects a need for a further rate hike.
• We suspect those two will be the highlight for monetary policy relevant discussions today, with Goolsbee’s interview on Marketplace coming after the close.

• 1000 Goolsbee (’23) opening Agriculture Conf. (text tbd)
• 1000 Waller (voter) on economic outlook (text)
• 1045 Bowman (voter) on monetary policy (text)
• 1305 Barr (voter) on Community Reinvt Act (text)
• 1430 Paese (non-voter) in Q&A on FedNow payments system (no text)
• 1530 Barr (voter) fireside chat on Community Reinvt Act (no text)
• 1700 Goolsbee (’23) interview on Marketplace (no text

TUESDAY SPEAKER GUIDE: Waller, Bowman Take Top Billing

• 1500GMT/1000ET – Fed’s Goolsbee (voter ’23, non-voter ’24) gives welcoming remarks at agriculture conference (Text undecided, Q&A no)
• 1500GMT/1000ET – Fed’s Waller (voter) on the economic outlook (text undecided, moderated Q&A)
• 1545GMT/1045ET – Fed’s Bowman (voter) on monetary policy at Utah banking conference (text yes, audience Q&A)
• 1600GMT/1100ET – ECB’s Lagarde in pre-recorded message for corporate reporting conference
• 1700GMT/1200ET – BoE’s Haskel on UK inflation (text yes)
• 1805GMT/1305ET – Fed’s Barr (voter) on community reinvestment act (text yes, Q&A no)
• 1830GMT/1330ET – ECB’s Lane on macroeconomic policy
• 1930GMT/1430ET – Fed’s Paese (non-voter) on FedNow payments (no text, audience Q&A)
• 2030GMT/1530ET – Fed’s Barr (voter) on community reinvestment act (no text, Yes Q&A)
• 2200GMT/1700ET – Fed’s Goolsbee (voter ’23, non-voter ’24) on Marketplace Radio

EUROPE ISSUANCE UPDATE:

UK Auction Results - 3.75% Oct-53 Gilt:

• GBP2.75bln of the 3.75% Oct-53 Gilt. Avg yield 4.664% (bid-to-cover 2.34x, tail 1.5bp).
• The 3.75% Oct-53 gilt auction was relatively weak - with a tail of 1.5bp and the average price of the auction only just coming in a bit higher than the pre-auction mid-price (with the LAP well below).
• This has pushed the price of the 30-year gilt to its low of the day on the publication of the results. It has also translated across the curve to some extent too with gilt futures also hitting their lows of the day on the results (around half of this move in futures has already been reversed but there is still some steepening of the 10s30s curve evident at the time of writing).
• We note that there was support amongst GEMMs (and around half of investors) to reopen the 3.75% Oct-53 gilt at the additional auction on 13 December (so just two weeks away) while there is also support for a new 30-year gilt to be issued via syndication in January. So there is a lot of issuance due to come in the 30-year area over the next couple of months. This may have contributed to the weak auction.

FOREX: USD Index Off Lows, But Corrective Pullback Could Persist

• The USD Index is just off lows, but remains in close proximity to multi-month lows posted in overnight Asia-Pac trade at 103.074. This keeps the USD pullback intact ahead of month-end, with first key support at 102.546 the next downside target: the 61.8% retracement of the uptrend drawn off the July low. To the upside, any extended recovery will have to top the 200-dma of 103.612.
• The JPY is modestly outperforming, higher against most others amid generally softer global equity markets. The e-mini S&P saw weakness overnight to trade 4550.50 alongside the European open. Moves are contained at present, however, keeping the equity uptrend intact headed into month-end.
• Oil and commodity-tied currencies are seen firmer, helped by WTI and Brent crude futures inching off pre-OPEC meeting lows. Resultingly, AUD and CAD are firmer and toward the top of the G10 table. AUD/USD printed a new cycle high Tuesday at 0.6632, making for a clean break of the 200-dma resistance after the close above on Monday.
• Focus Tuesday turns to the US consumer confidence release for November and the Richmond Fed Manufacturing Index. Fedspeak picks up after the Thanksgiving break, with Goolsbee, Waller, Bowman, Barr, and Paese all set to appear. Outside of the Fed, ECB's Lagarde, Lane and BoE's Haskel make appearances.

FX OPTIONS: Expiries for Nov28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0775-80(E794mln), $1.0835-40(E926mln), $1.0850-55(E1.2bln), $1.0880-00(E1.0bln),$1.0935-55(E2.1bln)
• USD/JPY: Y147.95-90($790mln), Y148.50($1.1bln), Y148.95-00($1.5bln), Y149.85-05($1.4bln), Y152.85-00($1.2bln)
• EUR/GBP: Gbp0.8700-10(E897mln)
• AUD/USD: $0.6285-90(A$1.1bln), $0.6570(A$546mln), $0.6585(A$524mln)
• NZD/USD: $0.6045-50(N$593mln), $0.6100(N$590mln)
• USD/CNY: Cny7.1825($744mln)

EGBS: Two Way Flows Seen Tuesday; Periphery Spreads Widen

Core/semi-core EGBs currently sit mixed following two-way flows through this morning. After starting the day firmer alongside global core FI markets, Bund and OAT futures reversed course toward intraday lows before stabilising.

• Typically hawkish comments from ECB’s Nagel seemed to have a little more impact than they would normally given the dovish repricing that had been seen early this week.
• Bund futures are currently up 0.08 ticks today at 131.40 with 10y Bund yields up 0.3bp at 2.550% and Schatz yields down -0.9bp at 2.972%. The German cash curve is seen lightly twist steepening on the 10s, while OAT yields are flat to 2bp higher across the board.
• Euro area money supply for October was the data highlight this morning but had little meaningful market impact. Y/Y M3 growth came in a touch below consensus at -1.0% Y/Y and while household lending growth was revised lower to 0.6% Y/Y vs the prelim of 0.8%.
• Peripheries are generally seen underperforming, with spreads to Bunds tighter. The 10-Yr BTP/Bund spread is 5.1bps wider at 178.5bps, continuing the widening momentum seen following Lagarde's comments yesterday re: discussing PEPP reinvestments in the "not too distant future".
• The remainder of today's calendar is light, with Lagarde delivering a pre-recorded message at the European Financial Reporting Advisory Group Conference at 1600GMT. ECB's Lane also speaks after hours in a seminar on macroeconomic policy.

GILTS: Soft Oct-53 Auction Facilitates Light Steepening Of Curve After Early Two-Way Flow

Early flow was generally guided by that seen in wider fixed income markets, with yield support levels in Bunds and typically hawkish communique from the head of the German Bundesbank helping cap the early broad bid in core global FI markets.

• A near 18-month low for the rate of inflation lodged in the BRC shop price index will have provided some domestic support at the gilt open, while comments from BoE Deputy Governor Ramsden re: a more homegrown element to inflation and a reiteration of the Bank’s higher for longer mantra probably factored in to limiting the early bid.
• Gilt futures show just above worst levels of the day, -10 or so, after printing above yesterday’s high early on.
• Cash gilts yields are flat to 2.5bp higher on the day. The presence of GBP2.75bn of 3.75% Oct-53 supply provided a modest steepening impulse during early trade. That extended post-auction, given a relatively weak round of demand metrics (more on that here).
• SONIA futures have traded either side of unchanged on the day, tracking gilts/wider bonds, last showing flat to -1.5bp.
• BoE-dated OIS contracts are little changed to 1bp softer on the day through ’24 MPC meetings.
• Comments from BoE hawk Haskel headline the domestic docket during the remainder of today’s session.

EQUITIES: Bullish Theme Across Equity Futures Persists Into December

• A bullish theme in S&P e-minis remains intact and the contract is holding on to its recent gains. A strong rally on Nov 14 resulted in the break of a trendline drawn from the Jul 27 high. This breach reinforces bullish conditions and signals scope for a climb towards 4597.50.
• A bullish theme in Eurostoxx 50 futures remains intact and the contract is trading closer to its recent highs. Moving average studies are in a bull-mode position signalling a rising cycle and the potential for a continuation higher.

COMMODITIES: Trend Outlook in WTI Remains Bearish Into OPEC

• The trend condition in Gold remains bullish and last week’s gains reinforce this set-up. The yellow metal has started this week on a bullish note and traded through resistance at $2009.4, the Nov 7 high. A clear break of this hurdle would confirm a resumption of the uptrend.
• The trend outlook in WTI futures is unchanged and remains bearish. Attention is on support at $72.37, the Nov 16 low. A break would confirm a resumption of the downtrend that started late September and maintain a price sequence of lower lows and lower highs.