Highlights:
- Treasuries on top, buoyed by rally in EGBs
- French, German PMIs sink, undermining EUR and raising pricing for a bigger ECB move in Dec
- Final Michigan sentiment, prelim US PMI set to follow - with ECB speak
- Treasuries have been buoyed by European growth concerns after misses for flash PMIs in both the Eurozone and UK.
- It dials up focus on today’s US flash PMIs (see the earlier STIR post) and the final U.Mich consumer survey. The latter should receive greater than usual attention considering it will be the first look at sentiment and inflation expectations since the US election (survey ended Nov 18 vs Nov 4 for the preliminary release).
- Cash yields are 2-3.5bp lower on the day, with the belly leading declines and the very long-end lagging.
- Benchmark yields remain within yesterday’s range across the curve, consolidating prior flattening with 2s10s at 7.3bps.
- TYZ4 is close to session highs of 109-25 (+ 08) on relatively modest cumulative volumes of 430k considering continued roll activity.
- It remains below yesterday’s high of 109-28+ and resistance at 110-06 (20-day EMA). The bear cycle is seen still in play, with support at 108-30 (Nov 15 low) after which lies 108-18+ (1.236 proj of Oct 1 - 10 - 16 swing).
- Data: S&P Global US PMIs Nov prelim (0945ET), U.Mich consumer survey Nov final (1000ET), KC Fed services Nov (1100ET)
- Fedspeak: Bowman speaks on AI (1815ET)
STIR: Fed Implied Rates Ease From Highs On Soft European PMIs
- Fed Funds implied rates have been weighed by bleak flash Eurozone readings showing surprisingly weak service sector activity along with a broad miss for UK PMIs (with the Eurozone findings having the greater impact).
- The Dec implied rate is 1bp lower, Mar 2bp lower and Jun 3bp lower. That is however after the Jun’25 implied rate closed at fresh cycle highs yesterday, marking just 50bp of cuts.
- Cumulative cuts from 4.58% effective: 15bp Dec, 21bp Jan, 35bp Mar and 53bp June.
- US flash PMIs for November are in focus today for a first look at activity and broader sentiment after the US election results.
- When it comes to heavily weighted services figures, the PMI has directionally been poor relative to ISM services in recent months, with the PMI slipping from 55.7 in Aug to 55.0 Oct versus ISM services rising from 51.5 in Aug to 56.0 in Oct. The outright level has however been a useful indicator of continued robust strength in the services sector.
STIR: OI Points To Mix Of Short Setting & Long Cover In SOFR Futures On Thurs
OI data points to net long cover dominating in the white and red SOFR futures on Thursday, while net short setting seemed to dominate in the greens and blues, as most contracts ticked lower.
- Subsequent moves and drivers, as well as the latest run of Fed pricing, are covered in our recent STIR bullet.
| 21-Nov-24 | 20-Nov-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,259,920 | 1,265,949 | -6,029 | Whites | -37,968 |
SFRZ4 | 1,284,851 | 1,307,987 | -23,136 | Reds | -4,632 |
SFRH5 | 1,084,164 | 1,082,496 | +1,668 | Greens | +22,446 |
SFRM5 | 998,448 | 1,008,919 | -10,471 | Blues | +8,430 |
SFRU5 | 737,446 | 734,954 | +2,492 |
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SFRZ5 | 938,584 | 934,620 | +3,964 |
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SFRH6 | 617,806 | 621,483 | -3,677 |
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SFRM6 | 617,590 | 625,001 | -7,411 |
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SFRU6 | 653,914 | 638,383 | +15,531 |
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SFRZ6 | 645,451 | 652,012 | -6,561 |
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SFRH7 | 435,905 | 426,362 | +9,543 |
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SFRM7 | 345,837 | 341,904 | +3,933 |
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SFRU7 | 273,413 | 277,206 | -3,793 |
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SFRZ7 | 274,491 | 268,886 | +5,605 |
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SFRH8 | 210,588 | 211,152 | -564 |
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SFRM8 | 165,362 | 158,180 | +7,182 |
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CENTRAL BANKS: Markets right to price ECB-BOE policy divergence post-PMI (1/2)
- We think that markets are right to price more ECB-BOE policy divergence post-PMI as the importance of growth data at present is much more important to the ECB's reaction function than for the BOE.
- The ECB cut policy rates by 25bp in October, with the details in the PMI data pointing to faster deterioration in the Eurozone economy than they had expected. ECB policymakers made a number of public appearances after the data was released flagging the change in their thought process relative to the more benign outlook that they had signalled at their September meeting.
- The growth outlook for the eurozone looks increasingly negative (particularly in Germany and increasingly in France). The ECB is concerned that this will lead to lower domestic price pressures going forward and hence moving policy rates (which are currently restrictive) towards neutral in a timely manner makes sense.
- Today's data increases the urgency. At least a 25bp cut looks baked in and markets are right to price in an increased probability of a larger 50bp cut, in our view.
- For the Bank of England, there are complicating factors. First, the fall in inflation has lagged behind that in the Eurozone. Unlike in the Eurozone there are still some concerns even amongst the middle of the MPC that there are still some structural elements keeping inflation higher.
- Furthermore, large minimum wage increases and employer NIC increases (which we calculated could increase the costs of employing minimum wage workers by a combined 10%) have risks of being passed through, and are likely to leave inflation above target for at least another year from now.
- Weaker growth is not the primary concern of the middle of the MPC right now, cost passthrough is. That's why we don't think today's PMI data increase the probability of a December cut notably.
- Wage data (BOE's Agent's survey in February with hard data for Q1 available by the May/June MPC meetings) and the increase in costs passed on by a lot of services firms (only available in the hard data by the June meeting) will keep the centrists at a "gradual" pace until we have this certainty either at the May or June MPC meetings.
- One other consideration is that this is the last flash PMI report ahead of the December ECB meeting (decision on 12 December) while the BOE will have another flash PMI print (and inflation and labour market data) ahead of their decision being announced on 19 December.
FOREX: PMIs Drill EUR to Multi-Year Lows
- Having traded poorly through the week, Friday's prelim PMI numbers were seen as critical for near-term trade in the single currency and the particularly soft releases for both France and Germany weighed heavily across the EUR into the NY crossover.
- Fallout from the PMIs prompted EUR/USD to trade fresh pullback lows at 1.0335 - that's the lowest print since 2022, and saw very solid participation on the move: Z4 EUR futures traded well over double what you'd normally see at this time of day.
- The break here puts prices at the lowest since '22 and will again re-raise speculation that EUR/USD could revisit parity in the coming months - the options-implied likelihood of touching 1.00 before year-end has spiked - now 9.7%, up from 0.4% in the session before the US election.
- Heavy EUR selling underpinned the broad USD rally, which is shrugging off the pullback in US yields, and prompting GBP/USD to show below $1.25. This narrows the gap with key levels below at 1.2446 and the firm bear trigger at 1.2300 - the mid-April low.
- Focus for the duration of the Friday session turns to Canadian retail sales, prelim US PMI numbers for November and the final UMich sentiment print. ECB speak scheduled today includes Schnabel, Villeroy and Nagel.
FOREX: EURAUD Breaks Trendline Support, Pierces 1.6000
- Single currency weakness continues to be well noted in the crosses, with stable US equity markets continuing to provide a relative boost to higher beta currencies. We noted yesterday that EURAUD weakness comes amid Westpac revising their RBA forecast, pushing out the start date of the rate-cutting cycle from February to May, and notably joining NAB who adjusted its call last week.
- Price action Friday has seen EURAUD (-0.31%) continue south, and momentum picked up on a breach of trendline support drawn off the 2022 lows, which intersected around 1.6120. EURUSD’s sharp move below 1.0400 also prompted EURAUD to pierce its key medium-term pivot level at 1.6000 (low print of 1.5968).
- Attention will now be on a daily/weekly close below this level, which could signal scope for a more protracted move lower. Targets would include 1.5736 (the 50% Fibonacci retracement of the 2022/2024 price swing) and 1.5253, another key medium-term pivot.
- Data points of note next week include German IFO on Monday and Australian CPI data which is scheduled on Wednesday.
OPTIONS: Expiries for Nov22 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0500(E2.2bln), $1.0530-40(E940mln), $1.0550-60(E713mln), $1.0600-15(E1.6bln)
- USD/JPY: Y154.00($884mln)
EQUITIES: Bearish Theme in Eurostoxx 50 Futures Remains Intact
- A bearish theme in the Eurostoxx 50 futures contract remains intact. A fresh cycle low this week marks a resumption of the downtrend that started Sep 30. Price has breached 4746.94, 61.8% of the Aug 5 - Sep 30 bull cycle. This exposes 4662.12, the 76.4% retracement point. Initial firm resistance has been defined at 4961.00, the Nov 6 high, where a break would highlight a reversal. First resistance is at 4831.33, the 20-day EMA.
- S&P E-Minis remain above Tuesday’s low. Recent weakness in the contract appears to have been a correction. Medium-term trend signals such as MA studies, continue to highlight a dominant uptrend. The contract has recently traded through support at the 20-day EMA and the next key support to monitor is 5843.83, the 50-day EMA. A clear break of this EMA would signal scope for a deeper retracement. The bull trigger is 6053.25, the Nov 11 high.
COMMODITIES: WTI Futures Trade Higher Wednesday, But Conditions Still Bearish
- WTI futures have traded higher this week. However, a bearish theme remains intact. Attention is on $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support. For bulls, a stronger reversal to the upside would instead refocus attention on the key short-term resistance at $77.04, the Oct 8 high. Clearance of this level would resume the recent uptrend. Initial firm resistance is $72.41, the Nov 7 high.
- The long-term trend condition in Gold is unchanged, it remains bullish and the latest move down appears to have been a correction. Price has recovered from its recent lows and the metal is again trading higher, today. The 20-day EMA at $2653.0, has been breached. This highlights a stronger reversal and signals the end of the recent bearish corrective cycle, opening $2730.4, a Fibonacci retracement. Initial support is at $2636.6, the 50-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 22/11/2024 | 1330/0830 | ** |  CA | Retail Trade |
| 22/11/2024 | 1330/0830 | ** | CA | Retail Trade |
| 22/11/2024 | 1445/0945 | *** |  US | S&P Global Manufacturing Index (Flash) |
| 22/11/2024 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 22/11/2024 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 22/11/2024 | 1545/1645 |  EU | ECB's Schnabel in panel on MonPol | |
| 22/11/2024 | 2315/1815 | US | Fed Governor Michelle Bowman |
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