MNI US MARKETS ANALYSIS - Treasury Curve Steeper Pre-Powell, Barkin Appearances

US TSYS: Bear Steeper With Powell, Jobless Claims and Issuance Ahead

• Cash Tsys have seen a cheapening impulse through European hours, driving seen a sizeable bear steepening with major benchmarks between 1 and 5.5bp cheaper. The long end leads the cheapening with 30Y supply later on.
• It sees 2s10s +2.5bps higher at -41bp to push back against yesterday’s near 10bp flattening.
• TYZ3 at 108-05+ trades just off a low of 108-04, but is only back in the middle of yesterday’s range. Volumes are again on the elevated side at over 400k, starting to become more typical in recent weeks. Resistance is seen at 108-25 (Nov 3 high) and support at 107-08 (20-day EMA).
• Data: Weekly jobless claims data headline for data at 0830ET, having had some large market impact in past weeks. We expect continuing claims to again be watched particularly closely after prior strong increases.
• Fedspeak: See the full schedule in the STIR bullet. Powell headlines and there is also an in-depth discussion with Barkin in the MNI Webcast, for which you can register to attend here.
• Note/bond issuance: US Tsy $24B 30Y Bond auction (912810TV0) – 1300ET
• Bill issuance: US Tsy $95B 4W, $85B 8W bill auctions – 1130ET

STIR: Fed Rate Path Nudges Higher With Powell Eyed

• Fed Funds implied rates have pushed a little higher after maintaining yesterday’s modest climb, with now 5bp of tightening over the next two meetings.
• The first cut from current levels is still just about seen with the June meeting (cumulative 25bps) and with 85bps of cuts to Dec’24 again from current levels.
• Chair Powell clearly headlines today’s continued Fedspeak after yesterday’s ultimately limited musings. Vice Chair Jefferson noted the Fed may need to respond if inflation expectations rise and Harker (’23 voter) maintained his preference to hold rates steady as the inflation fight goes on. Goolsbee (’23) meanwhile earlier today said the Fed must monitor risks of overshooting rates.

Today’s schedule:

• 0930 Bostic (’24) and Barkin (’24 voter) discuss survey data (just Q&A)
• 1100 MNI Webcast with Barkin (’24) (incl text)
• 1200 StL Fed interim Pres Paese on policy, economy outlook (the role next votes in 2025 and interim)
• 1400 Powell at IMF Conference panel discussion (text expected but not confirmed)

OI Indicates Mix Of SOFR Positioning Swings On Wednesday

The mix of preliminary open interest data and twist flattening of the SOFR strip point to the following positioning swings on Wednesday:

• Whites: Long cover seemed to be the dominant force.
• Reds: Apparent long cover once again seemed to dominate on a pack basis, although short setting was seemingly seen in SFRH5
• Greens: The dominant factor for the pack seemed to be long setting, although that was only really evidenced in SFRH6. It is hard to be surre of SFRU5 & SFRZ6 positioning moves owing to their unchanged price status on the day.
• Blues: Light long setting was seemingly observed across most of the pack.

OI Points To Mix Of Positioning Swings On Weds, TY Long Setting The Most Notable

The combination of yesterday’s twist flattening of the Tsy futures curve and preliminary open interest data point to the following positioning swings.

• TU futures seemingly saw modest long cover on net
• FV and UXY futures seemingly saw short cover on net.
• TY, US & WN futures seemingly saw fresh longs set on net.
• The biggest DV01-adjusted OI swing came in TY futures.

BOE: Pill's comments don't change the overall narrative

• SONIA has now retraced most of the moves seen around Pill's speech seen earlier today, with GBP FX also retracing most of today's strength.
• Pill's comments on Monday that the conversation about cuts could start in the middle of next year (if there are no surprises to the data) was fairly heavily caveated and in response to a question.
• Those comments were not repeated today (which probably spooked the market a little), but there is equally nothing to suggest that he has changed his view in any way. The rest of his comments were all in line with what was said on Monday - and the overarching message he is trying to convey is that now is not the time to discuss cuts and that the BOE still has a hiking bias as it sees the risks to inflation skewed to the upside.
• If those upside risks do not materialise the Bank will likely start to change its communication at that point - and we think that was the message that Pill was trying to convey on Monday.
• In the view of the MNI Markets team, we are unlikely to see any real meaningful shifts in tone until next year.

FOREX: GBP on the Up as Pill Fails to Repeat Mid'24 Cut Messaging

• Having traded mid-table for much of the European morning, GBP is now modestly outperforming as markets eyed comments from BoE's Pill, who moved markets earlier in the week in suggesting that it's reasonable to expect rates could be cut by mid'24. He didn't repeat that messaging today, stressing that the BoE cannot "declare victory on inflation" and that restrictive policy will be maintained for an extended period.
• GBP/USD recovered above the 1.23 handle in response, narrowing the gap with next resistance levels at 1.2313, the 38.2% retracement of the week's range. 1.2335 would be next, marking the mid-point of the hi-lo since Monday.
• NZD is the firmest currency in G10, but the NZD/USD pair remains within a range. The pair has recovered off yesterday's 0.5906, but remains below the Wednesday high.
• The single currency is trading less favourably, with the EUR lower against all others. ECBspeak so far Thursday has provided few surprises, but both Villeroy reinforced the view that rates are unlikely to rise further from current levels.
• In contrast to yesterday's Fedspeak, today's FOMC speakers are more explicitly commenting on the current economic outlook and policy. Barkin's comments will be carefully eyed as the Richmond Fed rotates back into a voting seat next year, and he speaks on the economic outlook at a webcast with MNI. Fed's Powell also appears at an IMF conference and is set to comment on policy, with a confirmed text release also set.

FX OPTIONS: Expiries for Nov09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600-20($2.0bln), $1.0700(E1.8bln)
• USD/JPY: Y150.00($2.8bln), Y151.00($1.1bln), Y152.00($515mln)
• EUR/JPY: Y156.00(E560mln)
• EUR/GBP: Gbp0.8745-50(E738mln)
• AUD/USD: $0.6450-60(A$2.0bln), $0.6500-10(A$1.0bln)
• USD/CNY: Cny7.2850($1.3bln), Cny7.3500($1.7bln)

EQUITIES: Eurostoxx 50 Futures Continue to Trade Above 50-Day EMA

• A short-term bull cycle in Eurostoxx 50 futures remains intact and the contract is trading closer to its recent highs. Price has recently 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 EMA, at 4183.70, 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 maintains a firm short-term tone. 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 and 4435.50, trendline resistance drawn from the Jul 27 high. Key support and the bear trigger is at 4122.25, the Oct 27 low.

COMMODITIES: WTI Futures Remain Close to Wednesday's Lows

• A bearish theme in WTI futures remains in play and the contract has traded sharply lower this week. The 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, 76.4% retracement of the May 4 - Sep 28 bull run. On the upside, initial firm resistance has been defined at $83.60.
• The recent uptrend in Gold remains intact and the latest pullback appears to be a correction - for now. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. This strengthens a bullish theme and a resumption of gains would open $2022.20 next, May 15 high. Initial firm pivot support lies at $1937.2, the 50-day EMA. Clearance of this level is required to signal a short-term top.