Highlights:
- Cash treasury trade reopens, favours higher yields
- EUR/USD parity risks loom large for 2025
- Fed's Barkin, Waller should be market focus Tuesday
US TSYS: Cash Treasuries Resume, Ylds Rising Ahead Busy Fed Docket, SLOOS Later
- Cash Treasuries return after extended Veterans Day holiday, yields higher but off early London session highs (2s +.0547 at 4.3086%, 10Y +.0526 at 4.3569%).
- Treasury futures near steady in the short end vs modestly lower levels out the curve amid improving volumes: Dec'24 10Y -1.5 at 109-27.5 vs. 109-24 low on just over 370,000 contracts currently traded. Initial technical support holds at 109-07, last week's Nov 6 low and bear trigger. Curves remain under modest flattening pressure: 2s10s -.190 at 4.636, 5s30s -2.307 at 25.321.
- US data resume, higher than expected NFIB Small Business Optimism just reported at 93.7 vs. 92.0 est, 91.5 prior. Regional NY Fed 1Y inflation expectation release at 1100ET. Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) release this afternoon at 1400ET. US Tsy bill auctions $81B 13W, $72B 26W at 1130ET, $80B 42D CMB auction at 1300ET.
- But main data focus remains on Wednesday's CPI and Thursday's PPI.
- Fed speakers return with busy schedule ahead: Fed Gov Waller moderated discussion bank conf at 1000ET, Richmond Fed Barkin summit discussion (text, Q&A) at 1015ET, MN Fed Kashkari moderated discussion (no text, media Q&A) at 1400ET, Philly Fed Harker on Fintech & AI (text, Q&A) at 1700ET while Richmond Fed Barkin is expected to answer more questions at an economic development conf at 1730ET.
- Cross market roundup: crude rebounds from Monday's sell-off (WTI +0.63 at 68.67), Gold adds to Monday's sharp decline (-20.60 at 2,598.22), USD gaining extending higher.
US TSY FUTURES: Most Contracts Saw Net Short Setting On Monday
OI data points to net short setting in most contracts during Monday’s holiday-thinned trade, with only apparent long cover in TY futures breaking the wider theme.
- Contract-specific net DV01 equivalent swings were relatively modest on the day.
- Price action centered on the inflationary impact of incoming President Trump's policy preferences.
| 11-Nov-24 | 08-Nov-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,527,719 | 4,521,779 | +5,940 | +213,958 |
FV | 6,343,715 | 6,334,805 | +8,910 | +371,134 |
TY | 4,566,619 | 4,570,487 | -3,868 | -244,391 |
UXY | 2,214,369 | 2,206,422 | +7,947 | +696,017 |
US | 1,845,278 | 1,833,018 | +12,260 | +1,580,373 |
WN | 1,755,462 | 1,753,359 | +2,103 | +421,786 |
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| Total | +33,292 | +3,038,878 |
STIR: Mix Of Short Setting & Long Cover Seen In SOFR Futures On Monday
OI data points to a mix of short setting and long cover in SOFR futures on Monday, as the inflationary impact of Trump’s policy preferences pushed futures lower.
- Short setting dominated in the front 5 contracts, although apparent long cover in SFRZ5 provided the largest net OI swing on the day.
| 11-Nov-24 | 08-Nov-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,268,974 | 1,268,816 | +158 | Whites | +20,698 |
SFRZ4 | 1,201,829 | 1,192,594 | +9,235 | Reds | -13,101 |
SFRH5 | 1,068,906 | 1,062,610 | +6,296 | Greens | -538 |
SFRM5 | 952,519 | 947,510 | +5,009 | Blues | +2,245 |
SFRU5 | 718,067 | 713,883 | +4,184 |
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SFRZ5 | 944,056 | 961,298 | -17,242 |
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SFRH6 | 629,897 | 630,329 | -432 |
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SFRM6 | 604,846 | 604,457 | +389 |
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SFRU6 | 538,502 | 537,888 | +614 |
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SFRZ6 | 621,744 | 620,918 | +826 |
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SFRH7 | 392,102 | 392,833 | -731 |
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SFRM7 | 326,667 | 327,914 | -1,247 |
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SFRU7 | 267,693 | 268,674 | -981 |
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SFRZ7 | 267,193 | 264,164 | +3,029 |
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SFRH8 | 204,389 | 204,298 | +91 |
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SFRM8 | 153,598 | 153,492 | +106 |
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BUNDS: /SWAPS: ASWs A touch Wider On Politics & Data, Moves Limited
Clarification of the German election timeline (confidence vote on December 16, subsequent election on February 23) and the soft German ZEW data promotes modest ASW widening today, 3-month Euribor spreads 0.5-0.8bp higher last.
- Moves back above 0bp in Bund vs. 3-month Euribor ASW remain shallow and short-lived.
- Sell-side names remain cautious when it comes to the idea of wideners, with the medium-term drivers of the structural narrowing intact (grater collateral availability owing to issuance needs/free float and receiver-side flows in swaps, linked to continued ECB easing).
EURUSD: Parity Risks Loom Large in '25
- EUR/USD's fresh pullback low at 1.0611 today equates to a near 3% sell-off since the election results last week and a >5% downleg off the YTD high at 1.1214. This keeps alive the speculation that EUR/USD could hit parity under an adverse trade war scenario or a particularly hawkish turn from the Fed.
- While markets see little likelihood of EUR/USD testing that mark in the near-term, but the risk picks up materially thereafter.
- Just $650mln notional has traded in EUR/USD vanilla put options with a strike at 1.00 or below since November 1st on the DTCC - a relatively meagre % of the $300bln market this month. This providies little concrete evidence of the market's focus on parity just yet - reflected in premiums pricing just a 2.3% chance of payoff for a EUR/USD 1.00 one-touch option expiring on Dec31 this year.
- We wrote last week that speculation of parity is building, however. The risk becomes much more apparent further down the curve and into the Trump admin's first few months. Compounding this effect, the implied Fed-ECB rate differential has grown considerably for Jun'25, from ~40bps to ~130bps in six weeks.
- As a result, markets now price a 24% chance of touching parity by end-Jun'25, up from 9.6% ahead of the election/German government breakdown.
FOREX: USD Higher Again as Firmer Yields Underpin Currency Markets
- The greenback is firmer once again early Tuesday, with the USD Index adding to recent gains, with the re-opening of US rates after yesterday's holiday allowing US yields to drift higher and underpin the greenback once again.
- GBP failed to find support from this morning's wages numbers, which came in ahead of expectations, allowing EUR/GBP to continue to straddle the 0.83 handle - a key long-term level. Should the cross recover off these lows, GBP/USD could come under further pressure, prompting markets to consider medium-term support. Today's spot weakness has pressed GBP/USD below the 200-dma on an intraday basis for the first time since May, after the level held well as support in August. 1.2799 undercuts as modest support, but seen stronger into 1.2665.
- German's ZEW investor sentiment data came in well below forecast, with sentiment heavily weighed upon by both the US Presidential election and the collapse of the German governing coalition
- AUD is the poorest performer in G10, pressing AUD/USD back below the $0.6550 mark,
- The NFIB Small Business Optimism data is followed by the NY Fed's latest inflation expectations release. The speaker slate will likely be of more interest, with Fed's Waller, Barkin, Harker and Kashkari all set to make appearances. Waller and Barkin should prove the most consequential.
EQUITIES: Bearish Conditions in Eurostoxx 50 Futures Remain Intact
- A bearish condition in Eurostoxx 50 futures remains intact and last week’s fresh cycle lows reinforce current conditions, having confirmed a resumption of the bear cycle. The contract has pierced 4815.50, the 50.0% retracement of the Aug 5 - Sep 30 bull cycle. This exposes 4757.00, the Sep 6 / 10 low and a key support. Initial firm resistance has been defined at 5015.00, the Oct 29 high, where a break would instead highlight a reversal.
- Bullish conditions in S&P E-Minis remain intact and last week’s gains reinforce current conditions. A key short-term support has been defined at 5724.25, Nov 4 low. The latest rally resulted in a breach of the bull trigger at 5927.25, Oct 17 high, confirming a resumption of the primary uptrend. The 6000.0 psychological handle has been pierced. Sights are on 6070.16, a Fibonacci projection. Initial support is at 5927.25, the Oct 17 high.
COMMODITIES: Weakness in WTI Futures Monday Reinforces Bearish Theme
- A bearish theme in WTI futures remains intact and Monday’s bearish start to the week reinforces current conditions. An extension lower would expose $65.99, the Oct 1 low, and $64.16, the Sep 10 low and key support. For bulls, a clear reversal to the upside would instead refocus attention on the key short-term resistance at $77.70, the Oct 8 high. Clearance of this level would resume the recent uptrend. Initial resistance is $72.88, the Nov 7 high.
- The trend condition in Gold is unchanged, it remains bullish and the latest pullback appears corrective. However, recent weakness has resulted in a breach of the 20-day EMA, and yesterday’s sell-off delivered a print below the 50-day EMA, at $2646.3. The breach signals scope for a deeper retracement towards $2547.0 the Sep 18 low. Firm resistance is seen at $2699.1, the 20-day EMA. Clearance of this average is required to signal a reversal.
| Date | GMT/Local | Impact | Country | Event |
| 12/11/2024 | 1200/1200 |  GB | Asset Purchase Facility Quarterly Report | |
| 12/11/2024 | 1330/0830 | * |  CA | Building Permits |
| 12/11/2024 | 1400/1500 |  EU | ECB's Cipollone chairing policy panel on financial sanctions | |
| 12/11/2024 | 1500/1000 |  US | Fed Governor Christopher Waller | |
| 12/11/2024 | 1515/1015 | US | Richmond Fed's Tom Barkin | |
| 12/11/2024 | 1600/1100 | ** | US | NY Fed Survey of Consumer Expectations |
| 12/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 12/11/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 12/11/2024 | 1800/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 12/11/2024 | 1900/1400 | US | Minneapolis Fed's Neel Kashkari | |
| 12/11/2024 | 2130/1630 | US | New York Fed's Roberto Perli | |
| 12/11/2024 | 2200/1700 | US | Philly Fed's Pat Harker | |
| 13/11/2024 | 0030/1130 | *** |  AU | Quarterly wage price index |
| 13/11/2024 | 0945/0945 | GB | BOE's Mann at Female Central Bankers panel | |
| 13/11/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 13/11/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 13/11/2024 | 1330/0830 | *** | US | CPI |
| 13/11/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 13/11/2024 | 1445/0945 | US | Dallas Fed's Lorie Logan | |
| 13/11/2024 | 1800/1300 | US | St. Louis Fed's Alberto Musalem | |
| 13/11/2024 | 1830/1330 | US | Kansas City Fed's Jeffrey Schmid | |
| 13/11/2024 | 1900/1400 | ** | US | Treasury Budget |
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