Highlights:
- Treasuries slip through tech support, underpinning broader USD
- EUR/GBP prints new multi-year low as rate differentials point lower
- Light Tuesday session ahead of US inflation print tomorrow
US TSYS: Two-Stage Sell-Off, 3Y Supply Ahead Before CPI Tomorrow
- Treasuries trade modestly lower on the day having sold off in two steps. The first leg paired previous gains and looked to tally with European FI reflecting on yesterday’s late Treasury sell-off along with some technical breaks. A second step lower coincided with a lift for equity futures before a further helping hand from a notable jump in small business optimism post-election.
- Data focus is more firmly on tomorrow’s CPI report although a resumption of supply with today’s 3Y auction will be of interest after strong auctions for 2s, 5s and 7s in late November.
- Cash yields are 1.6-3.3bps higher, with the long end leading increases.
- 2s10s has recently touched 9.4bps for fresh highs since Bessent’s Treasury pick helped see brief inversion.
- TYH5 has seen an overnight low of 110-31 (-06+) in recent trading where it appears to have met some modest support around the 111-00 mark. Volumes are light, only just over 250k.
- More notable support is seen at 110-18 (Dec 4 low), and a 4.25% 10Y yield would coincide with 110-26 in the interim, although the recently designated bull cycle is seen in play with resistance at 111-20+ (Dec 6 high).
- Data: Nonfarm productivity/ULCs Q3 final (0830ET)
- Note/bond issuance: US Tsy $58B 3Y Note auction - 91282CMB4 (1300ET)
- Bill issuance: US Tsy $70B 42D CMB auction (1130ET)
STIR: Fed Terminal Rate Expectations Continue To Unwind Recent Declines
- Fed Funds implied rates out to mid-2025 have continued to very slowly pare declines seen after Friday’s payrolls report.
- Cumulative cuts from 4.58% effective: 22bp Dec, 28bp Jan, 44bp Mar and 65bp June.
- Further out, SOFR-derived terminal rate expectations have now more than reversed their decline on the payrolls report. 3.64% implies approximately 95bp of cuts for the cycle (including the mostly priced 25bp cut next week), having now added less than 20bps of cuts to the path since terminal rate highs seen in the week after the presidential election.
Today see productivity/ULCs for Q3 headline the data docket with greater focus on tomorrow’s CPI release. See the MNI US CPI Preview here.
CANADA: MNI BoC Preview: Eyeing A ‘Hawkish’ 50bp Cut
- We have published and e-mailed to subscribers the MNI BoC Preview ahead of tomorrow’s decision.
- Please find the full report here.
US TSY FUTURES: OI Points To Long Cover Further Out The Curve On Monday
OI points to a mix of net short setting (TU & FV) and long cover (TY, UXY, US & WN) during Monday’s weakness.
- The long cover seen further out the curve provided the most notable positioning move (in DV01 equivalent terms) on the day, coming after long setting was seen across the curve on Friday.
- Note that DV01 equivalent positioning swings in individual contracts were relatively modest.
| 09-Dec-24 | 06-Dec-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,321,254 | 4,309,642 | +11,612 | +457,339 |
FV | 6,023,603 | 6,018,775 | +4,828 | +208,737 |
TY | 4,455,901 | 4,465,339 | -9,438 | -622,251 |
UXY | 2,204,892 | 2,215,977 | -11,085 | -1,010,930 |
US | 1,848,167 | 1,853,737 | -5,570 | -739,193 |
WN | 1,764,041 | 1,769,207 | -5,166 | -1,064,187 |
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| Total | -14,819 | -2,770,486 |
STIR: OI Points To Short Setting Dominating Across The SOFR Strip On Monday
OI data points to short setting dominating across the SOFR futures strip during yesterday’s downtick, with only isolated, limited pockets of net long cover noted.
- Contracts managed to reverse some of Friday’s contained NFP-driven uptick.
| 09-Dec-24 | 06-Dec-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,227,178 | 1,229,133 | -1,955 | Whites | +48,240 |
SFRZ4 | 1,340,256 | 1,304,780 | +35,476 | Reds | +21,160 |
SFRH5 | 1,076,618 | 1,072,040 | +4,578 | Greens | +5,305 |
SFRM5 | 999,775 | 989,634 | +10,141 | Blues | +6,346 |
SFRU5 | 823,664 | 824,651 | -987 |
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SFRZ5 | 932,827 | 923,595 | +9,232 |
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SFRH6 | 558,873 | 557,785 | +1,088 |
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SFRM6 | 616,510 | 604,683 | +11,827 |
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SFRU6 | 634,502 | 639,320 | -4,818 |
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SFRZ6 | 726,855 | 712,169 | +14,686 |
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SFRH7 | 416,587 | 421,308 | -4,721 |
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SFRM7 | 357,593 | 357,435 | +158 |
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SFRU7 | 291,265 | 293,615 | -2,350 |
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SFRZ7 | 287,996 | 286,917 | +1,079 |
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SFRH8 | 206,529 | 201,122 | +5,407 |
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SFRM8 | 158,216 | 156,006 | +2,210 |
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CANADA: Trudeau Survives 3rd Confidence Vote Despite BQ Backing Ouster
Prime Minister Justin Trudeau's minority gov't survived a third confidence vote since September on 9 December, with the leftist New Democratic Party (NDP) voting alongside Trudeau's centre-left Liberals to keep the PM in place.
- The motion, brought by the main opposition centre-right Conservative Party of Canada (CPC), fell short by a margin of 180-152 votes. This compares to a margin of 211-120 in the gov'ts favour in the September vote and 207-121 in October.
- The key shift this time was the regional separatist Bloc Quebecois (BQ) and its 33 MPs voting for the gov'ts removal after previously backing Trudeau in September and October.
- The NDP could begin to seek greater concessions from the Trudeau gov't in an effort to ensure its continued support in any confidence motions, although it should be noted that a collapse in the Trudeau gov't could damage the NDP's prospects as well.
- Opinion polling shows the NDP, currently the fourth-largest in the Commons, only narrowly trailing the Liberals and exceeding its 2021 election vote share. However, with the Conservatives polling in excess of 40%, a majority for Leader of the Opposition Pierre Poilievre's party is seen as a strong likelihood at the next election.
- In this scenario, the NDP would have no impact on gov't business, whereas in the current situation, Jagmeet Singh's party may be able to secure further concessions that could further boost NDP support.
Chart 1. Federal Election Opinion Polling, % and 6-Poll Moving Average
Source: Relay Strategies, Angus Reid, Abacus Data, Leger, Nanos Research, Mainstreet Research, EKOS, MNI
BRAZIL: VP Alckmin Assumes Presidential Duties w/Lula In ICU
The office of the Brazilian presidency has confirmed that Vice President Geraldo Alckmin will take on the duties of the presidency while President Luiz Inacio Lula da Silva recovers from brain surgery. This will see Alckmin return to Brasilia to host visiting Slovakian PM Robert Fico. As noted earlier (see 'BRAZIL: Lula Admitted To ICU After Brain Surgery', 0828GMT) the 79-year-old president underwent emergency surgery after suffering headaches on 9 Dec that turned out to be a small brain haemorrhage.
- As Bloomberg notes, "Lula has been busy discussing a package of spending cuts needed to appease investors who are worried about the deterioration of the country’s finances. After much resistance by Lula, the plan proposed by Finance Minister Fernando Haddad was submitted to Congress, though it failed to boost financial market sentiment."
- Since 2022 sitting as part of the centre-left Brazilian Socialist Party (PSB), Alckmin has served as VP and Minister of Development, Industry, Trade and Services since Lula returned to power in 2023. Prior to this, he served as Governor of Sao Paulo from 2001-06 and 2011-18.
- Lula remains one of the only figures with the political cache able to unite the various disparate parties of the centre and left that back the administration. A statement from Lula's hospital said that his surgery went well, but there is no timeline yet for his recovery.
FOREX: AUD Slips as Markets Bring Forward RBA Rate Cut View
- The RBA rate decision worked against the AUD, as the bank are reportedly "gaining some confidence" over the trajectory of inflation. As a result, markets (and sell-side) have bought forward their view for the next likely rate cut in Australia. As a result, AUD/USD faded to 0.6380 intraday, keeping support under pressure at the December pullback low of 0.6373.
- EUR/GBP has broken to new YTD lows, with spot dropping to new pullback lows, and the lowest levels in over two-and-a-half years as markets re-enter a previously-tested area of demand. We had noted across the past few weeks a clear area of demand in the cross layered between 0.8260-87 that coincides with the longer-term range-defining support. Note that this equates to 1.21 in GBP/EUR - a psychological resistance level that often draws attention, and has not been meaningfully broken since 2016 and the year of the Brexit referendum.
- EUR/USD spot has been led lower by the uptick in US yields, putting spot through yesterday's lows and within range of 1.0517, the 38.2% retracement for the upleg off the cycle low from mid-November, and next major support. Overnight EUR vols have crested just above 14 points - below the prevailing levels seen pre-NFP last week. With tomorrow's print the last of the year and likely directly influencing next week's rate decision, an outside-of-consensus print will test the sustainability of the USD Index's stabilisation above December lows.
- Tuesday data and speaker schedule is light, with no notable US releases outside of nonfarm productivity stats and unit labour costs. The Fed remain inside their pre-rate decision media blackout period - keeping the calendar clear.
FOREX: Dovish RBA Tilt Threatens Extension Lower for AUD
- Monday’s China-linked rally for the Australian dollar was met by a clear pivot for the RBA overnight, prompting a swift turnaround back towards cycle lows for AUDUSD. Despite the enthusiasm to start the week, it was noted that trend conditions remain bearish and resistance at the 20-day EMA continues to cap the pair’s short-term relief rallies well.
- Bolstering the bearish sentiment, Friday was the first daily close below the 0.6400 mark since November 2023. Multiple lows at 0.6380 this week represent the immediate level of interest, before key support at 0.6350. Below here, attention would be on 0.6259, the 1.00 projection of the Sep 30 - Nov 6 - 7 price swing.
- Potentially offering more bang for the buck at current levels, AUDJPY still has room to reverse yesterday’s impressive 2% bounce, with yesterday’s lows still well over 100 pips away. The cross has been edging lower following the break of trendline support in late November, drawn from the August lows. Spot has also been respecting Fibonacci retracements well, leaving 94.69 as the most obvious downside target (shown below).
- AUDNZD is also trading at unchanged levels, however, the cross is consolidating back below 1.1000. As a reminder, Goldman Sachs have recommended selling AUDNZD in anticipation of an RBA pivot, with a target of 1.08 and a stop of 1.1050.
FOREX: Clustered DXY Resistance Could Come into Play on Strong CPI Read
- EUR/USD spot rates succumbing to the pressure of the uptick in US yields (as we note above, there's been little newsflow and no headline driver for the modest moves), putting spot through yesterday's lows and within range of 1.0517, the 38.2% retracement for the upleg off the cycle low from mid-November, and next major support.
- Volumes show participation today just below average for this time of day - although at their strongest for the session so far on the latest step lower. This will likely remain the case headed into the US CPI print Wednesday - with today's schedule particularly quiet.
- EUR overnight vols have today crested just above 14 points - so below the prevailing levels seen pre-NFP last week (through which markets printed an 80 pip range ahead of the Friday cut). With tomorrow's print the last of the year and likely directly influencing next week's rate decision (a 25bps cut is over 80% implied in futures), an outside-of-consensus print will test the sustainability of the USD Index's stabilisation above December lows.
- While a stronger print may not rule out a December rate cut, the implications for 2025 rate guidance, as well as the latest set of FOMC quarterly projections, will keep key clustered resistance in the USD Index at 106.720-745 in consideration, a break above which brings the post-election highs back into question.
COMMODITIES: Long-Term Bullish Trend in Gold Remains
- A bearish threat in WTI futures remains present and the contract is trading closer to its recent lows. A continuation of the bear cycle would open $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. Initial firm resistance to watch is unchanged at $72.41, the Nov 7 high.
- Gold traded higher Monday. The long-term trend condition remains bullish and the Oct 31 - Nov 14 bear leg appears to have been a correction. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. Resistance to watch is $2721.4, the Nov 25 high. Clearance of this level would highlight a bullish short-term development. Key support to monitor is $2536.9, the Nov 14 low. First support is $2605.3, the Nov 26 low.
EQUITIES: Short-Term Pullbacks in E-Mini S&P Considered Corrective
- Eurostoxx 50 futures maintain a firmer tone following recent gains. The move higher undermines a recent bearish theme. Price has traded through the 50-day EMA, at 4878.04. The clear breach of this average strengthens a bullish theme and note that 4961.00, the Nov 6 high, has also been cleared. This opens 5015.00, the Oct 29 high. Key support is 4699.00, the Nov 19 low. Initial support lies at 4870.94, the 20-day EMA.
- The S&P E-Minis contract maintains a bullish tone and short-term pullbacks are considered corrective. Recent gains confirm a resumption of the uptrend and signal scope for a continuation near-term. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 6145.26, a Fibonacci projection. Initial support to watch lies at 6014.79, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 10/12/2024 | - |  EU | ECB's De Guindos in ECOFIN meeting | |
| 10/12/2024 | 1330/0830 | ** |  US | Non-Farm Productivity (f) |
| 10/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 10/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 10/12/2024 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 10/12/2024 | 1800/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 11/12/2024 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 11/12/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 11/12/2024 | - | *** |  CN | Money Supply |
| 11/12/2024 | - | *** | CN | New Loans |
| 11/12/2024 | - | *** | CN | Social Financing |
| 11/12/2024 | 1330/0830 | *** | US | CPI |
| 11/12/2024 | 1330/0830 | * |  CA | Intl Investment Position |
| 11/12/2024 | 1445/0945 | *** | CA | Bank of Canada Policy Decision |
| 11/12/2024 | 1530/1030 | CA | BOC Governor Press Conference | |
| 11/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 11/12/2024 | 1800/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 11/12/2024 | 1900/1400 | ** | US | Treasury Budget |