Highlights:
- Treasuries underperform modestly, with Fedspeak taking precedent over data
- GBP benefits from buoyant UK retail sales
- ECB sources suggest dovish voices getting louder
- Treasuries have seen a modest twist steepening, firmly underperforming EGBs which have been supported by a dovish ECB sources piece from Reuters.
- A lighter docket today should see headlines/flow in the driving seat. It could also add focus on continued earnings releases which are highlighted today by Procter & Gamble and American Express before the open.
- Cash yields at 0.6bp lower (3s) to 1.0bp higher (20s).
- 2s10s at 12.9bps (+1bp) slightly extends yesterday’s data-induced steepening but remains comfortably within recent ranges.
- TYZ4 is back little changed on the day at 112-02 on reasonable volumes nearing a cumulative 310k. It has lifted off a low of 111-29+ that pushed through yesterday’s range but didn’t trouble support at 111-22 (Oct 10 low) with the outlook still deemed bearish.
- Data: Building permits/housing starts Sep (0830ET)
- Fedspeak: Bostic (0930ET), Kashkari (1000ET), Waller (1210ET), Bostic (1230ET)
STIR: Marginal US Spillover From Dovish ECB Sources
- Fed Funds implied rates are marginally lower overnight, with the largest daily change for the Dec meeting (-1bp) in spillover from a dovish ECB sources piece from Reuters.
- It leaves a rate path still holding a sizeable portion of yesterday’s push higher on strong US data.
- Cumulative cuts from 4.83% effective: 23bp Nov, 44bp Dec, 61bp Jan and 118bp June.
- Ahead sees three separate Fed speakers scheduled in four appearances but the formats/topics likely limit monetary policy implications.
- Bostic (’24) has also already spoken this week, seeing a single cut over the two meetings left this year, as has Gov. Waller (voter) who is set to talk on decentralized finance. Waller conveyed a more cautious tone on policy easing ahead compared with his Sept 20 post-50bp rate cut comments but wouldn’t be drawn on whether his call for "proceed[ing] with more caution" meant a move to quarterly cuts/a skip in November: "I don't think I used the word quarterly"... [those terms are] "in the eye of the beholder". That leaves Kashkari (non-voter) although he is hosting a panel.
US TSY FUTURES: OI Suggests Long Cover In The Belly Dominated After Retail Sales
OI points to a mix of net short setting and long cover during Thursday’s retail sales-driven sell off, with net long cover in the belly (FV & TY futures) generating the largest OI DV01 equivalent swings.
| 17-Oct-24 | 16-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,461,214 | 4,449,189 | +12,025 | +449,821 |
FV | 6,204,864 | 6,214,952 | -10,088 | -431,672 |
TY | 4,648,243 | 4,694,732 | -46,489 | -3,013,284 |
UXY | 2,145,681 | 2,169,836 | -24,155 | -2,169,727 |
US | 1,772,486 | 1,770,410 | +2,076 | +273,907 |
WN | 1,739,875 | 1,732,941 | +6,934 | +1,420,234 |
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| Total | -59,697 | -3,470,720 |
STIR: OI Suggests Short Setting Dominated In SOFR Futures On Thursday
OI points to net short setting dominating on the SOFR futures strip during Thursday’s retail sales-driven sell off.
- Only modest, fairly isolated rounds of net long cover seen
- Dovish ECB pricing provides some marginal counter ahead of NY trade.
- Fed Funds pricing cumulative cuts from 4.83% effective: 23bp Nov, 44bp Dec, 61bp Jan and 118bp June.
| 17-Oct-24 | 16-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,240,770 | 1,240,620 | +150 | Whites | +17,009 |
SFRZ4 | 1,039,598 | 1,054,193 | -14,595 | Reds | +81,587 |
SFRH5 | 1,013,519 | 981,631 | +31,888 | Greens | +1,966 |
SFRM5 | 861,407 | 861,841 | -434 | Blues | +710 |
SFRU5 | 717,401 | 696,862 | +20,539 |
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SFRZ5 | 957,411 | 908,331 | +49,080 |
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SFRH6 | 612,449 | 609,445 | +3,004 |
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SFRM6 | 611,013 | 602,049 | +8,964 |
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SFRU6 | 543,390 | 546,337 | -2,947 |
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SFRZ6 | 617,544 | 614,089 | +3,455 |
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SFRH7 | 360,155 | 356,906 | +3,249 |
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SFRM7 | 310,463 | 312,254 | -1,791 |
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SFRU7 | 254,894 | 253,563 | +1,331 |
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SFRZ7 | 252,156 | 252,757 | -601 |
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SFRH8 | 180,821 | 181,093 | -272 |
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SFRM8 | 150,953 | 150,701 | +252 |
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RATINGS: Updates On France, Italy & Greece Set To Dominate After Hours
Rating reviews of note scheduled for after hours on Friday include:
- Fitch on Italy (current rating: BBB; Outlook Stable) & Switzerland (current rating: AAA; Outlook Stable)
- Moody’s on Lithuania (current rating: A2; Outlook Stable)
- S&P on Italy (current rating: BBB; Outlook Stable), Greece (current rating: BBB-; Outlook Positive), the Netherlands (current rating: AAA; Outlook Stable) & the United Kingdom (current rating: AA; Outlook Stable)
- Morningstar DBRS on Lithuania (current rating: A (high), Stable Trend)
- Scope Ratings on Croatia (current rating: BBB+; Outlook Positive), the European Union (current rating: AAA; Outlook Stable) & France (current rating: AA; Outlook Negative)
FOREX: GBP Trades Well on Solid Retail Sales
- GBP trades well on the back of a better-than-expected set of retail sales numbers this morning, with both metrics topping expectations on both an including- and excluding-auto fuels basis. EUR/GBP extended losses based on yesterday's ECB decision, touching new pullback lows of 0.8295 as a result. This marks a bearish break for the cross, opening support at 0.8250 and 0.8203 beyond.
- The UK retail sales data and persistent JPY underperformance has tipped GBP/JPY to briefly show above the late September highs and touch the best levels since end-July this morning. Further strength here would mark a bullish break and a range breakout for the cross - particularly notable given the more dovish backdrop for BoE OIS pricing since the inflation print this week.
- The USD is somewhat softer, helping the USD Index fade off yesterday's cycle highs. Nonetheless, markets remain in close proximity to key resistance at 103.874 - clearance of which would bring the strongest sollar since early August.
- More stable WTI and Brent crude oil markets are lending support to oil-tied currencies - helping NOK modestly outperform into the NY crossover.
- US housing starts and building permits numbers round off the data week, but more attention will likely be paid to commentary from Fed's Bostic, Kashkari and Waller - although none of their appearances appear to be directly addressing the US economy or monetary policy.
GBP: Strong Close for GBP/JPY Today Would Mark Bullish Range Breakout
- Solid UK retail sales data and persistent JPY underperformance has tipped GBP/JPY to briefly show above the late September highs and touch the best levels since end-July this morning.
- Further strength here would mark a bullish break and a range breakout for the cross - particularly notable given the more dovish backdrop for BoE OIS pricing since the inflation print this week.
- A break and close above 195.97 would mark a bullish weekly close, opening 197.42 initially ahead of 199.47 resistance further out.
EQUITIES: Eurostoxx 50 Futures Recover Above Support at 50-Day EMA
Eurostoxx 50 futures traded sharply lower Tuesday. The contract has pierced support around the 50-day EMA, at 4944.90. A clear break of this average would undermine a recent bullish theme and highlight a stronger reversal. This would open 4884.06, a Fibonacci retracement. Key resistance and the bull trigger is unchanged at 5106.00, the Sep 30 high. A break of this level would resume the uptrend. S&P E-Minis trend conditions are unchanged and bulls remain in the driver’s seat. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Sights are on 5961.00, a Fibonacci projection. Initial support to watch is 5807.48, the 20-day EMA.
- Japan's NIKKEI closed higher by 70.56 pts or +0.18% at 38981.75 and the TOPIX ended 1.15 pts higher or +0.04% at 2688.98.
- Elsewhere, in China the SHANGHAI closed higher by 92.179 pts or +2.91% at 3261.563 and the HANG SENG ended 725.01 pts higher or +3.61% at 20804.11.
- Across Europe, Germany's DAX trades higher by 40.13 pts or +0.2% at 19624.47, FTSE 100 lower by 15.92 pts or -0.19% at 8369.57, CAC 40 up 34.6 pts or +0.46% at 7618.33 and Euro Stoxx 50 up 29.15 pts or +0.59% at 4976.45.
- Dow Jones mini up 11 pts or +0.03% at 43522, S&P 500 mini up 9 pts or +0.15% at 5896, NASDAQ mini up 72 pts or +0.35% at 20440.
COMMODITIES: WTI Futures Trading Just Above This Week's Lows
WTI futures gapped lower Tuesday and this resulted in a break of the Oct 9 low. A bearish extension would threaten the recent bullish theme and expose support at $66.33, the Oct 1 low, and $64.61, the Sep 10 low and a key support. For bulls, a resumption of gains would instead refocus attention on the key short-term resistance at $78.46, the Oct 8 high. Clearance of this level would resume to the recent uptrend. Gold is trading higher today. Thursday’s gains resulted in a break of $2685.6, the Sep 26 high, confirming a resumption of the primary bull trend. The yellow metal has also cleared $2700.0, reinforcing current trend conditions. This maintains the positive price sequence of higher highs and higher lows. Sights are on $2737.8, a Fibonacci projection. Firm support is $2637.0, the 20-day EMA. A clear break of the EMA would signal scope for a deeper retracement.
- WTI Crude up $0.3 or +0.42% at $70.94
- Natural Gas up $0.01 or +0.26% at $2.352
- Gold spot up $12.37 or +0.46% at $2705.06
- Copper up $5.25 or +1.21% at $437.95
- Silver up $0.29 or +0.9% at $31.9825
- Platinum up $14.96 or +1.5% at $1011.2
| Date | GMT/Local | Impact | Country | Event |
| 18/10/2024 | 1230/0830 | ** |  US | WASDE Weekly Import/Export |
| 18/10/2024 | 1230/0830 | *** | US | Housing Starts |
| 18/10/2024 | 1330/0930 | US | Atlanta Fed's Raphael Bostic | |
| 18/10/2024 | 1400/1000 | US | Minneapolis Fed's Neel Kashkari | |
| 18/10/2024 | 1610/1210 | US | Fed Governor Christopher Waller | |
| 18/10/2024 | 1630/1230 | US | Atlanta Fed's Raphael Bostic | |
| 18/10/2024 | 1800/1400 | ** | US | Treasury Budget |