Highlights:
- The Bank of Japan board decided unanimously to keep the unsecured overnight call loan rate at 0.25%. The decision was largely anticipated.
- USD/JPY extended its impressive bounce as BoJ Governor Ueda acknowledged that “the upside risk to prices does appear to be easing given the recent yen strength”.
- Meanwhile, GBP/USD rose to a fresh cycle high of 1.3340 following the stronger-than-expected retail sales data in the UK
- Bank of Canada’s Macklem is due to speak before Canada retail sales data. There may also be comments from ECB’s Lagarde and Fed’s Harker to round off the week.
US TSYS: Mild Bear Flattening Into a Thin Docket
- Treasuries sit modestly bear flatter although it’s only really the very long end that outperforms. Treasuries underperform EGBs and Gilts ahead of a particularly thin docket, with higher yields moving in lockstep with USDJPY gaining strongly after a dovish Ueda.
- Cash yields range from 0bp to 1.5bp higher, with 30s lagging the increases.
- 2s10s at 13.1bps (-0.5bp) has pulled back only modestly from overnight fresh two-year highs of 15bps.
- TYZ4 sits at session lows of 114-25 (+ 01+) on middling volumes of 305k, but has remained within yesterday’s range throughout.
- Yesterday saw a low of 114-16 after surprisingly low jobless claims, piercing support at 114-23 (20-day EMA) but the pullback is deemed corrective with resistance at the bull trigger of 115-23+ (Sep 11 high).
- Data: State-level labor data (1000ET)
- Fedspeak: Harker gives a lecture on the Fed (1400ET)
STIR: Fed Rates Drift Higher, Headlines in Driving Seat Today
- Fed Funds implied rates are unchanged overnight for the Nov FOMC meeting but otherwise have lifted 1-2bps from Dec through to end-2025, fading BoJ’s Ueda acknowledging fading upside risks to prices.
- Cumulative cuts from assumed 4.83% effective: 36bp Nov, 72bp Dec, 105bp Jan and 175bp June.
- Only Philly Fed’s Harker (non-voter) is scheduled to speak today, at 1400ET, in the first day out of the FOMC blackout.
- There is scope for unscheduled speakers although they can only have so much impact with a continued data dependent stance and a particularly thin data docket.
STIR: Long Setting Dominated in SOFR Whites on Thursday, Mixed Moves Further Out
OI suggests that net long setting dominated in SFRZ4 & H5 on Thursday, as markets reacted to the Fed’s 50bp cut.
- A mix of short setting and long cover was seen in SFRM5 through M8 after Chair Powell attempted to play down any speculation that the 50bp move set a precedent for the size of any subsequent easing, while suggesting that the neutral rate is likely significantly higher than in recent cycles.
| 19-Sep-24 | 18-Sep-24 | Daily OI Change |
| Daily OI Change In Packs |
|---|---|---|---|---|---|
SFRU4 | 1,414,462 | 1,434,929 | -20,467 | Whites | +104,920 |
SFRZ4 | 1,381,487 | 1,278,024 | +103,463 | Reds | -4,770 |
SFRH5 | 1,119,673 | 1,092,283 | +27,390 | Greens | +22,273 |
SFRM5 | 899,766 | 905,232 | -5,466 | Blues | -14,963 |
SFRU5 | 679,005 | 690,100 | -11,095 |
|
|
SFRZ5 | 982,131 | 977,743 | +4,388 |
|
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SFRH6 | 720,146 | 719,841 | +305 |
|
|
SFRM6 | 630,908 | 629,276 | +1,632 |
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SFRU6 | 542,669 | 538,805 | +3,864 |
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SFRZ6 | 600,493 | 589,586 | +10,907 |
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SFRH7 | 345,051 | 336,955 | +8,096 |
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SFRM7 | 294,523 | 295,117 | -594 |
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SFRU7 | 249,562 | 263,562 | -14,000 |
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SFRZ7 | 233,794 | 232,390 | +1,404 |
|
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SFRH8 | 175,166 | 173,022 | +2,144 |
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SFRM8 | 151,193 | 155,704 | -4,511 |
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US TSY FUTURES: Mix of Short Setting & Long Cover on Thusday
OI points to a mix of short setting and long cover on Thursday, with the most notable OI equivalent swings coming in the wings of the curve.
- Those positioning moves broadly offset in curve-wide terms, leaving net OI little changed on the day, with a slight bias towards short setting.
| 19-Sep-24 | 18-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
|---|---|---|---|---|
TU | 4,366,046 | 4,280,664 | +85,382 | +3,349,564 |
FV | 6,392,214 | 6,388,578 | +3,636 | +161,191 |
TY | 4,907,457 | 4,914,180 | -6,723 | -452,148 |
UXY | 2,134,118 | 2,141,398 | -7,280 | -681,726 |
US | 1,761,852 | 1,754,069 | +7,783 | +1,087,743 |
WN | 1,701,940 | 1,714,172 | -12,232 | -2,715,722 |
|
| Total | +70,566 | +748,903 |
BOJ: BOJ Decides Unanimously to Keep Policy Rate Steady at 0.25%
The Bank of Japan board on Friday decided unanimously to keep the unsecured overnight call loan rate at 0.25%. The Board's decision was largely anticipated.
- Policymakers are focused on the results of the BOJ’s September Tankan business sentiment survey due Oct. 1 and the branch managers’ reports at the quarterly meeting on Oct. 7. Bank officials are also paying attention to the October price revisions to examine the strength of the wage-price virtuous cycle and the fundamentals for wage hikes next year. Policymakers will review the medium-term economic growth and inflation rate at the October 30-31 meeting.
- The BoJ largely maintained its assessment on the overall economy and major economic components, although it slightly upgraded its assessment on private consumption. “Japan’s economy has recovered moderately, although some weakness has been seen in part,” a statement released by the BOJ showed.
- “Japan’s economy is likely to keep growing at a pace above its potential growth rate.” The bank said private consumption has been on a "moderate increasing trend despite the impact of price rises and other factors.” The previous view held that private consumption "has been resilient.”
BOJ: Ueda Says BOJ Has Time to Watch Price Moves
- Yen strengthening over the past two months has eased upside inflation risks and made a rate hike less necessary in the short term, Bank of Japan Governor Kazuo Ueda said on Friday, following the board’s decision to hold its policy rate at 0.25%.
- Ueda downplayed the potential for a 2024 rate hike, despite conceding the economy and prices remained on track, noting uncertainty on the U.S. and global economy would drive financial market volatility and BOJ caution.
- However, Ueda maintained his policy stance that the Bank would adjust the degree of easy policy if the Bank achieved its outlook for the economy and prices as real interest rates remained low.
- Ueda told reporters this afternoon the Bank would closely monitor financial market volatility and the U.S. economy to gauge whether the Federal Reserve could achieve a soft landing, which remains the BOJ's main scenario. "But the risk is slightly increasing as U.S. economic data after August are weak,” he continued, noting the Fed could still implement rapid cuts even if the U.S. economy proved resilient.
- “We have to make sure of the outlook for the U.S. economy,” he said.
FRANCE: New Cabinet to Be Presented 'Before Sunday' - PM
Following a fraught day of negotiations on 19 September, PM Michel Barnier has said that he hopes to have a cabinet in place 'before Sunday [22 Sep]'. The composition of the cabinet is set to include seven ministers from President Emmanuel Macron's centrist Renaissance, three Republicans (LR), two MoDem, one Horizons and one from the centrist UDI. Parties forming the leftist New Popular Front (NFP) have denounced the formation of a Barnier gov't, with the far-left La France Insoumise calling for protests against the administration in Paris on 21 Sep.
- Deputy Sandrine Rousseau from the Ecologists called the gov't "an alliance of losers". In the July legislative election, the centrist Ensemble bloc came in second place behind the NFP, while LR finished a distant fourth place.
- With Renaissance (97), LR (47), MoDem (36), Horizons (33) comprising 213 deputies, this is well short of the 289 required for an overall majority. Even with some of the 22 LIOT deputies and centrist non-inscrits this still leaves the gov't vulnerable to censure votes.
- Parties of the NFP have already stated their intention to move a censure vote against the Barnier gov't once the National Assembly reconvenes 1 Oct. However, at 193 deputies its votes alone would not bring the gov't down.
- The actions of the far-right Rassemblement National (RN, 126 deputies) will be crucial. Marine Le Pen has said RN will not back a 'prior' censure motion, but that does not preclude voting against the gov't depending on the content of the budget.
RATINGS: Busy Ratings Schedule, Focus on France, Ireland & Portugal
Potential sovereign credit rating reviews scheduled for after hours include:
- Fitch on Croatia (current rating: BBB+; Outlook Positive), Portugal (current rating: A-; Outlook Stable) & the United Kingdom (current rating: AA-; Outlook Stable)
- Moody’s on Poland (current rating; A2; Outlook Stable)
- S&P on Germany (current rating: AAA; Outlook Stable)
- Morningstar DBRS on Cyprus (current rating: BBB (high), Stable Trend), Finland (current rating: AA (high), Stable Trend), France (current rating: AA (high), Stable Trend), Ireland (current rating: AA (low), Positive Trend) & Norway (current rating: AAA, Stable Trend)
- Scope Ratings on Latvia (current rating: A-: Outlook Stable) & Lithuania (current rating: A; Outlook Stable)
FOREX: USDJPY Rallies Above 144.00 as BOJ’s Ueda Strikes Cautious Tone on Further Hikes
- USDJPY (+1.07%) is extending its impressive bounce on Friday as Bank of Japan Governor Ueda acknowledged that “the upside risk to prices does appear to be easing given the recent yen strength”.
- Ueda added that time remains to confirm certain points when making policy decisions, indicating that the BOJ will assess the incoming data and economic conditions overseas in the coming months, especially in the US.
- USDJPY bounced significantly on the comments from 141.74 lows and continues to press fresh session highs above 144.00 as we approach the NY crossover. Price action sees us back above the 20-day EMA, an average that was pierced on Thursday and a close above this point will be a bullish development. Above here, markets would focus on a move back towards 145.57, the September 04 high.
- This has tilted the USD index into positive territory, although price action for other major pairs has been relatively contained.
- GBPUSD rose to a fresh cycle high of 1.3340 following stronger-than-expected retail sales data in the UK. The move higher this week has resulted in a print above key resistance at 1.3266, the Aug 27 high. The break confirms a resumption of the medium-term uptrend. Note too that moving average studies are in a bull-mode position, reflecting a clear uptrend. Sights are on 1.3362 next, a Fibonacci retracement point.
- Bank of Canada’s Macklem is due to speak before Canada retail sales data. There may also be comments from ECB’s Lagarde and Fed’s Harker to round off the week.
EQUITIES: E-Mini S&P Bull Cycle Extends, Recent Gains Reinforce Bullish Set-Up
- Eurostoxx 50 futures have traded higher this week as the contract extends the recovery since Sep 10. It is still possible that recent gains are corrective. MA studies remain in a bear-mode position and this highlights a downtrend. A reversal lower would refocus attention on key short-term support at 4729.00, Sep 10 low. Key resistance to watch is 4998.00, Sep 3 high. A break would cancel a bearish theme and strengthen bullish conditions.
- A bull cycle in S&P E-Minis remains in play and Thursday’s gains reinforce the current bullish condition. The contract has traded through a key and major resistance at 5785.00, the Jul 16 high and a bull trigger. A clear break of this hurdle would confirm a resumption of the long-term uptrend. Sights are on the 5800.00 handle next. First key support is 5602.68, the 50-day EMA. Initial support lies at 5638.14, the 20-day EMA.
COMMODITIES: WTI Futures Target Resistance at $72.52, the 50-Day EMA
- WTI futures have traded higher this week. The recovery since Sep 9, appears - for now - to be a correction. Recent weakness reinforced a bearish condition and note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A resumption of the downtrend would open $63.89 next, a Fibonacci projection point. The 20-day EMA, at $70.20, has been pierced. The next key resistance is $72.52, the 50-day EMA.
- A bullish structure in Gold remains intact and the metal traded, once again, to a fresh all-time high, on Wednesday. Last week’s gains confirmed a resumption of the primary uptrend and an extension of the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2613.3 next. Firm support lies at $2530.2, the 20-day EMA.
MNI (LONDON)
| Date | GMT/Local | Impact | Country | Event |
| 20/09/2024 | 1215/0815 |  CA | BOC Governor Macklem speech at AI conference | |
| 20/09/2024 | 1230/0830 | * | CA | Industrial Product and Raw Material Price Index |
| 20/09/2024 | 1230/0830 | ** | CA | Retail Trade |
| 20/09/2024 | 1230/0830 | ** | CA | Retail Trade |
| 20/09/2024 | 1400/1600 | ** |  EU | Consumer Confidence Indicator (p) |
| 20/09/2024 | 1500/1700 | EU | ECB's Lagarde Banking Lecture Organised by the IMF | |
| 20/09/2024 | 1530/1730 | EU | ECB's Lagarde converses with IMF Georgieva | |
| 20/09/2024 | 1700/1300 | ** |  US | Baker Hughes Rig Count Overview - Weekly |
| 20/09/2024 | 1800/1400 | US | Philly Fed's Pat Harker |
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