Highlights:
- UK CPI prompts shift lower in global rates, but broader impact could be short-lived
- BoE pricing now sees 2x 25bps cuts this year as most likely
- Eurostoxx50 breaks to new monthly low as LVMH, ASML earnings weigh heavily
US TSYS: Off Highs But UK CPI Spillover Remains The Main Driver
- Treasuries have pulled away from highs in latest trade, but the broad story remains being dragged higher by Gilts after softer than expected UK CPI inflation along with a more marginal tailwind from lower oil futures.
- Today’s macro docket is relatively light, led by the final input for core PCE inflation, with greater focus on tomorrow’s retail sales report.
- The quiet session should keep earnings in focus in the interim, with Morgan Stanley, Abbott Laboratories and Prologis reporting before the open, before Harris’ interview on Fox after the close.
- Cash yields are 2-2.5bp lower across the curve, with 2s10s at 8.7bps consolidating yesterday’s sizeable flattening but still within ranges over the past month.
- TYZ4 is 1+ ticks below earlier highs of 112-20 (+ 06) on modest cumulative volumes of 280k.
- It stopped shy of initial resistance at 112-21 (Oct 9 high) after which lies 113-12 (Sep 3 low), but gains are considered corrective with support seen at 111-22 (Oct 10 low).
- Data: MBA mortgage data (0700ET), International prices Sep (0830ET), NY Fed services Oct (0830ET)
- Bill issuance: US Tsy to sell $64B 17-w bills (1130ET)
- Politics: VP Harris interview on Fox (1800ET)
STIR: UK CPI Helps Fed Path A Little Closer To 50bp Of Cuts To End-2024
- Fed Funds implied rates have been biased lower overnight by softer than expected UK CPI inflation (building on yesterday’s softer CAD CPI), moving closer to fully pricing in two further 25bp cuts this year.
- Cumulative cuts from 4.83% effective: 24bp Nov, 47bp Dec, 66bp Jan and 124bp June.
- Today’s macro data sees international prices of most note for a final, albeit marginal, steer for core PCE estimates that currently average 0.25% M/M for the Oct 31 release.
- There is no scheduled Fedspeak today, with Chicago Fed’s Goolsbee (’25) next up with opening remarks tomorrow.
- Atlanta Fed’s Bostic (’24) late yesterday repeated that he penciled in a single 25bp rate cut to be split over the two meetings left this year at last month’s SEP. “The question everybody asks us is ‘how fast?’ I think it depends on what happens in the labor market and what happens with inflation. […] I actually think we’re going to see inflation be choppy, and I expect that we’ll see employment stay robust.”
US TSY FUTURES: OI Suggests Run Of Limited Net Positioning Swings Extends
OI data points to a mix of net long setting and short cover during Tuesday's rally in Tsy futures, with the only positioning shift of any note coming via apparent net long setting in WN futures (~$1.85mn DV01) equivalent.
- Net positioning adjustments over the last 2-3 sessions have been somewhat modest.
| 15-Oct-24 | 14-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,461,176 | 4,455,565 | +5,611 | +211,339 |
FV | 6,230,828 | 6,238,867 | -8,039 | -345,904 |
TY | 4,703,329 | 4,711,915 | -8,586 | -560,405 |
UXY | 2,191,793 | 2,198,698 | -6,905 | -626,000 |
US | 1,780,513 | 1,777,134 | +3,379 | +453,120 |
WN | 1,727,380 | 1,718,565 | +8,815 | +1,850,745 |
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| Total | -5,725 | +982,896 |
STIR: OI Points to Mix Of Long Setting & Short Cover In SOFR Futures On Tuesday
OI points to net long setting across the front 7 SOFR futures during yesterday’s rally, with net short setting then seemingly dominating in the greens and blues.
- Yesterday’s sharp adjustment lower in crude oil futures drove the early dovish move in U.S. STIRs, with softer-than-expected Canadian CPI data and a weak headline NY Fed Empire manufacturing reading also factoring in.
| 15-Oct-24 | 14-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,236,685 | 1,230,333 | +6,352 | Whites | +33,304 |
SFRZ4 | 1,045,074 | 1,033,543 | +11,531 | Reds | +32,531 |
SFRH5 | 989,734 | 983,886 | +5,848 | Greens | -2,138 |
SFRM5 | 853,326 | 843,753 | +9,573 | Blues | -13,513 |
SFRU5 | 697,065 | 676,776 | +20,289 |
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SFRZ5 | 895,675 | 881,247 | +14,428 |
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SFRH6 | 604,441 | 603,760 | +681 |
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SFRM6 | 603,457 | 606,324 | -2,867 |
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SFRU6 | 545,590 | 546,355 | -765 |
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SFRZ6 | 614,489 | 617,288 | -2,799 |
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SFRH7 | 361,926 | 363,884 | -1,958 |
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SFRM7 | 301,544 | 298,160 | +3,384 |
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SFRU7 | 248,907 | 250,357 | -1,450 |
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SFRZ7 | 257,282 | 263,723 | -6,441 |
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SFRH8 | 181,635 | 182,739 | -1,104 |
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SFRM8 | 151,876 | 156,394 | -4,518 |
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UK DATA: Inflation data less of a surprise than it appears at first glance
- In terms of impact for the BOE. Given that a large part of the surprise was driven by air fares, it's not as big a surprise as at first glance.
- Overall, services CPI at 4.94%Y/Y is 0.58ppt below the BOE's August MPR forecast.- that is partly driven by air fares, partly by hotel prices not being as strong as they were a few months ago, and then a very slight broad-based softening elsewhere.
- Core goods at 0.20%Y/Y are higher than the BOE's forecast of -0.02%Y/Y, food prices are higher at 1.86%Y/Y vs 1.19% but energy is also softer than expected (due largely to petrol prices). These probably broadly offset each other - leaving the BOE's headline surprise driven by services.
- But as we note above if you exclude air fares and accommodation, we estimate services is probably only marginally weaker than the BOE's forecast.
EUROPE ISSUANCE UPDATE:
UK auction results
- Strong 7-year auction of the 4.00% Oct-31 gilt with the lowest accepted price above the prevailing mid-price (in contrast to the lsat auction).
- The tail was also very tight at 0.2bp (tightest for this gilt, average tail prior to today had been 1.4bp with the July auction the only other auction seeing a bid-to-cover below 1.4bp (at 0.3bp)).
- The strong auction has helped push the 4.00% Oct-31 gilt and gilt futures to intraday highs (with the latter fading this impact as we anticipated and trading close to flat vs pre-results levels).
- GBP3.5bln of the 4.00% Oct-31 Gilt. Avg yield 3.988% (bid-to-cover 3.42x, tail 0.2bp).
Greece auction results
- E250mln of the 3.875% Mar-29 GGB. Avg yield 2.38% (bid-to-cover 3.76x).
Germany auction results
- E1bln (E822mln allotted) of the 0% Aug-50 Bund. Avg yield 2.46% (bid-to-offer 1.84x; bid-to-cover 2.24x).
- E1bln (E854mln allotted) of the 2.50% Aug-54 Bund. Avg yield 2.49% (bid-to-offer 3.10x; bid-to-cover 3.63x).
- GBP/USD's break lower Wednesday puts the pair through support at both the 1.3002 level as well as the 1.30 handle - making for a second key technical break across major markets this week. Soft UK inflation data drove the spot price lower, as markets sharply raised the implied probability of back-to-back BoE rate cuts for the November and December meetings. 44bps of rate cuts are now priced by year-end, up from ~36bps before this morning's release.
- The next focus for G10 FX will be the sustainability of the next GBP leg lower. The 100-dma undercuts as next support at 1.2953, and it's this level that could come into focus headed into the UK Budget on October 30th - at which the Chancellor is looking to raise as much as £40bln in tax revenues to plug the black hole in government finances.
- The greenback is the firmest currency in G10, aided by both the GBP/USD leg lower and the persistent buy-on-dips theme in USD/JPY. This keeps Y150.00 in view for the pair, clearance of which would resume the underlying uptrend posted off the mid-September lows.
- European equities are soft - with continental indices off 0.4-1.0% and extending losses posted off yesterday's highs. Earnings remain the key driver here, with the EuroStoxx50's two biggest stocks (LVMH and ASML) both posting sharp declines on their updates this week. The next key release comes next week, with SAP's Q3 performance update on the 21st October.
FX OPTIONS: Expiries for Oct16 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0880-00(E1.0bln), $1.0945-55(E2.8bln), $1.0975(E1.1bln)
- USD/JPY: Y150.00($757mln)
- AUD/USD: $0.6750(A$705mln), $0.6775-80(A$520mln)
MEXICO: USDMXN Approaching Initial Resistance
- Additional factors supporting the USDMXN bounce this week have been concerns over the potential minimal impacts of China stimulus, geopolitical risk and soft China data out Monday and over the weekend continuing to weigh on sentiment.
- Yesterday’s downtick for equities and pressure on crude futures had the greatest impact on EM currencies, with broad weakness for Latin American FX a standout.
- Furthermore, lingering domestic concerns surrounding the Morena party’s reform proposals have been fundamental to the significant adjustment of MXN sentiment since the election earlier this year.
- Technical factors will have also assisted the bounce, with the pair failing to breach the 50-day EMA, an average the pair has been unable to close below since mid-July, keeping a bullish theme intact for now.
- Spot is approaching the first resistance and a key short-term hurdle for bulls at 19.8295, the Oct 1 high. A resumption of gains would refocus attention on key resistance and the bull trigger at 20.2181, the Aug 5 high.
GBP: Markets See US Elections, Not UK Budget, as Key Test for S/T GBP Weakness
- GBP's post-CPI break lower represents the second meaningful range breakout so far this week, with EuroStoxx50 future weakness also putting prices below the 4929.00 October low on the back of poorly received LVMH and ASML earnings over the past 24 hours.
- The next focus for G10 FX will be the sustainability of the next GBP leg lower. Two-week vols today capture the first post-UK budget options expiry - which appears to have arrested the decline in vols for GBP against both the USD and EUR - but GBP/USD vol skews in favour of three-week contracts - meaning markets apportion a greater risk of spot vol following the US election, rather than the first Labour budget, despite the up-rating of the black hole in UK finances to £40bln yesterday.
- Options-implied probability looks for a 44% chance of GBP/USD below 1.30 on the session following the Presidential election (28% below 1.29, 16% below 1.28), up from 39% this time last week. This leaves the 100-dma as a key litmus test for weakness, today crossing at 1.2954.
- We don’t think the BoE will entertain the idea of a 50bp cut as a direct result of this morning's CPI print, given still elevated (but cooling) wage growth and services inflation, which leaves the profile of cuts through to H2'25 still quite flat, despite today’s repricing.
COMMODITIES: Further Weakness in WTI Futures Would Threaten Bullish Theme
- WTI futures gapped lower yesterday and this resulted in a break of the Oct 9 low. An extension lower 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 this week and the recent short-term retracement appears to have been a correction. The trend condition is bullish and moving average studies are in a bull-mode set-up too, highlighting a clear uptrend and positive market sentiment. Sights are on $2690.2, a Fibonacci projection. Firm support lies at $2626.7, the 20-day EMA. It has been pierced, a clear break would signal scope for a deeper retracement.
EQUITIES: Eurostoxx 50 Futures Pierce 50-Day EMA Following Tuesday's Sell-Off
- Eurostoxx 50 futures traded sharply lower Tuesday, reversing recent gains. The contract has pierced support around the 50-day EMA, at 4944.57. 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 bull trigger is unchanged at 5106.00, the Sep 30 high. A break would resume the uptrend.
- A bull cycle in S&P E-Minis remains intact and Tuesday’s pullback appears to be a correction. 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 5789.86, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 16/10/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 16/10/2024 | 1215/0815 | ** |  CA | CMHC Housing Starts |
| 16/10/2024 | 1230/0830 | ** | US | Import/Export Price Index |
| 16/10/2024 | 1230/0830 | ** | CA | Monthly Survey of Manufacturing |
| 16/10/2024 | 1840/2040 |  EU | ECB's Lagarde Speech at Banka Slovenije Dinner | |
| 17/10/2024 | - | EU | European Central Bank Meeting | |
| 17/10/2024 | 2350/0850 | ** |  JP | Trade |
| 17/10/2024 | 0030/1130 | *** |  AU | Labor Force Survey |
| 17/10/2024 | 0900/1100 | *** | EU | HICP (f) |
| 17/10/2024 | 0900/1100 | * | EU | Trade Balance |
| 17/10/2024 | 1100/0700 | *** |  TR | Turkey Benchmark Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Deposit Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Main Refi Rate |
| 17/10/2024 | 1215/1415 | *** | EU | ECB Marginal Lending Rate |
| 17/10/2024 | 1230/0830 | *** | US | Jobless Claims |
| 17/10/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities |
| 17/10/2024 | 1230/0830 | *** | US | Retail Sales |
| 17/10/2024 | 1230/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 17/10/2024 | 1245/1445 | EU | ECB Monetary Policy Press Conference | |
| 17/10/2024 | 1315/0915 | *** | US | Industrial Production |
| 17/10/2024 | 1400/1000 | * | US | Business Inventories |
| 17/10/2024 | 1400/1000 | ** | US | NAHB Home Builder Index |
| 17/10/2024 | 1415/1615 | EU | ECB Podcast: Lagarde presents MonPol Decision | |
| 17/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 17/10/2024 | 1500/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 17/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 17/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 17/10/2024 | 2000/1600 | ** | US | TICS |
| 17/10/2024 | 2000/2100 |  GB | BOE's Woods Speech at Mansion House |
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