Highlights:
- UK markets gear for upped infrastructure spending, rates implications
- French PMIs come in softer, but better German numbers provide a balance
- Weekly claims on the docket, likely the focus for markets Thursday
US TSYS: Broad-Based Rally With Jobless Claims and Flash PMIs Eyed
- Treasuries have extended highs, ever since soft European flash PMIs aided a tentative rally in Asia hours to reverse yesterday’s sell-off. Treasuries mostly trade in line with EGBs whilst outperforming Gilts where idiosyncratic fiscal factors are at play.
- Data leads today’s docket with jobless claims before US flash PMIs, but issuance could start to come into greater focus ahead of the quarterly refunding round starting Monday. See the MNI Refunding Preview here.
- Cash yields are 3.3-5.6bps lower on the day, with the front-end lagging declines perhaps with WTI futures weighing having reversed earlier losses.
- TYZ4 has just hit session highs of 111-13 (+12) on solid cumulative volumes of 415k. It pushes closer to resistance at 112-18+ (20-day EMA) but the trend needle points south with support at 111-04 (200-dma) and 110-30+ (Oct 23 low).
- Data: Weekly jobless claims (0830ET), Chic Fed national activity Sep (0830ET), S&P Global US flash PMIs Oct (0945ET), New home sales Sep (1000ET), KC Fed mfg Oct (1100ET)
- Fedspeak: Hammack welcome remarks (0845ET)
- Note/bond issuance: US Tsy to sell $24bn 5Y TIPS (1300ET)
- Bill issuance: US Tsy to sell $95bn 4-w and $90bn 8-w bills (1130ET)
STIR: Fed Rate Path Eases Away From Recent Highs
- Fed Funds implied rates have pulled back a little further from highs earlier this week but remain at the high end of recent ranges.
- Cumulative cuts from 4.83% effective: 23bp Nov, 42bp Dec, 59bp Jan and 110bp June.
- Today’s docket sees focus on weekly jobless claims, with further potential hurricane distortion and continuing claims covering a payrolls reference week, before flash PMIs.
- Scheduled Fedspeak is limited to Hammack (’24 voter) giving welcome remarks (no text). Only Collins (’25) is set to speak tomorrow in a fireside chat (no text) for the last two days before the FOMC blackout starts Sat 12:00am ET.
- Yesterday’s Beige Book, watched with increasing focus on anecdotal evidence, overall didn't appear to change the narrative of slower economic growth depicted in September's collection of regional anecdotes, but job gains appear to have been marginally firmer while inflation pressures may have been marginally softer. With few dramatic changes over the preceding 6 weeks it is unlikely to be a game-changer compared with the unexpectedly weak September edition.
US TSY FUTURES: OI Points To Net Short Setting In Long End On Wednesday
OI points to a mix of net short setting and long cover during Wednesday’s sell off in Tsy futures, although the moves in net DV01 equivalents remained fairly limited.
- The biggest DV01 equivalent swing came via net short setting in US futures, which was enough to tip the net curve DV01 equivalent swing that way.
- Note that participants were seemingly net short setters in WN futures as well, with OI data pointing to a bias towards selling in the long end.
| 23-Oct-24 | 22-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,540,634 | 4,544,817 | -4,183 | -155,334 |
FV | 6,243,165 | 6,236,242 | +6,923 | +294,037 |
TY | 4,626,757 | 4,652,688 | -25,931 | -1,666,662 |
UXY | 2,160,777 | 2,163,051 | -2,274 | -202,260 |
US | 1,780,305 | 1,761,270 | +19,035 | +2,478,529 |
WN | 1,736,060 | 1,732,480 | +3,580 | +721,416 |
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| Total | -2,850 | +1,469,726 |
STIR: OI Points To Large Short Setting In SFRZ4, Further Unwind Of SFRZ5 Longs
The combination of OI data and Wednesday’s extension of the recent hawkish repricing in SOFR futures points to a mix of net short setting and long cover.
- Apparent net short setting in SFRZ4 provided the most meaningful net positioning swing, while SFRZ5 was seemingly subjected to relatively notable long cover for a third consecutive day.
- Cumulative cuts priced into Fed Funds futures from the current 4.83% effective rate: 23bp Nov, 42bp Dec, 59bp Jan and 110bp June.
| 23-Oct-24 | 22-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,246,104 | 1,239,018 | +7,086 | Whites | +72,561 |
SFRZ4 | 1,115,732 | 1,054,368 | +61,364 | Reds | -60,039 |
SFRH5 | 1,001,752 | 994,426 | +7,326 | Greens | +29,460 |
SFRM5 | 881,394 | 884,609 | -3,215 | Blues | +11,727 |
SFRU5 | 715,171 | 720,750 | -5,579 |
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SFRZ5 | 867,529 | 901,408 | -33,879 |
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SFRH6 | 602,827 | 617,034 | -14,207 |
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SFRM6 | 614,734 | 621,108 | -6,374 |
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SFRU6 | 537,650 | 534,613 | +3,037 |
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SFRZ6 | 649,896 | 636,615 | +13,281 |
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SFRH7 | 362,776 | 360,576 | +2,200 |
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SFRM7 | 309,886 | 298,944 | +10,942 |
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SFRU7 | 259,129 | 256,121 | +3,008 |
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SFRZ7 | 244,990 | 242,016 | +2,974 |
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SFRH8 | 183,583 | 180,180 | +3,403 |
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SFRM8 | 150,650 | 148,308 | +2,342 |
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CANADA: Analysts Broadly Split Between 25bp or 50bp Cut In Dec
- The broad collection of communications from the BoC yesterday made it clear that it remains data dependent.
- The market still attributes sizeable odds of a second 50bp cut in December though, currently seen as a broadly 50/50 call between a 25bp or 50bp cut. This likely embodies a view shared by TD Securities, that it only made sense to cut 50bp this week if the BoC is in a rush towards more neutral policy setting.
- Our review of analysts sees a similar finding, with a rough split between 25bp and 50bp cut calls.
- Analyst terminal rate expectations are all at the bottom of the BoC’s neutral range of 2.25-3.25%, mostly between 2.25-2.5% but RBC stand out with their 2.00% forecast.
NORGES BANK: Wolden-Bache To Speak On Monetary Policy Trade-offs This Evening
Norges Bank Governor Wolden-Bache will speak on “Monetary policy trade-offs in a small open economy” at the Peterson Institute this evening (1815BST/1915CET). This will be a more appropriate forum to guide markets ahead of the November 7 Norges Bank decision than last week’s speech, which centred on balance sheet policy.
- It is safe to assume that policy rates will be kept on hold again at 4.50% in November. However, we think that if Norges Bank want to keep the door open to a December rate cut (the September MPR rate path assigns a 20% probability of such a move), it may need to signal as much at the November decision.
- Governor Wolden-Bache could therefore use tomorrow's speech to create some landing room for a November guidance tilt.
- Norges Bank’s hawkish stance through this year has largely been due to the weaker-than-expected NOK, which has been weighed against weaker-than-expected inflation and sluggish economic activity.
- These trade-offs have remained prevalent since the September decision.
- The I-44 real exchange rate index has risen almost 2% since the September decision (indicating a weaker NOK) and lies above the central bank’s latest projections.
- However, September CPI-ATE inflation was also two tenths below MPR forecasts at 3.1% Y/Y.
US TSYS/SUPPLY: Refunding Preview- Bigger Auctions Unlikely For Several Qs
Treasury's quarterly Refunding process begins next Monday Oct 28 with the release of the financing estimates for the current quarter (we refer to this as the November refunding round). Wednesday Oct 30 brings Treasury's announcement of coupon auction sizes, as well as its guidance for future issuance. MNI usually produces a Deep Dive ahead of the Refunding announcement, but in this case Treasury auctions continue through Tuesday - so unusually, for this round, we will publish a smaller preview for financing/coupon sizes, with our Deep Dive covering the Refunding results after their release.
- First, we begin with the coupon auction sizes. MNI does not expect any change in nominal coupon sizes to be announced (though there might be a small $1B uptick in TIPS) for Nov-Dec-Jan. See table below.
- This would be in keeping with sizes since the May-Jun-Jul quarter and the previous quarter's guidance that Based on current projected borrowing needs, "Treasury does not anticipate needing to increase nominal coupon or FRN auction sizes for at least the next several quarters." This outlook is shared by sell-side analysts whose previews we have seen.
- In that case, more important will be whether the guidance itself changes, to indicate potential for higher issuance in coming quarters. That would be considered a surprise, particularly as it would be conveyed less than a week before the Nov 5 elections. Some see a softening in guidance to open up the possibility of future increases, which would come as an unwelcome surprise to markets.
- Broad consensus is that the next upsizing will not come until late 2025 or even early 2026 though of course much will depend on the fiscal path taken in the next administration/Congress.
EUROPE ISSUANCE UPDATE:
Finland auction results
- E25mln of the 1.125% Apr-34 RFGB. Avg yield 2.719% (bid-to-cover 21.40x).
- E351mln of the 0.25% Sep-40 RFGB. Avg yield 3.033% (bid-to-cover 1.34x).
FOREX: Rates Volatility Prompts Dollar to Reverse Small Part of Recent Gains
- The greenback sits softer against all others, as markets erase a small part of the recent sharp dollar rally. The moves coincide with an uptick in near-term vols across DM rates markets, with US 10y yields fading off the week's best levels, taking the greenback with it.
- Initial interest in UK rates markets came alongside hawkish pressure on BoE rates pricing after an article in the Guardian suggested the government could opt for a different definition of public sector net debt, leaving considerable funds for infrastructure investment - but a soft set of UK PMI numbers soon reversed the move, which had already been biased lower after Bailey's dovish undertones in a late appearance yesterday.
- A lower close for GBPJPY today would be the first in four sessions, with markets having now opened a ~160 pip gap with the weekly high at 198.44. The 15min candle chart exposes 196.63 as a decent support today - having held on the earlier pullback.
- Weekly jobless claims data crosses later today, and given the split pricing between 25 and 50bps of Fed rate cuts into year-end, the market may remain sensitive across the release. Prelim PMI numbers for October are also due, with new home sales stats set to cross after the cash equity open. Central bank speak set for today includes BoE's Mann & Bailey and ECB's Kazaks & Lane.
COMMODITIES: Bearish Theme in WTI Futures Still Present
- WTI futures have recovered from their recent lows. However, a bearish theme remains intact following last week’s sell-off. A resumption of weakness would threaten the recent bullish theme and expose $65.99, the Oct 1 low, and $64.16, the Sep 10 low and a key support. For bulls, a stronger reversal would instead refocus attention on the key short-term resistance at $77.70, the Oct 8 high. Clearance of this level would resume to the recent uptrend.
- Gold bulls remain in the driver’s seat and price is trading closer to its recent highs. Last week’s gains resulted in a break of $2685.6, the Sep 26 high, confirming a resumption of the primary uptrend. This week’s extension reinforces the bull theme. Sights are on $2767.1 next, a Fibonacci projection point, ahead of the $2800.0 handle. Firm support is $2666.6, the 20-day EMA. A clear break of this EMA would signal scope for a deeper retracement.
EQUITIES: Eurostoxx 50 Futures Bounce Off Wednesday's Low
- Eurostoxx 50 futures are trading closer to their recent lows. For now, a bear threat remains present. The contract traded sharply lower on Oct 15 and has pierced the 50-day EMA, at 4947.56. 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 5106.00, the Sep 30 high. A break of it resumes the uptrend.
- S&P E-Minis traded lower yesterday and the contract remains below its recent highs. Short-term weakness is considered corrective and the uptrend remains intact. Price has traded through the 20-day EMA, at 5831.56. A clear break of this EMA would signal scope for a deeper retracement towards 5745.75, the 50-day EMA. A resumption of gains would refocus attention on 5961.00, a Fibonacci projection.
| Date | GMT/Local | Impact | Country | Event |
| 24/10/2024 | - |  EU | ECB's Lagarde and Cipollone in G20 FMs and CB governors meeting | |
| 24/10/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 24/10/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 24/10/2024 | 1245/0845 | US | Cleveland Fed's Beth Hammack | |
| 24/10/2024 | 1300/1400 |  GB | BOE's Mann panellist at Reinventing Bretton Woods session | |
| 24/10/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 24/10/2024 | 1345/0945 | *** | US | S&P Global Services Index (flash) |
| 24/10/2024 | 1400/1000 | *** | US | New Home Sales |
| 24/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 24/10/2024 | 1500/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 24/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 24/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 24/10/2024 | 1700/1900 | EU | ECB's Lane remarks at 'Inflation: Drivers and Dynamics' event | |
| 24/10/2024 | 1700/1300 | ** | US | US Treasury Auction Result for TIPS 5 Year Note |
| 25/10/2024 | 2301/0001 | ** | GB | Gfk Monthly Consumer Confidence |
| 25/10/2024 | 2330/0830 | ** |  JP | Tokyo CPI |
| 25/10/2024 | 0600/0800 | ** |  SE | PPI |
| 25/10/2024 | 0645/0845 | ** |  FR | Consumer Sentiment |
| 25/10/2024 | 0700/0900 | ** |  ES | PPI |
| 25/10/2024 | 0800/1000 | ** | EU | M3 |
| 25/10/2024 | 0800/1000 | ** |  IT | ISTAT Business Confidence |
| 25/10/2024 | 0800/1000 | ** | IT | ISTAT Consumer Confidence |
| 25/10/2024 | 0800/1000 | *** |  DE | IFO Business Climate Index |
| 25/10/2024 | 0800/1000 | ** | EU | ECB Consumer Expectations Survey |
| 25/10/2024 | 1230/0830 | ** |  CA | Retail Trade |
| 25/10/2024 | 1230/0830 | ** | US | Durable Goods New Orders |
| 25/10/2024 | 1230/0830 | ** | CA | Retail Trade |
| 25/10/2024 | 1300/1500 | ** |  BE | BNB Business Sentiment |
| 25/10/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers |
| 25/10/2024 | 1500/1100 | US | Boston Fed's Susan Collins | |
| 25/10/2024 | 1500/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) |