Highlights:
- US PMI data in focus, but unlikely to shake Dec FOMC pricing
- GBP trades well as services PMI limits room for MPC doves
- ECB speak heavy, but very few fresh messages
- Treasuries have modestly lifted from Friday’s recent lows after a sustained sell-off through last week. The PBOC vowing to forcefully expand domestic demand has had no sign of hawkish spillover owing to similar commentary from last week’s readout.
- Cash yields are 1.5-2.8bp lower across the curve, with declines led by 3s in recent trade as WTI futures pare Friday gains.
- Putting today’s rally into perspective, 10Y yields are 2.4bp lower on the day at 4.373% after last week climbing from ~4.15% to peak at 4.405% on Friday.
- TYH5 at 110-00+ (+ 04+) has slowly lifted away from Friday’s low of 109-26, on somewhat low volumes of 265k. That 109-26 marks initial support after which lies 109-22 (Fibo retrace of Nov 15-Dec 6 up-leg), clearance of which would firm the recent resumption of a bearish trend, whilst resistance is seen at 110-22 (20-day EMA).
- Today’s focus is on flash US PMIs before retail sales tomorrow and then on course the FOMC decision on Wednesday.
- Data: Empire mfg Dec (0830ET), S&P Global US mfg/serv/comp PMI, Dec prelim (0945ET)
- Bill issuance: US Tsy $81B 13W, $72B 26W bill auctions (1130ET)
STIR: Flash PMIs Land With Fed Looming Large
- Fed Funds implied rates have modestly pared Friday’s increase, which built into the second half of the session with support from higher oil prices. Recall that import prices were stronger than expected but with a benign readthrough for core PCE.
- Last week's CPI report still weighs on Dec/Jan meetings but dovish implications have been more than reversed further into 2025.
- Cumulative cuts from 4.58% effective: 24bp Dec 18, 28bp Jan, 42bp Mar, 49bp May and 59bp June.
- Wednesday’s FOMC decision looms large but in the near-term, there’s modest focus on flash US PMIs for December at 0945ET. https://media.marketnews.com/Fed_Prev_Dec2024_c2bc263e41.pdf
- The US Services PMI has been strong for some time now, hovering around 55 since May before increasing to 56.1 in November. Against that, the ISM Services reading saw some surprise weakness in November as it fell from 56.0 to 52.1 for its lowest since Aug.
US TSY FUTURES: CFTC CoT Shows Hedge Funds Trimming Long End Shorts
The latest CFTC CoT report showed hedge funds covering shorts in the long end (UXY through WN futures) as well as in FV futures, while they added to shorts in TU & TY futures. The cover further out the curve provided a more meaningful positioning swing (in DV01 equivalent terms). The cohort remains net short across all contracts.
- Asset manager positioning saw a mix of net longs being added to (TY, UXY & WN) and trimmed (TU, FV & US). The cohort remains net long across all contracts.
- Broader non-commercial net positioning saw a mix of net shorts being added to and trimmed. The cohort remains net short across all contracts.
Source: MNI - Market News/CFTC/Bloomberg
US TSY FUTURES: Rounds Of Short Setting & Long Cover Generally Offset On Friday
OI data points to a mix of net short setting and long cover during Friday’s move lower in Tsy futures.
- Net short setting was seen in FV & TY futures, with net long cover elsewhere on the curve.
- The two rounds of positioning swings essentially offset in net DV01 equivalent terms.
| 13-Dec-24 | 12-Dec-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,245,997 | 4,251,810 | -5,813 | -226,619 |
FV | 6,062,437 | 6,042,613 | +19,824 | +848,401 |
TY | 4,490,779 | 4,461,757 | +29,022 | +1,907,794 |
UXY | 2,174,717 | 2,183,668 | -8,951 | -802,869 |
US | 1,856,212 | 1,865,738 | -9,526 | -1,228,577 |
WN | 1,765,773 | 1,768,534 | -2,761 | -544,927 |
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| Total | +21,795 | -46,798 |
STIR: OI Points To Notable Swings In SFRZ4 & Z5 Positioning On Friday
OI points to sizeable long cover in SFRZ4 futures ahead of the weekend.
- Elsewhere, net exposure in SFRZ5 was added to, although that was seemingly owing to a 40K flattener block in the SFRH5/Z5 spread.
- Net long cover was slightly more prominent in the greens and blues.
| 13-Dec-24 | 12-Dec-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,217,337 | 1,217,514 | -177 | Whites | -164,389 |
SFRZ4 | 1,267,808 | 1,429,507 | -161,699 | Reds | +44,917 |
SFRH5 | 1,104,853 | 1,106,435 | -1,582 | Greens | -10,602 |
SFRM5 | 1,007,978 | 1,008,909 | -931 | Blues | -10,282 |
SFRU5 | 813,478 | 813,614 | -136 |
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SFRZ5 | 1,021,823 | 972,814 | +49,009 |
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SFRH6 | 575,305 | 578,929 | -3,624 |
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SFRM6 | 632,625 | 632,957 | -332 |
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SFRU6 | 626,919 | 631,756 | -4,837 |
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SFRZ6 | 714,743 | 711,610 | +3,133 |
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SFRH7 | 413,152 | 419,111 | -5,959 |
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SFRM7 | 362,361 | 365,300 | -2,939 |
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SFRU7 | 275,563 | 277,053 | -1,490 |
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SFRZ7 | 282,890 | 291,169 | -8,279 |
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SFRH8 | 204,922 | 204,602 | +320 |
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SFRM8 | 156,598 | 157,431 | -833 |
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SNB: Lower Threshold Factor May Cause S/T Gyrations, But Neutral Longer-Term
The Swiss National Bank have further lowered the threshold factor above which banks are paid the full SNB policy rate, down to 20, from 22 previously. This level stood at 25 earlier in 2024.
- The Bank write that the "basis for calculating the threshold remains unchanged" and that the lower threshold factor "counteracts the increase in thresholds due to the raising of the minimum reserve requirement as of 1 July 2024". As such, the policy move maintains the effectiveness of the transmission mechanism and "has no impact on the current monetary policy stance".
- While the policy step is a net neutral, the switch may cause some short-term gyrations in money markets. Unusually, this decision did not come alongside last week's policy rate decision - but a standalone tweak released this morning.
- SARON futures had been bid from the open, with Jun25 - Mar26 SARON futures crossing 100.00 for the first time.
FOREX: GBP Trades Well as Services PMI Could Limit Any MPC Doves
- GBP trades well, rising against all others in G10 on the back of a better-than-expected UK Services PMI print, which tipped GBP/USD to a new daily high at 1.2671. The release showed some similar themes to the EZ PMIs across the morning, with average prices increasing at the fastest pace for nine months, particularly in services.
- Prices of raw materials and fuel were cited, but the increase of costs for businesses from the Budget is also being seen as a hugely important factor and could limit the potential for more dovish dissents at the MPC meeting this week.
- CHF is on the front foot, reflecting the downstep for European equity futures at the open. The EuroStoxx and DAX futures are lower by ~0.3%, but it's France's CAC-40 future that leads losses, off by and 0.7% and dragging on US markets ahead of the open.
- The greenback is mid-range alongside the JPY, while softer oil prices are providing a headwind for oil-tied currencies - and most notably the NOK.
- The US empire manufacturing release, prelim December PMIs and Canadian housing starts data are the Monday highlights. ECB speak is heavy, with appearances from ECB's Wunsch, Escriva and Schnabel still to come.
OPTIONS: Sizeable EUR Strike Defines Monday Pipeline
Sizeable options interest at today's cut could help define G10 FX price action into 10am NY time (1500GMT), with the most notable strikes including €2.2bln at 1.0500 in EUR/USD, €2.4bln at 1.0540-50 and the biggest of the day (and almost certainly the entirety of 2024): €6.6bln at 1.0600.
- That last option is composed of 59 different options, €3.0bln of which are put notional, €3.6bln of which are calls - likely made up of year-end edges that looked to steer clear of the Fed meeting on Wednesday and avoid thinner markets toward the end of the week.
- Other notable optionality interest lies lower with $950mln at Y152.45 in USD/JPY and $741mln at Y153.00. AUD/USD eyes A$886mln at $0.6350, while GBP/USD sees £475mln rolling off at 1.2625.
EQUITIES: Bull Cycle in Eurostoxx 50 Futures Remains Intact
- A bull cycle in the Eurostoxx 50 futures contract remains intact and price continues to trade closer to its recent highs. The contract has recently breached the 50-day EMA. The clear break of this average strengthens a bullish theme and note that 4961.00, the Nov 6 high, has also been cleared. Sights are on 5015.00 next, the Oct 29 high. Key support is 4699.00, the Nov 19 low. Initial support to watch lies at 4902.90, the 20-day EMA.
- The S&P E-Minis contract remains bullish and the latest shallow pullback is 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. A resumption of the trend would open 6194.19, a Fibonacci projection. Initial support to watch lies at 6097.76 the 20-day EMA.
COMMODITIES: Gains in WTI Futures Last Week Considered Corrective, For Now
- A bearish threat in WTI futures remains present and last week’s gains are - for now - considered corrective. A resumption 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 has pulled back from its recent highs. Trend signals remain bullish and a move lower is considered corrective. A key short-term resistance at $2721.4, the Nov 25 high, has been pierced and this represents a positive development. A continuation higher would expose key resistance at $2790.1, the Oct 31 high. Clearance of this level would confirm a resumption of the primary uptrend. First key support is $2605.3, the Nov 26 low.
| Date | GMT/Local | Impact | Country | Event |
| 16/12/2024 | - |  CA | Canada presents fiscal update, time TBD. | |
| 16/12/2024 | 1315/0815 | ** | CA | CMHC Housing Starts |
| 16/12/2024 | 1330/0830 | ** |  US | Empire State Manufacturing Survey |
| 16/12/2024 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 16/12/2024 | 1445/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 16/12/2024 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 16/12/2024 | 1630/1730 |  EU | ECB's Schnabel speech at CEPR symposium | |
| 16/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 16/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 16/12/2024 | 2020/1520 | CA | BOC Governor Macklem speaks in Vancouver. | |
| 17/12/2024 | - | US | FOMC Meeting / S.E.P. | |
| 17/12/2024 | 0700/0700 | *** |  GB | Labour Market Survey |
| 17/12/2024 | 0900/1000 | *** |  DE | IFO Business Climate Index |
| 17/12/2024 | 1000/1100 | *** | DE | ZEW Current Conditions Index |
| 17/12/2024 | 1000/1100 | *** | DE | ZEW Current Expectations Index |
| 17/12/2024 | 1000/1100 | * | EU | Trade Balance |
| 17/12/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 17/12/2024 | 1000/1100 | EU | ECB's Elderson at ECB Banking Supervision conference | |
| 17/12/2024 | 1330/0830 | * | CA | International Canadian Transaction in Securities |
| 17/12/2024 | 1330/0830 | *** | CA | CPI |
| 17/12/2024 | 1330/0830 | *** | US | Retail Sales |
| 17/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 17/12/2024 | 1415/0915 | *** | US | Industrial Production |
| 17/12/2024 | 1500/1000 | * | US | Business Inventories |
| 17/12/2024 | 1500/1000 | ** | US | NAHB Home Builder Index |
| 17/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 17/12/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |