Highlights:
- UK rates vol continues as Budget digestion works against BoE easing cycle
- Soft Microsoft, Meta earnings weigh on headlines indices
- MNI Chicago PMI, PCE stats and employment cost index highlight the data calendar
US TSYS: Treasuries Outperform Further Gilts Rout, Further Key Data Ahead
- Treasuries have rallied modestly overnight but with most of the curve except the very long end broadly consolidating yesterday’s sell-off driven by strong US data and spillover from Gilt selling after the UK budget yesterday.
- Treasuries outperform both Gilts in particular and EGBs today, with Gilts seeing further heavy fallout post-Budget and some stronger European data.
- Cash yields are 1.5-3bp lower on the day, with declines led by 30s, whilst 2s10s at 11bps is towards the low end of the past couple weeks.
- TYZ4 trades at 110-17 having kept to relatively narrow ranges on reasonable cumulative volumes of 375k. An earlier low of 110-12+ came close to the week’s recent low of 110-09+ (initial support before the round 110-00).
- Data headlines the docket but it's also another important day for earnings, especially later on with some highlights being Amazon, Apple and Intel all after market. That's all before nonfarm payrolls tomorrow.
- Data: Challenger job cuts Oct (0730ET), PCE/Incomes Sep (0830ET), ECI Q3 (0830ET), Weekly jobless claims (0830ET), MNI Chicago PMI Oct (0845ET).
- Bill issuance: US Tsy $95B 4W & $90B 8W Bill auctions
STIR: Just ~100bp Of Fed Cuts To Mid-2025
- Fed Funds implied rates hold yesterday’s sizeable shift higher from a combination of a sizeable beat for ADP employment plus the healthy composition to GDP growth and firmer-than-expected core PCE inflation.
- Cumulative cuts from 4.83% effective: 23.5bp Nov, 43bp Dec, 57bp Jan and 101bp June.
- Having pushed back above pre-JOLTS levels, mid-2025 implied rates are at recent highs.
- There’s a deluge of important data releases today at 0830ET, with the monthly PCE report for Sept, ECI for Q3 and weekly jobless claims.
US TSY FUTURES: OI Data Points To Sizeable Flattener Flow On Wednesday
Preliminary OI data indicates huge positioning swings in Tsy futures during Wednesday’s twist flattening.
- A reminder that some suggested that steepener deleveraging was the driving positioning force during yesterday’s move, but the OI data pushes back against that idea, pointing to flatteners being set.
- TU, FV & TY futures were seemingly subjected to net short setting, while UXY, US & WN futures saw net long setting dominate.
- The net short setting seen in TY futures is huge by all accounts, with just under $18mn of fresh net DV01 equivalent exposure added in the contract.
| 30-Oct-24 | 29-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,710,753 | 4,524,936 | +185,817 | +6,814,859 |
| FV | 6,434,709 | 6,243,606 | +191,103 | +8,034,716 |
| TY | 4,868,053 | 4,589,527 | +278,526 | +17,715,525 |
| UXY | 2,273,778 | 2,196,940 | +76,838 | +6,773,269 |
| US | 1,876,883 | 1,813,314 | +63,569 | +8,208,617 |
| WN | 1,768,205 | 1,736,881 | +31,324 | +6,300,629 |
| Total | +827,177 | +53,847,615 |
GILTS: /SWAPS: Long End Swap Spreads Indicate Worry Surrounding Increased Supply
Long end swap spreads tighten by 1.0-1.5bp on the day, providing another sign of post-Budget concern surrounding increased long-dated supply.
- 10-Year swap spreads to fresh cycle lows, while 30s test their own cycle lows.
- No meaningful widening after solid demand at today’s long end green gilt auction.
EUROPE ISSUANCE UPDATE:
UK auction results
- GBP2.25bln of the 1.50% Jul-53 Green Gilt. Avg yield 4.831% (bid-to-cover 3.15x, tail 0.5bp).
- Solid demand at long-dated green gilt supply helps gilts away from lows, futures now -52 at 94.40, 35 ticks off worst levels.
- While the cover ratio was ~0.1x lower than that seen at the prior offering of the line, it was still comfortably above the 5-auction average of 2.84x.
FOREX: GBP Looking Through Rates Vol, Downtrend Intact
- Meanwhile, GBP is proving resilient to further volatility for UK rates - as the fallout from yesterday's UK Budget continues to press UK short- and medium-term yields higher. While markets are pricing in a far shallower easing cycle for the BoE next year - GBP is showing little signs of strength, keeping the over-arching bear trend in GBP/USD intact. 1.2909 remains the key downside level here.
- JPY trades well, markedly stronger vs all others in G10 on the back of the BoJ decision overnight. USD/JPY came under pressure after BoJ Governor Ueda inferred that one headwind to further tightening has eased, with markets “slowly regaining stability”. This allowed Bank to remove the reference to having “time to consider” its next steps, with data-dependence front & centre. As a result, markets have brought forward pricing for a December rate hike in Japan.
- Lastly, NOK saw some modest demand as Norges Bank trimmed FX purchases to NOK150mln/day in November, after NOK400mln the four months prior. This was lower than the three analysts forecast we had seen coming into the announcement and reflects a more expansionary-than-expected 2025 budget (-ve for FX purchases) and a one-off NOK82bln transfer from the Government’s account at the Norges Bank to the Sovereign Wealth Fund (+ve for FX purchases).
- Focus shifts to prelim Eurozone CPI stats for October, ahead of weekly US jobless claims stats later today. This comes alongside September PCE numbers and the MNI Chicago PMI, which is expected to improve slightly to 47.0 from 46.6. Speakers due today include ECB's Escriva and ECB's Knot - who speaks in his capacity at the Financial Stability Board.
GBP: Spot FX Looks Through Rates Vol as Inflation, BoE Pricing Backs Up GBP
- Spot GBP has proved resilient in post-Budget trade, with GBP/USD and EUR/GBP respecting the recent range, despite considerable vol in both Gilt markets and OIS-implied BoE pricing. This contrasts with the market reaction to the Kwarteng Sep'22 budget, wherein GBP sold off sharply alongside the acute pressure on Gilt prices.
- This is likely as GBP is receiving some background support from the less dovish BoE pricing across 2025 (when increased Budget spending is expected to hit the economy in earnest) and more supportive conditions for services inflation (largely via wage pressures for lowest-paid employees and greater business costs) - as evidenced by the flattening pressures in the SONIA strip across H2'25.
- Implied year-end pricing for GBP/USD remains relatively sanguine after the budget - looking through near-term vol in UK rates to keep the options-implied range for year-end broadly unchanged: 25.2% probability above 1.3250, 27.8% probability below 1.2750.
- That said, 3m GBP vols against both EUR and GBP are seeing support, as back-to-back BoE cuts at the Nov, Dec meetings are called into question. The trend theme in GBPUSD is unchanged and remains bearish - an extension lower would open 1.2890, the Aug 18 low.
STIR: Budget Impact Continues In GBP STIRs, 29bp Of Cuts Priced Through Dec
Hawkish repricing continues in GBP STIRs this morning, as the impact of the Budget continues to be digested and core global FI markets remain under pressure.
- BoE-dated OIS shows 21bp of cuts through November, 29bp of cuts through year-end and ~80bp of cuts through June.
- Contracts are 1.5-22bp less dovish vs. Tuesday’s closing levels (as seen in the table & chart below).
- SONIA futures flat to -8.0.
- SFIZ4 through U5 trade to the lowest levels seen since July.
- Contracts further out the strip respect yesterday’s lows, after some contracts hit the lowest level seen since May.
- Chancellor Reeves has tried to placate worry surrounding further tax hikes, we will provide further colour in our gilt bullet, due to be published after the open.
- Fallout from the Budget and cross-market moves are due to dominate on Thursday, with little in the way of notable risk events on the UK calendar.
| BoE Meeting | SONIA BoE-Dated OIS (%) | Difference Vs. Current Effective SONIA Rate (bp) |
| Nov-24 | 4.738 | -21.2 |
| Dec-24 | 4.658 | -29.2 |
| Feb-25 | 4.483 | -46.7 |
| Mar-25 | 4.364 | -58.6 |
| May-25 | 4.206 | -74.4 |
| Jun-25 | 4.144 | -80.6 |
| Aug-25 | 4.052 | -89.8 |
| Sep-25 | 4.026 | -92.4 |
| Nov-25 | 3.988 | -96.2 |
EQUITIES: Short-Term Weakness in E-Mini S&P Considered Corrective
- Eurostoxx 50 futures have traded lower this week. Yesterday’s sell-off resulted in a breach of support at 4914.00, the Oct 16 low. Note that 4884.06, 38.2% of the Aug 5 - Sep 30 bull cycle, has been pierced. A clear break of it would signal scope for an extension towards 4815.50, the 50.0% retracement point. Initial firm resistance has been defined at 5015.00, the Oct 29 high, where a break is required to highlight a reversal.
- S&P E-Minis continue to trade below their recent highs. Short-term weakness is - for now - considered corrective and the uptrend remains intact. Price has again traded through support at the 20-day EMA, at 5841.37. A clear breach of this EMA would open 5765.76, the 50-day EMA. For bulls, a stronger resumption of gains would refocus attention on 5961.00, a Fibonacci projection. The bull trigger is at 5927.25, the Oct 17 high.
COMMODITIES: Move Lower in WTI Futures This Week Reinforces Bearish Theme
- A bearish theme in WTI futures remains intact and this week’s move lower reinforces this theme. A continuation down would expose $65.99, the Oct 1 low, and $64.16, the Sep 10 low and a key support. For bulls, a clear reversal would 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. Initial resistance is at $72.34, the Oct 24 high.
- The trend condition in Gold is unchanged and bulls remain in the driver’s seat. The latest climb has resulted in a breach of $2685.6, the Sep 26 high, confirming a resumption of the primary uptrend and maintaining the price sequence of higher highs and higher lows. Sights are on the $2800.0 handle next as the yellow metal appreciates. Firm support is $2703.5, the 20-day EMA. A clear break of this EMA would highlight a short-term top.
| Date | GMT/Local | Impact | Country | Event |
| 31/10/2024 | 0030/1130 | *** |  AU | Retail trade quarterly |
| 31/10/2024 | 0030/1130 | ** | AU | Retail Trade |
| 31/10/2024 | 0030/1130 | ** | AU | Trade price indexes |
| 31/10/2024 | 0030/1130 | * | AU | Building Approvals |
| 31/10/2024 | 0132/0932 | *** |  CN | CFLP Manufacturing PMI |
| 31/10/2024 | 0132/0932 | ** | CN | CFLP Non-Manufacturing PMI |
| 31/10/2024 | 0300/1200 | *** |  JP | BOJ Policy Rate Announcement |
| 31/10/2024 | 0700/0800 | ** |  DE | Retail Sales |
| 31/10/2024 | 0700/0800 | ** | DE | Import/Export Prices |
| 31/10/2024 | 0745/0845 | *** |  FR | HICP (p) |
| 31/10/2024 | 0745/0845 | ** | FR | PPI |
| 31/10/2024 | 1000/1100 | *** |  EU | HICP (p) |
| 31/10/2024 | 1000/1100 | ** | EU | Unemployment |
| 31/10/2024 | 1000/1100 | *** |  IT | HICP (p) |
| 31/10/2024 | 1000/1000 |  GB | BOE's Breeden speech on emerging technologies | |
| 31/10/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 31/10/2024 | 1230/0830 | *** | US | Personal Income and Consumption |
| 31/10/2024 | 1230/0830 | *** | US | Employment Cost Index |
| 31/10/2024 | 1230/0830 | *** |  CA | Gross Domestic Product by Industry |
| 31/10/2024 | 1230/0830 | * | CA | Payroll employment |
| 31/10/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 31/10/2024 | 1230/0830 | *** | CA | Gross Domestic Product by Industry |
| 31/10/2024 | 1345/0945 | *** | US | MNI Chicago PMI |
| 31/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 31/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 31/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 01/11/2024 | 2200/0900 | ** | AU | S&P Global Manufacturing PMI (f) |
| 01/11/2024 | 0030/1130 | * | AU | Producer price index q/q |
| 01/11/2024 | 0030/1130 | ** | AU | Lending Finance Details |
| 01/11/2024 | 0030/0930 | ** | JP | S&P Global Final Japan Manufacturing PMI |
| 01/11/2024 | 0145/0945 | ** | CN | S&P Global Final China Manufacturing PMI |
| 01/11/2024 | 0730/0830 | *** |  CH | CPI |
| 01/11/2024 | 0730/0830 | ** | CH | Retail Sales |
| 01/11/2024 | 0930/0930 | ** | GB | S&P Global Manufacturing PMI (Final) |
| 01/11/2024 | - | *** | US | Domestic-Made Vehicle Sales |
| 01/11/2024 | 1230/0830 | *** | US | Employment Report |
| 01/11/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 01/11/2024 | 1400/1000 | *** | US | ISM Manufacturing Index |
| 01/11/2024 | 1400/1000 | * | US | Construction Spending |
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