Highlights:
- US 10y yield climbs further toward 4.50%
- US retail sales in focus, alongside CAD CPI
- UK private wage growth will concern BoE MPC doves
US TSYS: TY Testing Support In Continued Sell-Off After UK Spillover
- Treasuries have been pushed lower by spillover from notably stronger than expected UK wage growth, although volumes are subdued ahead of US retail sales later today and of course the FOMC decision tomorrow.
- Cash yields are 2.5-3bp higher on the day in what’s broadly a parallel shift higher.
- 10Y yields are at session highs of 4.426% (+3.0bp). We wrote earlier that 4.50% is the next obvious technical level in yields but that it’s also worth noting that the benchmark continues to operate within the medium-term downtrend channel drawn off the '23 high (upper boundary at 4.46% today).
- TYH5 has recently touched a session low of 109-20 (- 07+) albeit on low volumes of 240k.
- The decline sees an extension of the bear cycle, testing support at 109-20 (Nov 20/21 low) having already pierced 109-22 (76.4% of Nov 15 - Dec 6 upleg). A continuation lower would expose 109-02+, the Nov 15 low and key support. For those looking at the 4.50% yield, it equates to 109-05 today.
- Data: Retail sales Nov (0830ET), NY Fed Services Dec (0830ET), IP/Cap Util Nov (0915ET), Business inventories Oct (1000ET), NAHB housing index Dec (1000ET)
- Note/bond issuance: $13bn 20Y re-open - 912810UF3 (1300ET)
- Bill issuance: US Tsy to sell $65B 42-day CMB (1130ET)
STIR: Fed Terminal Rate Pushes Above Post-Trump Highs
- Fed Funds implied rates have pushed higher today primarily in spillover from BoE implied rates surging on stronger than expected wage data.
- Tomorrow’s FOMC decision is still seen as locked in for a cut (24bp priced) but the subsequent cut is now more firmly only seen with the June decision.
- Cumulative cuts from 4.58% effective: 24bp Dec, 28bp Jan, 39bp Mar, 46bp May and 54bp Jun.
- Looking further out, the SOFR-implied terminal rate has now pushed above recent highs seen after Trump’s victory in the presidential election.
- With rates seen bottoming out a little under 3.9%, it’s pointing to a markedly shallower easing cycle than the 2.75-3% median dot in the September SEP.
- We wrote in yesterday’s Analyst Version of the MNI Fed Preview that the median analyst sees the FOMC rate “dot” for 2025 to be upped by 25bp (i.e. one less cut) to 3.6%, with a range of opinions including unchanged at 3.4% and upped by 50bp to 3.9%. Analysts are almost unanimous that the longer-run Dot will be raised from 2.9%, to either 3.0% or 3.1%.
CENTRAL BANK PREVIEWS
MNI FED PREVIEW - DECEMBER 2024: Greater Caution, Flatter Rate Path
The latest unemployment and inflation data have kept the FOMC on track to cut the federal funds rate by 25bp (to 4.25-4.50%) on Dec 18, but macro and political developments have heightened uncertainty over its the next moves. With the unemployment rate likely to undershoot September’s median projection along with core PCE inflation and GDP growth overshooting, the FOMC will undoubtedly signal a more cautious approach to easing. This will be communicated most clearly in the updated Dot Plot, which is set to show 75bp of cuts in 2025.
MNI RIKSBANK PREVIEW - DECEMBER 2024: Still Cutting for Now
The Riksbank is expected to bring its policy rate to 2.50% with a 25bp cut in December. Although inflation has tracked a little above the September MPR projections over the past three months, continued softness in domestic economic activity means there is little reason for the Executive Board to go against its November guidance. The December decision includes an updated monetary policy report and rate path projection.
MNI NBH PREVIEW - DECEMBER 2024: Rates, Guidance to Remain Unchanged
The National Bank of Hungary is expected keep its base rate unchanged at 6.50% during its final meeting of the year. A somewhat more stable backdrop for the HUF across December and no change in regime at the central bank until March means we are unlikely to see any material changes to the central bank’s hawkish communications either.
MNI BOT PREVIEW - DECEMBER 2024: On Hold to Remain Neutral
We expect the Bank of Thailand (BoT) to leave rates at 2.25% given Governor Sethaput said that the bar is “reasonably high” for further easing and BoT’s desire to keep policy at neutral and consistent with the growth and inflation outlook. BoT expects headline inflation to reach the bottom of its 1-3% band by the end of this year and for it to average 1.2% in 2025 up from 0.5% in 2024. Updated forecasts will be included in the meeting statement.
MNI BI PREVIEW - DECEMBER 2024: IDR to Keep BI on Hold
The December Bank Indonesia (BI) rate decision is likely to be close reflected by the 18 analysts on Bloomberg expecting rates to be held at 6.0% and 13 forecasting a 25bp rate cut. USDIDR reaching 16000 probably means that BI will remain on hold as it focuses on FX and financial stability. It is likely to continue to use its macroprudential tools to support growth through increased lending and jobs rather than lower rates while the rupiah is at this level.
MNI BCCH PREVIEW - DECEMBER 2024: 25BP Cut Expected, FX Risks Rise
Latest activity and inflation data have evolved broadly in line with expectations, consistent with the BCCh cutting the overnight rate by 25bp to 5.00% in December. This action would follow prior guidance of continuing “to reduce the policy rate towards its neutral level”. Central bank economist and trader surveys corroborate this sentiment and are then forecasting the committee to keep the key rate unchanged in January.
MNI CNB PREVIEW - DECEMBER 2024:Time To Press Pause
Consensus has been converging towards the view that the Czech National Bank (CNB) will pause its rate-cutting cycle at the December meeting. Communications from several central bank members signalled that an on-hold decision is very much on the table as the two-week repo rate gets closer to its neutral level. In addition, the temporary flare-up in headline inflation towards the upper end of the +/- 1pp tolerance zone around the +2% Y/Y target coupled with the imminent seasonal repricing of goods and services in January warrant caution on the Bank Board’s part. With the two-week repo rate currently at 4.0%, within relatively close proximity to its estimated 3.0-3.5% neutral level, the Board feels less pressure to continue loosening policy at the previous pace.
MNI NORGES BANK PREVIEW: Dec '24 - Cuts Are Approaching
Norges Bank has signalled since September that policy rates will likely be kept at 4.50% through the end of 2024. As such, anything other than another hold in rates would be a significant surprise to markets. The September MPR rate path assigned a near-certain implied probability of a 25bp cut in Q1 2025, so it won’t be a surprise for Norges Bank to signal such an intention in the December policy statement. The December decision includes an updated MPR and rate path projection. Immediate focus for markets will be on whether Norges Bank indicates that a cut is more likely in January (an interim meeting) or March (an MPR meeting).
CANADA: Political Noise Masks Fiscal Slippage and Higher Borrowing Plans
- Political uncertainty continues to cloud yesterday’s FES update, which just about went ahead following Freeland’s resignation as Finance Minster with a last-minute replacement from public safety minister LeBlanc.
- Trudeau didn’t address the nation yesterday despite some speculation, although sources have told CTV News that he is considering his resignation with a planned address to parliament today before entering recess tomorrow.
- The noise distracts from what was further fiscal slippage although the worst news was backward looking, with a far larger than expected federal deficit large year.
- Specifically, the C$62bn deficit in FY 23/24 dwarfed the C$47bn the PBO estimated two months ago and the C$40bn from Budget 2024, along with Scotia’s range of estimates between the mid-40s to mid-50s of C$bns. Looking ahead, it eyes a C$48bn deficit this year before C$42bn in 25/26, with projected deficits larger than PBO estimates for every year in the forecast horizon. That’s with the government seemingly pulling plans for a contentious $250 rebate next year that could have cost C$4.6bn.
- That translates to a 2.1% GDP deficit last year and 1.6% GDP in the current fiscal year. Further out, the government continues to forecast a 0.9% GDP deficit for 26/27 (sub-1% then is one of its remaining fiscal guardrails) but it’s taken full advantage of recent GDP revisions.
- New policy actions were ultimately relatively limited and the largest pushed out to 28/29, helping limit market reaction to it, but the government is treading a fine line with its own remaining fiscal guardrails considering its recent fiscal slippage.
- As noted yesterday, the government also announced a marked increased in borrowing plans for the current year 24/25, eyeing C$241bn in bond issuance (Budget C$228bn) and C$295bn in t-bills outstanding (Budget C$272bn).
US TSY FUTURES: Cover Dominated On Monday
OI data points to a mix of net long cover (TU, TY & US), net short setting (FV) and net short cover (UXY & WN) on Monday.
- Long cover in US futures provided the most notable DV01-equivalent swing in positioning (~$2mn), with cover of existing positions dominating in curve-wide DV01 equivalent terms.
- Note that both curve-wide and individual contract DV01 equivalent swings were relatively modest in the grander scheme of things.
| 16-Dec-24 | 13-Dec-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,240,121 | 4,246,133 | -6,012 | -233,804 |
FV | 6,072,862 | 6,062,918 | +9,944 | +424,408 |
TY | 4,477,642 | 4,488,374 | -10,732 | -703,035 |
UXY | 2,162,947 | 2,174,559 | -11,612 | -1,037,519 |
US | 1,842,221 | 1,857,586 | -15,365 | -1,973,078 |
WN | 1,765,118 | 1,765,769 | -651 | -127,823 |
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| Total | -34,428 | -3,650,852 |
STIR: Notable Swing In SFRZ4 Positioning Seen Again On Monday
OI data points to a mix of net short setting and long cover during Monday’s downtick in SOFR futures.
- SFRZ4 saw the largest positioning swing once again, with nearly 80K fresh net shorts set.
- Friday’s reduction in net OI in the contract was seemingly driven by positioning unwinds surrounding the expiration of the Dec ’24 (Z4) options contracts.
- It’s harder to pinpoint a clear driver for Monday’s positioning move.
- Other notable positioning swings came via net long cover in SFRZ5 and net short setting in SFRZ7.
| 16-Dec-24 | 13-Dec-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,223,971 | 1,217,337 | +6,634 | Whites | +84,789 |
SFRZ4 | 1,258,343 | 1,180,238 | +78,105 | Reds | -41,400 |
SFRH5 | 1,097,131 | 1,105,497 | -8,366 | Greens | -5,015 |
SFRM5 | 1,016,457 | 1,008,041 | +8,416 | Blues | +40,254 |
SFRU5 | 812,652 | 813,309 | -657 |
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SFRZ5 | 937,941 | 972,791 | -34,850 |
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SFRH6 | 567,516 | 575,305 | -7,789 |
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SFRM6 | 634,521 | 632,625 | +1,896 |
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SFRU6 | 621,407 | 626,918 | -5,511 |
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SFRZ6 | 715,170 | 717,835 | -2,665 |
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SFRH7 | 418,623 | 413,152 | +5,471 |
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SFRM7 | 360,051 | 362,361 | -2,310 |
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SFRU7 | 274,751 | 275,563 | -812 |
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SFRZ7 | 308,646 | 274,966 | +33,680 |
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SFRH8 | 210,710 | 204,886 | +5,824 |
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SFRM8 | 158,142 | 156,580 | +1,562 |
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UK DATA: Private regular wage data concerning to the MPC
Looking in more detail at the private regular wage data:
- The single month of August 2024 was revised up - but this was pretty much cancelled out by an upward revision to August 2023 (the single month was revised from 4.59%Y/Y to 4.60%Y/Y).
- The single month of September 2024 saw a more significant upward revision to 5.10%Y/Y from 4.89%Y/Y (despite an upward revision to September 2023).
- The single month of October 2024 came in at 6.42%Y/Y (aided by a downward revision to October 2023 data). This is the highest single month Y/Y print since September 2023.
- These revisions mean that on the headline 3-month Y/Y basis August marked a low point of 4.84%3mY/Y (only revised up by a hundredth), September saw an upward revision to 4.88%3mY/Y (rather than moving below August's print to 4.80%) and the 3-months to October came in at 5.37%3mY/Y. This is the highest since the 3-months to May.
- Looking across sectors the upward revisions to September and the high October prints were pretty broad based.
- In terms of momentum (3m/3m annualised), private sector regular has picked up to 5.64% in October from a revised 4.64% in September (previously 4.21% in September). This returns momentum back to July levels.
- The September revisions and the fresh October data will be of concern to the MPC and is likely to introduce more caution in decision making.
- By comparison, the public sector wage data has seen relatively little revision.
- We would expect to see SONIA futures price in lower probabilities of 2025 cuts on the back of this data.
EUROPE ISSUANCE UPDATE:
German 2025 funding plan details
Total capital markets issuance: E254bln (E272.5bln in 2024), in the bottom half of expectations we had seen. The most notable part of the plan is that there are increases in Bobl and 30-year Bund issuance.
• Schatz: E70.5bln in 16 auctions (E76bln in 2024 in 16 auctions)
• Bobl: E62.5bln in 14 auctions (E48bln in 2024 in 12 auctions)
• 7-year Bund: No issuance planned (E15bln in 2024 in 5 auctions)
• 10-year Bund: E64bln in 15 auctions (E70bln in 2024 in 16 auctions)
• 15-year Bund: E17bln in 9 multi-ISIN auctions, no new issue (E16.5bln in 2024 in 8 multi-ISIN auctions plus one single ISIN launch)
• 30-year Bund: E26bln in monthly ex-Dec auctions (E22bln in 2024 in monthly ex-Dec auctions)
• Green: E13-15bln in 8 auctions, new 10-year Green Bund to be launched(E17.5bln in 2024 from E17-19bln initial target: E14.5bln sold via auction, E3.0bln via syndication)
• Syndication: 2 transactions including the launch of a new 30-year Bund (E12bln initial 2024 target: E10.5bln of 2.50% Aug-54 Bund plus E3.0bln of 1.80% Aug-53 Green Bund sold)
• Bubill issuance: E126bln (E163bln in 2024 from initial E165bln target) – a bigger reduction than expected.
GILTS: Initial, Modest Post-Auction Weakness In 5s Quickly Reversed
The GBP3.75bln auction of the 4.125% Jul-29 gilt generates demand metrics that are in line with the recent norms, although that is perhaps slightly disappointing, given that the auction was slightly smaller than the typical GBP4bln reopening of the line.
• The cover ratio registered the lowest level seen since the August offering of the bond.
• Tails at auctions of this line had widened a little during H224 (when compared to the H1 average), and this auction’s 0.8bp yield tail was in line with what seen last time out.
• Low price a little below prevailing mids seen ahead of the auction, with the average price matching prevailing mids. The line matched the low price of the auction shortly after the results were confirmed, but has since recovered.
• GBP3.75bln of the 4.125% Jul-29 Gilt. Avg yield 4.348% (bid-to-cover 2.90x, tail 0.8bp).
FOREX: Rise in Yields Undermines AUD, GBP Firms on Trimmed '25 Rate Cut Pricing
- US yields are rising further in early European trade, helping the 10y inch back to 4.42% for a new December high and narrow the gap with the post-election highs of 4.50%. As a result, the USD Index is seeing support and holds the 107.00 handle. The JPY outperforms, however, to be the strongest currency in G10 and drag USD/JPY off yesterday's highs at Y154.48.
- Nonetheless, short-term momentum is clearly in favour of further upside, evident in the 50-dma rising through the 200-dma this week (marking the formation of a golden cross) for the first time since June 2023.
- GBP is in favour Tuesday, as wages data released pre-market came in ahead of expectations and showed early signs of a reversal in momentum for private wages - posing problems for any MPC members that may have looked to vote for a rate cut at this week's BoE decision. As a result, markets further trimmed rate cut bets across 2025.
- Antipodean currencies are trading poorly, falling against most others in response to firmer US yields. AUD/JPY has rejected the test of the 98.569 100-dma and slipped lower into NY hours.
- Focus for the Tuesday session ahead turns to the Canadian CPI release as well as US retail sales and industrial production stats. After a handful of ECB comments this morning, there are no further scheduled appearances from central bank members today, with the Fed remaining inside their pre-meeting media blackout period ahead of tomorrow's policy announcement.
OPTIONS: Expiries for Dec17 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0475(E618mln), $1.0525(E1.6bln), $1.0650(E1.8bln)
- USD/JPY: Y151.55-70($1.1bln), Y154.45($538mln)
- GBP/USD: $1.2640-55(Gbp763mln), $1.2840-50(Gbp1.0bln)
- USD/CAD: C$1.3930($1.5bln), C$1.4150($1.3bln)
EQUITIES: Outlook for E-Mini S&P Unchanged and Bullish
- A bull cycle in the Eurostoxx 50 futures contract remains intact and the latest pullback is - for now - considered corrective. 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 4907.48, the 20-day EMA.
- The S&P E-Minis contract is unchanged. The outlook remains bullish and the latest shallow pullback is considered corrective. Recent gains confirmed a resumption of the uptrend. 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 6103.12, the 20-day EMA.
COMMODITIES: Bear Threat in WTI Futures Still Present, Recent Gains Corrective
- A bearish threat in WTI futures remains present and recent 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 recently 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 |
| 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 |
| 18/12/2024 | - |  JP | Bank of Japan Meeting | |
| 18/12/2024 | - |  SE | Riksbank Meeting | |
| 18/12/2024 | 0700/0700 | *** |  GB | Consumer inflation report |
| 18/12/2024 | 0700/0700 | *** | GB | Producer Prices |
| 18/12/2024 | 0700/1500 | ** |  CN | MNI China Money Market Index (MMI) |
| 18/12/2024 | 0900/1000 |  EU | ECB's Lane in fireside chat at MNI Connect Event | |
| 18/12/2024 | 1000/1100 | *** | EU | HICP (f) |
| 18/12/2024 | 1000/1100 | ** | EU | Construction Production |
| 18/12/2024 | 1100/1100 | ** | GB | CBI Industrial Trends |
| 18/12/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 18/12/2024 | 1330/0830 | * | US | Current Account Balance |
| 18/12/2024 | 1330/0830 | *** | US | Housing Starts |
| 18/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 18/12/2024 | 1900/1400 | *** | US | FOMC Statement |
| 19/12/2024 | 2145/1045 | *** |  NZ | GDP |