Highlights:
- USD Index recovers off support, but no solid bounce yet
- Riksbank's openness to 50bps step leaves SEK unperturbed
- Light data schedule keeps focus on supply
US TSYS: Off Highs, Upcoming Supply Weighs On A Quieter Docket
- Treasuries have moved off overnight highs through European hours but with no clear headline drivers. They are moves seen broadly across core FI but with Tsys leading in terms of size.
- Cash yields sit 1.8-2.9bp higher on the day, with increases led by 5s ahead of $70bn of supply later today. Yesterday’s 2Y auction came in on the screws although details were less favorable with the bid-to-cover and indirect take falling from last month.
- The new 2Y benchmark after that auction sees curves mechanically steepen further, with 2s10s earlier touching fresh ytd highs of 22.5bps.
- TYZ4 has eased to session low of 114-22+ (- 04+) off an earlier high of 114-29+ on modest cumulative volumes of 285k. Support is seen at 114-09+ (Sep 24 low) but declines are deemed corrective with resistance at 115-02+ (Sep 19 high) after which lies the bull trigger at 115-03+.
- Data: MBA mortgages Sep 20 (0700ET), New home sales Aug (1000ET)
- Fedspeak: Kugler on economic outlook (1600ET) – see STIR bullet
- Note/bond issuance: US Tsy $28B 2Y FRN re-open (1130ET), US Tsy $70B 5Y Note auction - 91282CLN9 (1300ET)
- Bill issuance: $62B 17W bill auctions (1130ET)
STIR: Fed Rate Path Drifts Higher But Weak Confidence Still Weighs
- Fed Funds implied rates have lifted 1-2bps off yesterday’s low although it only pares the latest leg of yesterday’s decline with most of the impact from a soft Conference Board consumer survey, including its labor differential, still reflected.
- Cumulative cuts from 4.83% effective: 40.5bp Nov, 79bp Dec, 113bp Jan and 181bp June.
- Today sees rare Fedspeak from Gov. Kugler (voter) on the economic outlook with both prepared remarks and moderated Q&A, although it’s late at 1600ET.
- She last spoke Jul 16 (Fed doesn’t want to see labor market cool too much, watching data incredibly closely given it can weaken fast) and before that Jun 18 (likely appropriate to cut rates later this year). We see her at the dovish end of the spectrum and will watch for anything that updates that view.
US TSY FUTURES: Fresh Longs Seem To Dominate Through UXY On Tuesday
Yesterday’s rally through UXY futures and the move higher in OI points to fresh longs being set through 10s.
- Note that the China stimulus-driven weakness prior to the consumer confidence data-driven rally adds some complexity to the assessment and some of the OI movement may represent fresh shorts being set.
- US & WN finished lower on the day, with OI pointing to short setting and long cover in those contracts, respectively.
| 24-Sep-24 | 23-Sep-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,473,598 | 4,403,122 | +70,476 | +2,756,612 |
FV | 6,425,300 | 6,414,165 | +11,135 | +492,896 |
TY | 4,942,095 | 4,895,124 | +46,971 | +3,152,932 |
UXY | 2,122,227 | 2,120,111 | +2,116 | +197,457 |
US | 1,755,549 | 1,751,145 | +4,404 | +611,513 |
WN | 1,700,182 | 1,703,775 | -3,593 | -788,043 |
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| Total | +131,509 | +6,423,367 |
STIR: OI Points To Mix Of Long Setting & Short Cover In SOFR On Tuesday
Yesterday’s modest rally in SOFR futures and preliminary OI data points to a mix of long setting and short cover through the blues.
- This came after a weak consumer confidence reading, with a particular focus on the softening labour market indicators within the data, countered the China-stimulus-driven sell off.
- The data drove a net dovish move in Fed pricing on the day.
- Fed funds futures now price ~79bp of cuts through Dec vs. closer to 75bp late Monday.
- ~181bp of cuts are priced through June ’25 vs. ~178bp late Monday.
| 24-Sep-24 | 23-Sep-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,363,875 | 1,377,796 | -13,921 | Whites | -2,204 |
SFRZ4 | 1,356,192 | 1,326,178 | +30,014 | Reds | +29,506 |
SFRH5 | 1,082,914 | 1,109,900 | -26,986 | Greens | +19,216 |
SFRM5 | 920,190 | 911,501 | +8,689 | Blues | +2,149 |
SFRU5 | 694,082 | 688,080 | +6,002 |
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SFRZ5 | 1,001,077 | 991,679 | +9,398 |
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SFRH6 | 727,181 | 726,739 | +442 |
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SFRM6 | 651,426 | 637,762 | +13,664 |
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SFRU6 | 548,287 | 543,883 | +4,404 |
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SFRZ6 | 622,210 | 623,578 | -1,368 |
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SFRH7 | 357,365 | 348,589 | +8,776 |
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SFRM7 | 311,097 | 303,693 | +7,404 |
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SFRU7 | 247,567 | 239,621 | +7,946 |
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SFRZ7 | 228,857 | 235,628 | -6,771 |
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SFRH8 | 180,267 | 177,852 | +2,415 |
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SFRM8 | 151,043 | 152,484 | -1,441 |
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CHINA DATA: MNI's China Money Market Index Sees Conditions Tighten in September
Introducing the updated MNI China Money Market Index (MMI), formerly the MNI China Liquidity Index, which has been adapted to reflect the PBOC's monetary policy.
- China interbank market liquidity conditions remained ample in September, whilst market participants expect PBOC easing to ease conditions through October, the latest MNI Money Market Index showed.
- The MNI China Money Market Index suggested better liquidity in October
- The MNI China Money Market Current Conditions Index stood at 86.0 in September
- The MNI China PBOC Policy Bias Index picked up through September
Weak credit demand that has trapped interbank liquidity and fuelled the recent bond rally will lead the People’s Bank of China to take a more flexible approach to further injections via its open market operations, while it simultaneously attempts to steepen the yield curve via its bond trades, results from MNI’s China Money Market Index revealed.
The outlook subindex covering the PBOC’s OMO over the coming month showed 67.4% of participants expected a net drain as the PBOC aims to discourage idle funds within the market. The current liquidity conditions subindex also reflected the PBOC’s caution at 86.0 in September – a 2024 peak – up from the previous month’s 32.6, with 79.1% of respondents reporting tighter conditions.
EUROPE ISSUANCE UPDATE:
UK auction results
- Another wide tail on an auction of the 7-year 4.00% Oct-31 gilt (in line with our concerns we outlined in our preview). But the volume of bids was still decent (also in line with previous auctions).
- The lowest accepted price of 101.040 was notably below any price traded on the secondary market ahead of the auction and through the bidding window.
- The secondary market price is still trading above this level (but falling) at writing.
- Gilt futures fell around 10 ticks on the publication of the result and have fallen further to a new intraday low of 99.08 at writing.
- GBP3.75bln of the 4.00% Oct-31 Gilt. Avg yield 3.814% (bid-to-cover 2.98x, tail 1.6bp).
Italy auction results
- E2.75bln of the 3.10% Aug-26 BTP Short Term. Avg yield 2.51% (bid-to-cover 1.62x).
- E1.25bln of the 1.50% May-29 BTPei. Avg yield 1.17% (bid-to-cover 1.56x).
- E1.25bln of the 2.40% May-39 BTPei. Avg yield 1.97% (bid-to-cover 1.45x).
Germany auction results
- E3bln (E2.424bln allotted) of the 2.40% Nov-30 Bund. Avg yield 2% (bid-to-offer 1.94x; bid-to-cover 2.40x).
Portugal exchange results
- IGCP sells: E500mln of the 3.50% Jun-38 OT, E170mln of the 1.15% Apr-42 OT, E255mln of the 1.00% Apr-52 OT
- IGCP buys: E575mln of the 2.875% Jul-26 OT, E350mln of the 4.125% Apr-27 OT
RUSSIA: Kremlin-Putin To Speak @ Sec Council On Nuclear Deterrence
Wires carrying comments from Kremlin spox Dmitri Peskov. Peskov says that President Vladimir Putin will chair a meeting of the Security Council today (25 Sep) on the subject of nuclear deterrence. The Russian gov't has previously stated that it is revising its nuclear doctrine, which determines how and when Moscow would use such weapons on the battlefield. Putin will deliver an address at the Council, but the remainder will be behind closed doors. No timing for the meeting has been publicised yet.
- Moscow has said that the Ukrainian incursion into the Kursk region, and NATO support for Kyiv that equates to involvement in the war means a change in the doctrine could be required. A number of similar threats have been made during the war to date, but any concrete change in the doctrine would certainly raise concerns in Kyiv and the West of the use of tactical nuclear weapons in Ukraine.
- Regarding Ukrainian President Volodymyr Zelenskyy's address to the UN General Assembly's plenary session, in which he said that Russia should be "forced" into peace based on the UN Charter, Peskov says that 'it is impossible to force Russia into peace', adding 'this is a profound misconception that will inevitably have consequences for Kyiv', calling the position 'a fatal error'.
- On the Chinese ICBM test in the Pacific (see 'CHINA-JAPAN: Japan Cab Sec Calls ICBM Test 'A Matter Of Serious Concern' 0903BST), Peskov says 'this is China's sovereign right, we respect it and of course information is exchanged'.
FOREX: Greenback Finds Support, Helping Bolster USD/JPY Recovery
- The greenback is firmer off this week's pullback lows as markets find support in the USD Index at last week's lows of 100.215. Moves come as European and US equity futures fail to pick up on the strong session for Asia-Pac trade - in which the CSI-300 finished higher by another 1.5%. This keeps markets on track for a modest negative open on Wall Street Wednesday, stemming the renewed test on alltime highs back in mid-September at 5797.50.
- USD/JPY is firming, with JPY comfortably the poorest performer in G10 and tipping the pair toward yesterday's 144.68 high. Clearance here would be fresh multi-week highs and increase the focus on the down-trending 50-dma of 146.73. JPY weakness is also filtering well into CHF, which also nurses losses.
- Sweden's Riksbank cut rates - as expected - by 25bps this morning to 3.25%, in a decision which firmly put the potential for a 50bps rate cut on the table in the near future. EUR/SEK traded higher in response, but the cross is yet to make any material progress toward Monday's 11.3788.
- The Wednesday data schedule is light, with just US New Home Sales and weekly mortgage applications numbers due. Central bank speakers are similarly light, with an uneventful appearance from BoE's Greene coming ahead of a speech from Fed's Kugler on the economic outlook to coincide with the cash equity close.
AUD: OTM Calls in Vogue as Spot Momentum/China News Bolsters Demand for Upside
- The China-stimulus tripped rally in Antipodean currencies continues to play out in options space, with front-end AUD/USD risk reversals extending their correction higher to tighten the premium of put vol over call vol to 0.52 points, the smallest since mid-July.
- This is further reflected in better hedging volumes across AUD both this week and overnight - just over $2 in AUD calls have traded for every $1 in puts in DTCC-tracked trade, as particular interest in 0.6900-10 strikes buoy volumes (over $500mln across these strikes overnight).
- Since Monday, call strikes layered between 0.6850-900 have been a particular focus. As such, the market-implied odds for AUD/USD to be trading above 0.70 at year-end have risen to 37% (from 25% this time last week) and the likelihood for the pair to touch 0.75 have nearly doubled to 7.6%.
- Technically, the bull cycle remains underway, with 0.6915 the next hurdle ahead of 0.6984, the 0.764 projection for the Aug 5 - 29 - Sep 11 price swing.
EQUITIES: Bull Cycle in E-Mini S&P Remains in Play
- Eurostoxx 50 futures traded higher last week as the contract extended the recovery from the Sep 10 low. It is still possible that recent gains are corrective. MA studies are in a bear-mode position and this highlights a downtrend. A reversal lower would refocus attention on key support at 4757.00, the Sep 6 / 10 lows. Key resistance is 5024.00, the Sep 3 high. A break would cancel a bearish theme and strengthen bullish conditions.
- A bull cycle in S&P E-Minis remains in play and price is trading just below its recent high. The contract has traded through a key and major resistance at 5785.00, the Jul 16 high and a bull trigger. A clear breach of this hurdle would confirm a resumption of the long-term uptrend. Sights are on the 5800.00 handle next. First key support is 5622.43, the 50-day EMA. Initial support lies at 5680.47, the 20-day EMA.
COMMODITIES: WTI Futures Respect Resistance at 50-Day EMA
- WTI futures are holding on to their recent gains. The recovery since Sep 9, appears - for now - to be a correction. The 20-day EMA has been pierced and the next resistance to watch is $72.35, the 50-day EMA. It has been pierced, a clear break of it would undermine a bear theme. Note that MA studies are in a bear-mode set-up, highlighting a dominant downtrend. A reversal lower would refocus attention on $64.61, the Sep 10 low and bear trigger.
- Gold bulls remain in the driver’s seat and the yellow metal has again traded to a fresh all-time high. The move higher confirms a resumption of the primary uptrend and maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2675.5 next, a Fibonacci projection. Firm support lies at $2558.0, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 25/09/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 25/09/2024 | 1300/1500 |  EU | MNI Connect Video Conference on ‘The EU and Global Trade Challenges’ | |
| 25/09/2024 | 1400/1000 | *** | US | New Home Sales |
| 25/09/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 25/09/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 25/09/2024 | 1700/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 25/09/2024 | 2000/1600 | US | Fed Governor Adriana Kugler | |
| 26/09/2024 | - |  CH | Swiss National Bank Meeting | |
| 26/09/2024 | 0600/0800 | * |  DE | GFK Consumer Climate |
| 26/09/2024 | 0700/0900 | ** |  SE | Economic Tendency Indicator |
| 26/09/2024 | 0730/0930 | *** | CH | SNB PolicyRate |
| 26/09/2024 | 0730/0930 | *** | CH | SNB Interest Rate Decision |
| 26/09/2024 | 0800/1000 | ** | EU | M3 |
| 26/09/2024 | 0800/1000 | ** |  IT | ISTAT Business Confidence |
| 26/09/2024 | 0800/1000 | ** | IT | ISTAT Consumer Confidence |
| 26/09/2024 | 0900/1100 | EU | ECB's Elderson remarks at governance & risk meeting | |
| 26/09/2024 | 1230/0830 | *** | US | Jobless Claims |
| 26/09/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 26/09/2024 | 1230/0830 | *** | US | GDP |
| 26/09/2024 | 1230/0830 | * |  CA | Payroll employment |
| 26/09/2024 | 1230/0830 | ** | US | Durable Goods New Orders |
| 26/09/2024 | 1310/0910 | US | Fed's Susan Collins, Adriana Kugler | |
| 26/09/2024 | 1315/0915 | US | Fed Governor Michelle Bowman | |
| 26/09/2024 | 1320/0920 | US | Fed Chair Jerome Powell | |
| 26/09/2024 | 1325/0925 | US | New York Fed's John Williams | |
| 26/09/2024 | 1330/1530 | EU | ECB Lagarde address at ESRB Conference | |
| 26/09/2024 | 1400/1000 | ** | US | NAR Pending Home Sales |
| 26/09/2024 | 1415/1615 | EU | ECB's De Guindos in macroprudential policy panel | |
| 26/09/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 26/09/2024 | 1430/1030 | US | Fed Vice Chair Michael Barr | |
| 26/09/2024 | 1430/1030 | US | Fed Governor Lisa Cook | |
| 26/09/2024 | 1500/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 26/09/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 26/09/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 26/09/2024 | 1600/1800 | EU | ECB's Schnabel at Wirtschaftsrat der CDU e.V | |
| 26/09/2024 | 1700/1300 | US | Fed's Neel Kashkari, Michael Barr | |
| 26/09/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 7 Year Note |
| 26/09/2024 | 1900/1500 | *** |  MX | Mexico Interest Rate |
| 26/09/2024 | 2010/1610 | US | New York Fed's Roberto Perli | |
| 26/09/2024 | 2200/1800 | US | Fed Governor Lisa Cook |