Highlights:
- Macron appoints political veteran into sensitive PM role
- USD/JPY climbs to new monthly highs, Dec BoJ rate hike looking more unlikely
- Fed pricing looks to finish the week with Dec 25bps cut close to fully priced
No respite for Tsys with continued post-ECB weakness in European peers and another uptick in crude oil futures applying pressure.
- TY futures through initial support at yesterday’s low as NY participants start to filter in. Contract at lows of 110-06+.
- Next downside level comes in at the 61.8% retracement of the Nov 15-Dec 6 bull cycle (110-02), which protects the Nov 20/21 low (109-20).
- Note that the recent move lower is still deemed corrective at this stage, with the bear trigger not seen until the Nov 15 base (109-02+).
- Tsy yields ~1.5bp higher across the curve.
- 2s10s 1.5bp off yesterday’s Dec high, last ~13bp.
- 5s30s 2bp off yesterday’s high, last 35.5bp. Yesterday’s high was the steepest level seen since late October.
- SOFR futures little changed to -3.0.
- Fed Funds futures pricing 24.5bp of cuts for next week, 30bp through January, 43bp through March, 59bp through June and 77.5bp through December ’25, little changed to 1bp less dovish on the day.
- Dec ’25 FOMC pricing briefly showed ~93bp of cuts following last week’s NFP release. The same measure based around 90bp following this week’s CPI data.
- Little of note on the U.S. calendar today. Export & import price metrics will help firm up final PCE projections,
- Fed remains in pre-meeting blackout.
- Focus to remain on cross-market cues and headline flow.
STIR: Mix Of Long Cover & Short Setting in SOFR Futures On Thursday
OI data suggests that short setting was the more prominent positioning factor in the front end of the SOFR futures strip on Thursday, with only isolated rounds of net long cover seen through the reds.
- Long cover then became more prominent further out the strip.
| 12-Dec-24 | 11-Dec-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,218,241 | 1,218,852 | -611 | Whites | +39,445 |
SFRZ4 | 1,430,219 | 1,387,880 | +42,339 | Reds | +25,258 |
SFRH5 | 1,106,435 | 1,091,483 | +14,952 | Greens | -4,629 |
SFRM5 | 1,008,909 | 1,026,144 | -17,235 | Blues | -5,908 |
SFRU5 | 813,856 | 805,974 | +7,882 |
|
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SFRZ5 | 969,098 | 962,768 | +6,330 |
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SFRH6 | 578,929 | 567,351 | +11,578 |
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SFRM6 | 632,957 | 633,489 | -532 |
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SFRU6 | 631,756 | 630,700 | +1,056 |
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SFRZ6 | 708,055 | 713,250 | -5,195 |
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SFRH7 | 419,111 | 420,264 | -1,153 |
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SFRM7 | 365,316 | 364,653 | +663 |
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SFRU7 | 277,053 | 286,390 | -9,337 |
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SFRZ7 | 291,003 | 292,439 | -1,436 |
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SFRH8 | 204,566 | 200,368 | +4,198 |
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SFRM8 | 157,431 | 156,764 | +667 |
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US TSY FUTURES: Positioning Swings In The Wings Most Notable On Thursday
OI points to a mixture of long cover (TU) and short setting (US & WN) in the wings during Thursday’s sell off, while positioning adjustments in the belly/intermediates were more modest (in DV01 equivalent terms).
| 12-Dec-24 | 11-Dec-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,252,167 | 4,284,204 | -32,037 | -1,251,455 |
FV | 6,042,692 | 6,034,102 | +8,590 | +368,561 |
TY | 4,462,300 | 4,471,665 | -9,365 | -617,867 |
UXY | 2,183,566 | 2,188,022 | -4,456 | -401,539 |
US | 1,865,532 | 1,843,594 | +21,938 | +2,854,051 |
WN | 1,768,634 | 1,763,030 | +5,604 | +1,117,133 |
|
| Total | -9,726 | +2,068,884 |
MNI: INVITATION REMINDER: MNI Webcast with ECB's Philip Lane On Dec 18
You are invited to listen to an MNI Webcast with Philip R. Lane, Chief Economist and Member of the Executive Board of the European Central Bank.
Details below:
- Topic of discussion: 'Eurozone economy and the ECB's monetary policy'
- Date: Wednesday 18 December
- Time: 9am - 1030am London; 10am - 1130am Frankfurt
- This event is on the record and will run as a Zoom Webinar
To register please go to: MNI Webcast Registration
SECURITY: Encouraging Signs Of Gaza Ceasefire Tempered By Elevated Iran Risk
US Secretary of State Antony Blinken said there are “encouraging signs that Gaza ceasefire is possible,” after a meeting with Turkish Foreign Minister Hakan Fidan in Ankara, Turkey today.
- Blinken added that he discussed with Fidan the role the US and Turkey will play in Syria’s future, noting “there’s broad agreement on what we would like to see in Syria," including, "the imperative of continuing efforts to keep ISIS down…”
- The comments come as optimism for a Gaza ceasefire is at its highest level in months, although previous negotiations that have stalled during the final stages of talks have moderated that optimism.
- The regional risk environment remains elevated with senior Israeli officials hinting at joint US-Israeli military action against Iran’s nuclear sector. The Biden administration reportedly warned Israel against hitting Iran’s nuclear facilities in October, however, a more hawkish outlook from the incoming Trump administration and Israeli air superiority following the collapse of the Assad regime in Syria may have given Israel greater scope for assertive action.
- Former Israeli Defence Minister, Yoav Gallant, said after a meeting with US Defense Secretary Lloyd Austin at the Pentagon yesterday that he “emphasized the significant, yet limited window of opportunity that we face in addressing Iran’s nuclear ambitions.”
- The Wall Street Journal reportsthat US President-elect Donald Trump is “weighing the possibility of preventive airstrikes” against Iran’s nuclear sector, noting the move “would break with the longstanding policy of containing Tehran with diplomacy and sanctions.”
FRANCE: Macron Appoints Bayrou As Prime Minister
The Élysée Palace announced in a short statement that French President Emmanuel Macron has appointed centrist politician François Bayrou as Prime Minister of France after a meeting at the Élysée Palace described as “tense” by French media.
- The appointment, nine days after outgoing Prime Minister Michel Barnier was ousted by a confidence vote, follows two days of meetings with party leaders on strategy to bridge political divides on passing a budget. The far-right National Rally and the hard-left France Unbowed were excluded from talks.
- Reuters reports that National Rally President Jordan Bardella said that the party's “red lines on policies remain,” stressing that Bayrou “must have dialogue with other parties.”
- France24 notes that Bayrou “will have a very difficult balancing act of basically trying to keep their government afloat because they will be trying to get agreement from the left and the right of French politics,"
- Le Monde writes: “[Bayrou's challenge] is now to build a stable relative majority in the National Assembly, in order to avoid a possible censure and to have bills adopted. But like Michel Barnier before him, the game does not look easy for the president of the MoDem.”
- Mathilde Panot of the left-wing LFI said in a statement that the group will file a motion of censure against Bayrou: "Two clear choices are available to the country: the continuation of the policies of misfortune with François Bayrou or the rupture. Two choices will be available to the deputies: support for Macron's rescue or censure. We have made ours."
SECURITY: Kremlin Waits For "Concrete Steps" From Trump On Ending War In Ukraine
Reuters reporting that the Kremlin has offered a cautious assessment of US President-elect Donald Trump’s incoming administration, stating that Russia “should not forget” that Trump imposed sanctions against Moscow “over 50 times” during his first term. The Kremlin added “let’s wait for concrete steps,” referring to Trump’s ambiguous plan to end the war in Ukraine.
- Trump said in an interview with Time Magazine yesterday, on his Ukraine negotiating strategy: "I think I have a very good plan to help, but when I start exposing that plan, it becomes almost a worthless plan."
- Trump said in a Truth Social statement on December 8: "I know [Russian President] Vladimir [Putin] well. This is his time to act. China can help. The world is waiting!"
- Michael McFaul, former president Obama's Ambassador to Russia, wrote in Foreign Affairs yesterday that, “Trump’s reelection now gives Ukrainian President Volodymyr Zelensky greater freedom to engage in talks: he can argue that he has no choice.”
- McFaul argues the only credible pathway to a resolution involves NATO membership for Kyiv in return for partially recognising Russian sovereignty over occupied territory. Trump’s plan, as outlined by incoming Special Envoy to Ukraine and Russia Keith Kellogg, appears to stop short of NATO membership, preferring to lean on bilateral security assurances. In light of Russian violations of international treaties in 2014 and 2022 this strategy may not offer a sufficient deterrent for Kyiv to accept, although Zelenskky has appeared more open to territorial concessions in recent weeks.
FOREX: JPY Offered, Helping USD/JPY to New Dec High
- JPY has cemented its position as the poorest performing currency on the day - pressing USD/JPY closer to the Y153.50 level and new December highs. Gains accelerating here on the break of uptrendline resistance posted off the Dec04 high on the 15min candle chart.
- The JPY move certainly initially isolated to FX - evident in the spike in JPY futures volumes at 0940GMT, but is being partially aided by the uptick here in the US 10y yield, which remains below yesterday's closing high. A show above 4.3356% could bolster the move, opening 153.66, the 61.8% retracement for the Nov15 - Dec3 pullback.
- GBP trades poorly, softer against most others and prompting a 1.2619 print in GBP/USD, after the GDP release this morning showed another month of negative economic growth. While the 3M/3M figure remains positive, the poor momentum in the early months of the government may be causing some concern in cabinet.
- NOK trades well, supported by firmer oil prices today, helping extend the recovery off December lows for NOK/SEK, which holds just below 0.99. Both Norway and Sweden are set to hold rate decisions next week, at which the rate differential is expected to grow by a further 25bps thanks to an unchanged Norges Bank and a further 25bps cut at the Riksbank.
- Consequential datapoints are few and far between for the Friday session, although US Import/Export price indices could draw focus. ECB speak has been plentiful this morning following the rate decision yesterday, most of which continue to point toward the high likelihood of further rate cuts headed through the first half of 2025. Centeno is still set to speak later today, but the Fed remain inside their pre-decision media blackout period.
EQUITIES: Bull Cycle in Eurostoxx 50 Futures Remains Intact
- A bull cycle in the Eurostoxx 50 futures contract remains intact and price is trading 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 4896.15, the 20-day EMA.
- The S&P E-Minis contract remains bullish and the latest 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 uptrend would open 6145.26, a Fibonacci projection. Initial support to watch lies at 6028.33 the 20-day EMA.
COMMODITIES: Recent Recovery in WTI Futures Still Deemed Corrective
- A bearish threat in WTI futures remains present and this 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 traded higher this week. 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. On the downside key support to monitor is $2536.9, the Nov 14 low. First support is $2646.4, the 50-day EMA, ahead of $2605.3, the Nov 26 low.
| Date | GMT/Local | Impact | Country | Event |
| 13/12/2024 | 1330/0830 | ** |  US | Import/Export Price Index |
| 13/12/2024 | 1330/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 13/12/2024 | 1330/0830 | ** | CA | Wholesale Trade |