Highlights:
- Treasury yields make light work of last Friday's highs
- USD/JPY shows back above Y150.00, with markets re-examining USD bull cycle
- Schmid set to address markets on economy, Fed policy after the close
- Treasuries are extending late overnight lows, taking cues from weaker EGBs in the lead up to the NY open. Sovereign debt issuance and a uptick in crude prices (WTI +1.25 at 70.47) cited for moderate pressure over the last couple hours. US corporate supply rather muted at the moment, issuers sidelined as the current equity earnings cycle continues.
- The Dec'24 10Y contract is currently -11 at one week lows of 111-28, 10Y yield +.0355 at 4.1184%. Curves mildly flatter: 2s10s -.345 at 12.899, 5s30s -1.362 at 49.887%.
- Limited economic data kicks off the new week: Leading Index at 1000ET, focus on home sales flash PMIs, weekly claims, durables and UofM sentiment later this week.
- Moderated Fed speak this morning from Fed Gov Logan at SIFMA's annual meeting (0855ET). Additional scheduled speakers later in the day: MN Fed Kashkari townhall (Q&A, livestreamed at 1300ET), KC Fed Schmid on economic & monetary policy (Q&A, text at 1705ET), SF Fed Daly at WSJ moderated discussion at 1840ET.
- Treasury supply kicks off with $81B 13W and $72B 26E bills at 1130ET.
US TSY FUTURES: OI Suggests Mix Of Long Setting & Short Cover Dominated Friday
OI points to a mix of net long setting (TU, TY & UXY) and short cover (FV, US & WN) during Friday’s rally in Tsy futures, with the former providing the most impetus in net DV01 curve-wide terms.
| 18-Oct-24 | 17-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,540,716 | 4,460,886 | +79,830 | +2,981,218 |
FV | 6,205,205 | 6,207,551 | -2,346 | -100,211 |
TY | 4,686,685 | 4,648,117 | +38,568 | +2,494,055 |
UXY | 2,146,229 | 2,145,681 | +548 | +49,079 |
US | 1,771,871 | 1,772,314 | -443 | -58,167 |
WN | 1,734,021 | 1,739,875 | -5,854 | -1,190,399 |
|
| Total | +110,303 | +4,175,575 |
US TSY FUTURES: CFTC CoT Shows A Managers Trimming Longs In 5- To 10-Year Zone
The latest CFTC CoT report showed asset managers liquidating longs in the 5- to 10-Year zone of the curve, while they added to longs in the wings. The largest DV01 positioning swing amongst that investor cohort came via long setting in WN futures.
- Meanwhile levered funds covered shorts in TY, UXY & US futures, while they added to shorts in TU & WN futures.
- A reminder that the period covered by the report included reaction to the firmer-than-expected CPI & PPI data and the (partly weather-related) uptick in initial jobless claims.
Source: MNI - Market News/CFTC/Bloomberg
RATINGS: France Downgraded At Scope, Fitch Put Italy On Positive Outlook
Rating reviews of note from after hours on Friday include:
- Fitch affirmed Italy at BBB; Outlook revised to Positive
- Fitch affirmed Sweden at AAA; Outlook Stable
- Fitch affirmed Switzerland at AAA; Outlook Stable
- S&P affirmed Italy at BBB; Outlook Stable
- S&P affirmed the United Kingdom at AA; Outlook Stable
- Morningstar DBRS confirmed Lithuania at A (high), Stable Trend
- Scope Ratings upgraded Croatia to A-; Outlook Stable
- Scope Ratings affirmed the European Union at AAA; Outlook Stable
- Scope Ratings downgraded France to AA-; Outlook Stable
EUROPE ISSUANCE UPDATE
Italy buyback auction results
The MEF has sold:
- E1.680bln of the 5.00% Aug-34 BTP (ISIN: IT0003535157) at 114.41 to yield 3.29%.
- E1.320bln of the 4.00% Feb-37 BTP (ISIN: IT0003934657) at 105.55 to yield 3.47%.
The MEF buys back:
- E990mln of the 0.35% Feb-25 BTP (ISIN: IT0005386245) at 99.244
- E1.315bln of the 5.00% Mar-25 BTP (ISIN: IT0004513641) at 100.667
- E275mln of the 1.40% May-25 BTP Italia (ISIN: IT0005410912) at 99.470
- E741mln of the 1.50% Jun-25 BTP (ISIN: IT0005090318) at 99.211
- E0mln of the 0.55% May-26 BTP Italia (ISIN: IT0005332835) at 98.340
Slovakia auction results
- E83mln of the 3.00% Feb-28 SlovGB. Avg yield 2.4784% (bid-to-cover 2.57x).
- E85mln of the 3.75% Mar-34 SlovGB. Avg yield 3.285% (bid-to-cover 6.36x).
- E153mln of the 3.75% Feb-35 SlovGB. Avg yield 3.4064% (bid-to-cover 3.07x).
- E125mln of the 0.375% Apr-36 SlovGB. Avg yield 3.5096% (bid-to-cover 6.82x).
EU-bond auction results
- E2.899bln of the 3.125% Dec-30 EU-bond. Avg yield 2.575% (bid-to-cover 1.48x).
- E1.947bln of the 2.50% Oct-52 EU-bond. Avg yield 3.399% (bid-to-cover 1.50x).
Belgium auction results
- E933mln of the 2.70% Oct-29 OLO. Avg yield 2.388% (bid-to-cover 1.80x).
- E858mln of the 2.85% Oct-34 OLO. Avg yield 2.792% (bid-to-cover 2.43x).
- E721mln of the 2.25% Jun-57 OLO. Avg yield 3.422% (bid-to-cover 2.36x).
FOREX: Greenback on Cusp of Resuming Uptrend
- The greenback is reversing a decent part of Friday's pullback, keeping the broad dollar rally underpinned and the upside argument alive. The USD Index traded a new cycle high last week at 103.874, and a rally through here would resume the primary uptrend. We've written that better-than-expected US data is not the only driver of dollar strength, with domestic equity strength also playing a large part, raising the focus on the earnings schedule this week, across which 15% of the S&P 500 are set to report.
- Running in tandem with the US curve, the greenback is further clawing back some of the modest USD losses posted Friday, easing EUR/USD off highs and tipping GBP/USD to new intraday lows in recent trade, characterised by very light volumes. This keeps GBP among the poorest performers of the day so far, while firmer core US yields keep USD/JPY pressed toward Y150.00.
- 15min candle chart exposes weakness through 1.3023 support, exposing 1.3000/04 resistance. Any slip through 1.2961/74 would be a bearish signal and mark new monthly lows ahead of next week's budget release (Weds 30th) - through which FX could be more sensitive to volatility in bond prices given the upscaled focus on the release.
- Datapoints are few and far between Monday, leaving focus on the central bank speaker schedule. Fed's Logan speaks before the open, Kashkari during cash equity trade, and then Schmid and Daly follow after the close. Schmid's appearance will likely be the most consequential - addressing the US economy and monetary policy outlook directly, with a released text.
OPTIONS: Fade Off Highs in EUR/USD Opens Gap With Largest Expiry of the Day
Fade in EUR/USD spot off the day's highs opens a gap with the most notable option expiry set to roll off at today's cut - E2.1bln at $1.0885-00, which could limit declines in the pair should news and dataflow remain subdued. Other sizeable expiries today include:
- EUR/USD: $1.0775(E535mln), $1.0885-00(E2.1bln)
- AUD/USD: $0.6825-40(A$2.3bln)
- USD/CAD: C$1.3800($715mln)
- USD/CNY: Cny7.1500($644mln)
COMMODITIES: WTI Futures Remain Softer Following Last Week’s Sell-Off
- WTI futures remain softer following last week’s sell-off. An extension lower would threaten the recent bullish theme and expose support at $66.33, the Oct 1 low, and $64.61, the Sep 10 low and a key support. For bulls, a resumption of gains would instead refocus attention on the key short-term resistance at $78.46, the Oct 8 high. Clearance of this level would resume to the recent uptrend. Initial resistance is at $72.12, the 50-day EMA.
- Gold continues to appreciate. Last week’s gains resulted in a break of $2685.6, the Sep 26 high, confirming a resumption of the primary bull trend. The yellow metal has also cleared $2700.0, reinforcing current trend conditions. Sights are on $2737.8, a Fibonacci projection. Firm support is $2645.1, the 20-day EMA. A clear break of the EMA would signal scope for a deeper retracement.
EQUITIES: Fresh Cycle Highs for E-Mini S&P Bolsters Bullish Conditions
- Eurostoxx 50 futures traded sharply lower on Oct 15. The contract has recently pierced support around the 50-day EMA, at 4947.10. A clear break of this average would undermine a recent bullish theme and highlight a stronger reversal. This would open 4884.06, a Fibonacci retracement. The contract has recovered from its recent lows. Key resistance and the bull trigger is unchanged at 5106.00, the Sep 30 high. A break of it resumes the uptrend.
- S&P E-Minis trend conditions are unchanged and bulls remain in the driver’s seat. Fresh cycle highs confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Sights are on 5961.00, a Fibonacci projection. Initial support to watch is 5816.87, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 21/10/2024 | - |  EU | ECB's Lagarde and Cipollone participate in IMF/World Bank Meetings | |
| 21/10/2024 | 1255/0855 |  US | Dallas Fed's Lorie Logan | |
| 21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 21/10/2024 | 1700/1300 | US | Minneapolis Fed's Neel Kashkari | |
| 21/10/2024 | 2105/1705 | US | Kansas City Fed's Jeff Schmid | |
| 21/10/2024 | 2240/1840 | US | San Francisco Fed's Mary Daly | |
| 22/10/2024 | 0600/0700 | *** |  GB | Public Sector Finances |
| 22/10/2024 | 0900/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 22/10/2024 | 1230/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/10/2024 | 1230/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
| 22/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 22/10/2024 | 1325/1425 | GB | BOE's Bailey address at Bloomberg Global Regulatory Forum | |
| 22/10/2024 | 1345/1445 | GB | BOE's Greene fireside chat with Josh Lipsky | |
| 22/10/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 22/10/2024 | 1400/1600 | EU | ECB's Lagarde in conversation with Francine Lacqua | |
| 22/10/2024 | 1500/1700 | EU | ECB's Lane in fireside chat at Seminar of Bank of New York | |
| 22/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 22/10/2024 | 1915/2115 | EU | ECB's Large in panel discussion on cross border payments | |
| 22/10/2024 | 2000/2200 | EU | ECB's Lane at Columbia University seminar | |
| 22/10/2024 | 2015/2115 | GB | BOE's Breeden panellist at G20 cross-border payments event |
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