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Summary: USDBRL Extends Losses To Near 2%

AUDUSD TECHS

Needle Still Points North

US TSYS

Focus on Midweek BoC, ECB Policy Announcements

FOREX

EUR Crosses Come Under Pressure As ECB Beckons

Repeats Story Initially Transmitted at 20:36 GMT Oct 27/16:36 EST Oct 27
By Sheila Mullan
     NEW YORK  - Traders in the U.S. Treasuries next week next week keenly await
the outcome of the frenzied speculation drama about Pres. Donald Trump's new
Federal Reserve Chair choice.
     But there are many other subject matters to worry about such as the Fed's
two-day Tuesday-Wednesday meeting, the Wednesday month-end, technical factors
and the key Friday US October nonfarm payroll employment report.
     Traders will be glad when the Fed Chair question has been settled: rumors
have pushed Treasuries up and down for the past week or so. Fed Chair Janet
Yellen is the current Fed Chair. But speculation late Friday had it that Jerome
"Jay" Powell may have been the favored candidate, but that Pres. Trump had not
yet totally decided on his choice.
     The speculation heated up this week as the president will name his choice
before he departs Nov. 3 for an Asian trip through Nov. 14th. The other four
candidates besides Powell were Stanford University economist John Taylor,
Yellen, Kevin Warsh and NEC head Gary Cohn.
     BMO's Ian Lyngen said that "in the week ahead, the US Treasury market will
grapple with several key events, and Wednesday will be a focal point as the Fed
statement, the Treasury refunding and the proposed tax plan from Congressional
Republicans are all set to hit the tapes in the same session."
     "Add to this the fact that the Trump administration is expected to name a
potential nominee before the President leaves for Asia on Nov. 3rd, as well as a
payrolls report on Friday and we're entering a period that is likely to shape
the direction of rates for many weeks or months to come," he added.
     Meanwhile with both houses of Congress having passed a budget plan,
attention now turns to the tax reform that Pres. Trump would like to enact, but
it could be a bumpy road to passage. Every lobbyist worth his or her salt will
be vying to preserve tax breaks, said sources.
     BMO's Ian Lyngen said the proposed US tax plan that "we've been pessimistic
about the prospects of something substantial coming from the process, and we'll
retain that outlook for any headlines that emerge about progress and compromises
that are made."
     "Our pessimism is not simply our go-to view, but is rooted in the known
details of the budget plan, which proposes a $4+ trillion budget and cuts of
$1.5 trillion, which still leaves a sizable hole to fill in terms of which
deductions to cut given the proposed drop in the corporate tax rate," he said.
     "Between the budget hawks, the details of the process, and the fractured
geography of who benefits from which provision, we're less certain that a
substantive bill that truly boosts growth can be the result of such a process,"
Lyngen said.
     Traders also eyed the Tuesday-Wednesday FOMC meeting. TD strategists led by
Michael Hanson said the November 2-day FOMC meeting outcome Wednesday "is likely
to be uneventful, with rates unchanged and no substantive changes in language.
     "That said, we see two-sided risks: more cautious language on the inflation
outlook (dovish), and a signal about an incoming rate hike (hawkish)," they
said. "They add that "given current market pricing for a December hike, we
expect any hawkish tone in the statement to have a more modest impact than a
dovish bias."
     Natixis's Joseph Lavorgna noted the US 10-year note yield is at "a 6-month
high." He adds "expectations of deficit financed tax cuts and quantitative
tightening should put upward pressure on long- term yields. But how high will
they go?"
     He thinks the "market's expectation of the terminal fed funds (rate) is
highly correlated with 10-year yield. This is captured in the 5-year forward
overnight indexed swap (OIS)," an "excellent proxy for the terminal fed funds
rate. It is currently yielding around 2.37%. For 10-year yields to go
meaningfully higher, Fed tightening expectations may have to rise accordingly."
     Barclays economists said the 3% Q3 US GDP growth "supports our forecast of
a 25bp Fed rate hike in December." They added that "buoyant global growth
filters into the US."
     Meanwhile back at the ranch, the Fed also began its gradual tapering, or
slow reduction of its $4.5 trillion balance sheet, which has $4.2 trillion in
U.S. Treasuries and in Agency MBS.
     Before any potential December rate hike, the Federal Reserve will have
started its taper/Fed balance sheet reduction program in October. The Fed will
whittle down its huge $4.5 trillion Fed balance sheet, which includes $4.2
trillion in Treasuries and Mortgage-Backed Securities (MBS). The Fed had bought
bonds to alleviate the market tightness since the financial crisis of 2008-2009.
     The Fed will let its Treasuries and/or MBS run off its portfolio, said
traders. Once tapering begins, the U.S. Treasury would have to figure out how to
slice its debt issuance to cope with such a runoff of Treasuries.
     The taper started in MBS with the Friday Oct. 13th announcement on MBS
rolldowns, while it will start in U.S. Treasuries with the end-October
month-end. (The Oct. 23rd week's 2-year, 5-year, 7-year auctions and also the
2-year Floating Rate Note auction all will settle Oct 31st.)
     Below is the chart schedule of monthly Fed reinvestment caps consistent
with the FOMC Sept. 20 decision and June 2017 addendum:
     --- MONTHLY CAPS ON SOMA SECURITIES REDUCTIONS --------------
US TREASURIES.../AGENCY MBS/MONTH CAP 
- Oct-Dec 2017.. $6 billion./$4 billion 
- Jan-Mar 2018.. $12 billion/$8 billion 
- Apr-Jun 2018 $18 billion../$12 billion 
- Jul-Sep 2018 $24 billion../$16 billion 
- From Oct 2018** $30 billion $20 billion
     - Taper background (https://www.newyorkfed.org/markets/opolicy/operating
_policy_170920) And Taper policy background: (The Fed Board Taper Sep20 news
release:
https://www.federalreserve.gov/newsevents/pressreleases/monetary20170920
a1.html)
     Also, Treasuries should see foreign exchange-tied buying by black box hedge
funds, if the U.S. dollar weakens against the Japanese yen, or selling if the
dollar firms vs. the yen, said traders. Some traders expected a safe-haven bid
on the Spain/Catalan situation and North Korea risk factors.
     -- Questions? sheila.mullan@marketnews.com 212-669-6432; story also
reflects contributions from Giovanny Guerrero of MNI/New York.
     -- A calendar of market events (data, Fed speakers) is below: 
Date/Time ET Prior Data/And MNI Econ Poll Median Estimates
---------------------------------------------------------------------
30-Oct 0830 ** Sep personal income 0.2%/0.4%
30-Oct 0830 ** Sep current dollar PCE 0.1%/0.9%
30-Oct 0830 ** Sep total PCE price index 0.2%/-- %
30-Oct 0830 ** Sep core PCE price index 0.1%/0.1%
30-Oct 1030 ** Oct Dallas Fed manufacturing index 21.3/--
30-Oct 11:30am ET US Tsy $36B 26-wk bill auction (Nov. 2 settle)
30-Oct 11:30am ET US Tsy $42B 13-wk bill auction (Nov. 2 settle)
30-Oct 1300pm ET US Tsy $50B 37-day Cash Mgmt Bill (Nov. 1 settle)
30-Oct 1500 * Sep farm prices -2.0%/-- %
     31-Oct Start of two-day FOMC policy meeting in Washington DC
31-Oct 0830 ** Q3 ECI 0.5%/0.7%
31-Oct 0855 ** 28-Oct Redbook retail sales m/m -1.3%/-- %
31-Oct 0900 * Oct ISM-Milwaukee Mfg Index 60.24/--
31-Oct 0900 ** Aug Case-Shiller Home Price Index 0.3%/--
31-Oct 0945 ** Oct MNI Chicago PMI 65.2/59.9
31-Oct 1000 ** Q3 housing vacancies rate 1.5%/-- %
31-Oct 1000 *** Oct Conference Board confidence 119.8/120.9
31-Oct 1030 ** Oct Dallas Fed services index 12.4/--
     01-Nov Final Day of Two-DAy FOMC policy meeting in Washington DC
01-Nov - *** Oct NA-made light vehicle sales SAAR 14.2M/--m
01-Nov 0700 ** 27-Oct MBA Mortgage Applications -4.6%/-- %
01-Nov 0815 *** Oct ADP private payrolls 135K/-- k
01-Nov 0945 *** Oct Markit Mfg Index (final) --/--
01-Nov 1000 *** Oct ISM Manufacturing Index 60.8/59.5
01-Nov 1000 * Sep construction spending 0.5%/0.00%
01-Nov 1000 * Nov help-wanted online ratio 1.21/--
01-Nov 1030 ** 27-Oct crude oil stocks ex. SPR w/w +0.86M/--M bbl
01-Nov 1400 FOMC post-meeting policy announcement in Washington
01-Nov 0830 US Tsy Nov. Quarterly Refndng Anncmnt (3/10/30Y Auctns Etc)
     02-Nov 0730 * Oct challenger layoff plans -27.0%/-- %
02-Nov 0830 ** 28-Oct jobless claims --/235K
02-Nov 0830 ** Q3 non-farm productivity (p) 1.5%/2.9%
02-Nov 0830 ** Q3 unit labor costs (p) 0.2%/0.6%
02-Nov 0830 Fed Gov Powell intro remarks:AltRef Rates Comm Rndtable NY
02-Nov 0945 * Oct ISM-NY current conditions 49.7/--
02-Nov 0945 * 29-Oct Bloomberg comfort index --/--
02-Nov 1030 ** 27-Oct natural gas stocks w/w --/-- Bcf
02-Nov 1220 NY Fed Dudley:Close remrks at Alt Ref Rates Comm Rndtable NY
02-Nov 1630 ** 01-Nov Fed weekly securities holdings --/-- t USD
02-Nov 18:15pm ET Atl Fed Bostic:Talk on Govt Stats at Chicago conf Q/A
     03-Nov 0830 ** Sep trade balance -$42.4B/$-- b USD
03-Nov 0830 *** Oct nonfarm payrolls -33K/+308K
03-Nov 0830 *** Oct private payrolls -40K/+310K
03-Nov 0830 *** Oct unemployment rate 4.2%/4.2%
03-Nov 0830 *** Oct average hourly earnings 0.5%/0.2%
03-Nov 0830 *** Oct average workweek, all workers 34.4/34.4 hrs
03-Nov 0945 *** Oct Markit Services Index (final) --/--
03-Nov 1000 *** Oct ISM Non-manufacturing Index 59.8/58.0
03-Nov 1000 ** Sep factory new orders 1.2%/1.1%
03-Nov 1000 ** Sep factory orders ex transport 0.4%/-- %
03-Nov 1100 ** Q3 St. Louis Fed Real GDP Nowcast --/-- %
03-Nov 1115 ** Q3 NY Fed GDP Nowcast --/-- %
03-Nov 1215 Mnpls Fed Kashkari; Q&A at Women in Hsg/Fin Wash DC Q/A
--MNI New York Bureau; tel: +1 212-669-6432; email: sheila.mullan@marketnews.com
[TOPICS: MTABLE]