HIGHLIGHTS
- Treasuries continued to trade weaker Monday, carry-over from last Friday's larger than expected September jobs gain.
- Projected rate cuts into December/early January continued to decline, November 25bp cut less than 100% priced in, 50bp in cuts by December less than 100% priced in.
- In turn, curves continued to bear flatten, 2s10s inverting briefly before finishing at 2.439 in late trade - compared to nearly +20.0 early last week.
US TSYS
MNI US TSYS: Tsy Curves Resume Bear Flattening, Rate Cut Cut Pricing Cools
- Treasuries look to finish the week opener near session lows, heavy carry-over selling after last Friday's larger than expected September jobs gain and dip in the unemployment rate to 4.1%.
- Curves dis-inverted briefly, 2s10s flattening to -1.248 before finishing around 3.273 (-.878) after the bell - compares to nearly +20.0 early last week. Note, 2Y yield climbed to 4.0223% high, 10Y yield tapped 4.0314% high.
- Meanwhile, projected rate cuts continue to recede -- November not fully pricing a 25bp cut now: Nov'24 cumulative -22bp (-26.6bp late Fri), Dec'24 -48.5bp (-57.2bp), Jan'25 -68.4bp (-80.9bp).
- Limited if any reaction to Fed speakers today, MN Fed President Kashkari said risks of higher inflation is waning as he defended his 50bp rate cut decision, sees neutral rate at around 3%
- Limited data today and tomorrow, focus on Wednesday's minutes for the September FOMC, CPI on Thursday and PPI Friday. Note, Friday also sees the start of the latest earnings cycle with Bank of NY Mellon, Wells Fargo, JP Morgan and Blackrock announcing.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.02716 to 4.81842 (+0.00148 total last wk)
- 3M +0.05270 to 4.63668 (-0.0093 total last wk)
- 6M +0.11085 to 4.39184 (+0.01914 total last wk)
- 12M +0.18206 to 4.04788 (+0.08274 total last wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.83% (-0.02), volume: $2.377T
- Broad General Collateral Rate (BGCR): 4.82% (+0.00), volume: $812B
- Tri-Party General Collateral Rate (TGCR): 4.82% (+0.00), volume: $789B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $84B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $229B
FED Reverse Repo Operation
RRP usage slips to $322.948B this afternoon from $330.012B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties slips to 54 from 57.
US SOFR/TREASURY OPTION SUMMARY
Option desks reported another round of heavy put volume Monday as underlying futures continue to weaken following last Friday's strong jobs report (SOFR White pack -0.065-0.080, Tsy 2Y yld climbs to 4.0223%, 10Y yld 4.0139%). Note, buyer of 60,300 wk2 5Y 109 puts, 41.5 ref 108-16 -- cover this week's CPI/PPI and Sep FOMC event risk before expiring this Friday. Meanwhile, projected rate cuts continue to recede -- November not fully pricing a 25bp cut now: Nov'24 cumulative -22bp (-26.6bp late Fri), Dec'24 -48.5bp (-57.2bp), Jan'25 -68.4bp (-80.9bp).
- Block, 30,000 SFRF5/SFRH5 96.50 call spds, 4.75 ref 96.06
- Block, 54,350 SFRF5/SFRH5 97.00 call spds, 2.5 ref 96.06
- Block 7,500 95.50/96.00 3x1 SFRZ4 95.50/96.00, 22 ref
- Block, 10,000 SFRX4 95.25/95.37/95.50 put flys, 1.25 ref 95.68
- Block, 7,000 0QX4 95.87/96.12/96.25/96.50 put condors, 6.0 ref 96.575
- +15,000 2QH5 96.00/96.50 5x4 put spds, 48.0-48.5 vs 96.65/0.64%
- -5,000 SFRX4 95.50/95.62 put spds, 3.0 vs. 95.695
- -7,000 0QV4 96.56/96.93 put spds, 28.5 vs. 96.59/0.50%
- +10,000 0QZ4 96.00 puts, 5.5 vs. 96.58/0.16%
- +5,000 SFRZ4 95.25/95.50 put spds, 3.0 vs. 95.69/0.16%
- +7,000 SFRH5 95.68/96.00 2x1 put spds 2.25 ref 96.065
- -20,000 SFRX4 96.12 calls, 1.75-1.50 ref 95.67
- -18,000 SFRH5 95.62/95.75 put spds vs 96.25/96.43 call spds 1.0-1.75,
- Block/screen, 34,000 0QV4 96.62/96.87 put spds, 20 ref 96.57
- +10,000 SFRZ4 95.56/95.68/95.81 put flys, 3.75
- 46,000 SFRF5 95.62/95.75 put spds ref 96.05
- 35,000 2QZ4 96.50/96.75 put spds ref 96.635
- Block, 7,000 SFRV4 95.81 calls, 0.75 ref 95.685
- 6,500 SFRM5 96.50 puts vs. 96.50/97.50 call spds ref 96.295
- 4,000 0QV5 96.50/96.81 put spds vs. 2QV4 96.56/96.87 put spds
- Block, 8,500 SFRX5 95.50/95.62 put spds, 3.25
- 4,000 0QX4 96.37/96.50/96.62 put flys
- 9,000 SFRH5 95.25/95.75/96.00 put flys ref 96.055
- 4,000 SFRZ5 96.50/96.87/97.25 put flys ref 96.58
- 10,000 SFRF5 95.87/96.06/96.25 put flys ref 96.085 to -.065
- 3,000 SFRF5 95.68/96.00/96.38 broken put flys ref 96.07
- 20,000 SFRZ4 95.37/95.50 put spds, ref 95.72 to -.695
- 4,000 SFRH5 95.68/95.93 put spds ref 96.045
- 15,000 SFRX4 95.50/95.75/95.87 broken put flys ref 95.71
- 2,500 SFRZ4 95.75/96.00/96.37 broken call trees ref 95.71
- 3,000 SFRZ4 95.56/95.68/95.75/95.81 put condor ref 95.71
- Block, 6,500 SFRH5 95.50/95.75 put spds, 5.5 ref 96.065
- 3,000 SFRH5 97.00/97.50/98.00 call flys ref 96.07
- 2,500 0QZ4 96.50/97.00 put spds
- 2,000 SFRX4 95.50/95.75/95.87 broken put flys ref 95.73
- Treasury Options:
- Block, +12,500 TYZ4 109.5/111.5 put spds at 30 vs appr 20,000 TYZ4 116.5/117 2x1 call strip at 23 vs. 1,900 TYZ4 112-16
- 2,500 FVZ4 106.5/110.5 strangles vs. wk2 FV 108.25/108.75 strangles
- over 60,300 wk2 5Y 109 puts, 41.5 ref 108-16 (expire Friday)
- 2,600 FVZ4 105.5/107 put spds ef 108-15.75
- 5,000 USZ4 112/116 put spds, 25 ref 121-11
- 29,000 TYZ4 110/112 put spds 37 vs. 112-17/0.29%
- 5,000 FVX4 108.5/109 strangles, 34 ref 108-16.75
- 10,000 TYX4 113.5 calls, 15 ref 112-19.5
- Block/screen, 7,500 TYZ4 110.5/111.5 3x2 put spds, 119
- Block/screen, 17,500 TYZ4 111/112 put spds, 21 ref 112-22
- 35,000 TYX4 112/112.75 2x1 put spds, 1 ref 112-27 to -22.5
MNI BONDS: EGBs-GILTS CASH CLOSE: Bellies Underperform As Cuts Get Priced Out
European yields continued to rise Monday, with Gilts underperforming Bunds as curve bellies underperformed in both the UK and Germany.
- Multiple factors weighed on global FI, from higher oil prices to follow-through from Friday's surprisingly strong US employment data.
- Eurozone retail sales were largely in line, while German headline factory orders delivered a downside surprise.
- ECB's Kazaks told MNI that he supported an October rate cut. While that outcome remains over 90% priced, easing through mid-2025 pared back to ~125bp cumulative from ~130 prior and ~147bp at Thursday's close.
- Similarly while Nov BoE cut pricing remains >90%, cumulative priced cuts through June 2025 now stand at 94bp, vs ~100bp Friday and over 120bp end-Thursday.
- Gilt underperformance saw the widest 10Y spread to Bunds in over a year. Gilts appeared to be additionally pressured in the session by soft demand at the long-dated BoE APF sale, as well as media concern over government borrowing prospects.
- Periphery EGB spreads widened throughout the session on less dovish ECB pricing.
- Tuesday's agenda includes the German IP release along with multiple ECB speakers including Nagel and Centeno.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 4.4bps at 2.247%, 5-Yr is up 5.2bps at 2.123%, 10-Yr is up 4.6bps at 2.256%, and 30-Yr is up 4.4bps at 2.536%.
- UK: The 2-Yr yield is up 8.4bps at 4.223%, 5-Yr is up 8.6bps at 4.102%, 10-Yr is up 7.8bps at 4.208%, and 30-Yr is up 5.4bps at 4.73%.
- Italian BTP spread up 1.7bps at 131.6bps / Spanish up 0.8bps at 76.6bps
- EURUSD 4.15bn at 1.0950/1.1000.
- USDCAD 1.1bn at 1.3595/1.3600 (thu).
- EURUSD 2.25bn at 1.1000 (fri).
- USDCAD 1.3bn at 1.3595/1.3600 (fri).
- EURUSD: 1.0925 (300mln), 1.0930 (255mln), 1.0950 (578mln), 1.0955 (1.93bn), 1.0975 (600mln), 1.0990 (565mln), 1.1000 (472mln), 1.1040 (345mln).
- GBPUSD: 1.3100.
- AUDUSD: 0.6755 (500mln), 0.6820 (270mln).
- EURSEK: 11.3900 (455mln).
EQUITIES
MNI US STOCKS: Extending Late Session Lows, Dow Underperforming
- Stocks are extending late session lows at the moment, the Dow underperforming as Utility and Consumer Discretionary sectors continue to weigh. Currently, the DJIA is down 488.05 points (-1.15%) at 41865.32, S&P E-Minis down 59.25 points (-1.02%) at 5741.5, Nasdaq down 209.7 points (-1.2%) at 17929.35.
- There were no obvious headline drivers for the extension, likely program related as futures bounced slightly in late trade, focus on this week's CPI/PPI inflation measure, the September FOMC minutes and the start of the latest earnings cycle with Bank of NY Mellon, Wells Fargo, JP Morgan and Blackrock announcing Friday.
- Utilities and Consumer Discretionary sector shares continue to underperform in late trade, water and independent power providers weighing on the Energy sector early on: Vistra -6.54%, American Water Works -4.22%, NextEra Energy -3.53%. The Discretionary sector weighed by a mix of sporting goods, electronics and food related companies: Deckers Outdoor -5.76%, Garmin -4.53%, Ross Stores -4.12% and Dominos Pizza -4.01%.
- Energy and Information Technology sector shares continued to lead gainers in late trade, oil & gas stocks supporting the Energy sector as crude prices continued to surge (WTI +2.84 at 77.21) as Mideast tensions remain unresolved. Diamondback Energy +2.72%, EOG +1.21%, Valero +0.87%. Leading late session gainers in the IT sector: Super Micro Computers surged 15.55% on strong GPU sales, Nvidia gained 3.84%, while Fair Isaac Corp gained 2.10%.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Trend Structure Remains Bullish
- RES 4: 5900.00 Round number resistance
- RES 3: 5871.77 2.0% Upper Bollinger Band
- RES 2: 5868.50 1.00 proj of the Apr 19 - Jul 16 - Aug 5 price swing
- RES 1: 5830.00 High Sep 26
- PRICE: 5793.25 @ 07:12 BST Oct 7
- SUP 1: 5735.68 20-day EMA
- SUP 2: 5666.17 50-day EMA
- SUP 3: 5500.00 Round number support
- SUP 4: 5451.25 Low Sep 6 and a bear trigger
A bull cycle in S&P E-Minis remains intact and the latest shallow pullback appears to have been a correction. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend and positive market sentiment. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5735.68, the 20-day EMA. Key support lies at 5666.17 the 50-day EMA.
COMMODITIES
MNI Crude Rises To Highest Since August As Geopolitical Tensions Mount
- Crude prices rose further on Monday as the geopolitical risk premium surrounding an expected Israeli response to last week’s Iranian rocket attack continued to grow.
- WTI Nov 24 is up by 3.9% at $77.3/bbl, while Brent broke above $80/bbl for the first time since August.
- Brent had its highest weekly gain since January 2023 last week because of the tensions.
- The rally in WTI futures undermines a recent bearish theme and suggests potential for a continuation higher near-term. Sights are on $77.40, the 76.4% retracement of the Jul 5 - Sep 10 bear leg, followed by $79.69, the Jul 18 high.
- Meanwhile, spot gold has fallen for a fourth successive session on Monday, with the yellow metal declining by 0.5% to $2,641/oz.
- Gold remains in consolidation mode, although the trend condition is also unchanged and bulls are still in the driver’s seat.
- The focus remains on $2,690.2 next, a Fibonacci projection. Firm support lies at $2,615.4, the 20-day EMA.
- Silver is underperforming and has fallen by 1.6% to $31.7/oz.
- The outlook for silver is still bullish, however, and a clear break of key resistance at $32.518, the May 20 high, would confirm a resumption of the medium-term uptrend and open $33.297, a Fibonacci projection.
- Firm support lies at $30.134, the 50-day EMA.
TUESDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 08/10/2024 | 0600 | ** | Sep | NFIB Small Business Index | 91.2 | 91.9 | |
| 08/10/2024 | 0830 | ** | Aug | Previous Trade Deficit Revised | -73.0 | -- | USD (b) |
| 08/10/2024 | 0830 | ** | Aug | Trade Balance | -78.8 | -71.0 | USD (b) |
| 08/10/2024 | 0855 | ** | 05-Oct | Redbook Retail Sales y/y (month) | 5.2 | -- | % |
| 08/10/2024 | 0855 | ** | 05-Oct | Redbook Retail Sales y/y (week) | 5.3 | -- | % |
| 08/10/2024 | 1130 | * | 11-Oct | Bid to Cover Ratio | -- | -- | |
| 08/10/2024 | 1300 | *** | Oct | Bid to Cover Ratio | -- | -- |
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