SCANDIS: NOKSEK Off Highs Alongside Oil, Focus Turns To December Rate Decisions
Dec-12 11:55
NOKSEK has moved away from intraday highs alongside crude oil futures over the past ~90 minutes, but remains 0.2% higher today at ~0.9870. The cross has closed the gap to initial resistance at 0.9901 (Dec 5 high) during the course of this week. A clear breach of this level will be required to signal scope for a renewed test of parity.
- 1-week at the money NOKSEK vols now capture both the Riksbank and Norges Bank policy rate decisions next week, but have only seen a small move higher this morning to 6.2 points (below the YTD average of 6.7).
- There nonetheless remains scope for NOKSEK volatility next Thursday, with both central bank’s presenting revised rate path projections, which will be key in shaping consensus for policy rates through 2025.
- The Q4 Norges Bank Regional Network Survey saw positive Q/Q aggregate output expectations and an upward revision to expected 2025 wage growth, which should reduce the odds of a surprise rate cut next week. However, underlying mainland demand remains weak, underscoring the need to start easing policy from next year.
- Meanwhile, a 25bp Riksbank cut is widely expected (in line with the November decision guidance), with focus on how much further easing is likely in 2025.
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EURUSD: Parity Risks Loom Large in '25
Nov-12 11:41
- EUR/USD's fresh pullback low at 1.0611 today equates to a near 3% sell-off since the election results last week and a >5% downleg off the YTD high at 1.1214. This keeps alive the speculation that EUR/USD could hit parity under an adverse trade war scenario or a particularly hawkish turn from the Fed.
- While markets see little likelihood of EUR/USD testing that mark in the near-term, but the risk picks up materially thereafter.
- Just $650mln notional has traded in EUR/USD vanilla put options with a strike at 1.00 or below since November 1st on the DTCC - a relatively meagre % of the $300bln market this month. This providies little concrete evidence of the market's focus on parity just yet - reflected in premiums pricing just a 2.3% chance of payoff for a EUR/USD 1.00 one-touch option expiring on Dec31 this year.
- We wrote last week that speculation of parity is building, however. The risk becomes much more apparent further down the curve and into the Trump admin's first few months. Compounding this effect, the implied Fed-ECB rate differential has grown considerably for Jun'25, from ~40bps to ~130bps in six weeks.
- As a result, markets now price a 24% chance of touching parity by end-Jun'25, up from 9.6% ahead of the election/German government breakdown.
BUNDS: /SWAPS: ASWs A touch Wider On Politics & Data, Moves Limited
Nov-12 11:41
Clarification of the German election timeline (confidence vote on December 16, subsequent election on February 23) and the soft German ZEW data promotes modest ASW widening today, 3-month Euribor spreads 0.5-0.8bp higher last.
- Moves back above 0bp in Bund vs. 3-month Euribor ASW remain shallow and short-lived.
- Sell-side names remain cautious when it comes to the idea of wideners, with the medium-term drivers of the structural narrowing intact (grater collateral availability owing to issuance needs/free float and receiver-side flows in swaps, linked to continued ECB easing).
US TSYS: Cash Treasuries Resume, Ylds Rising Ahead Busy Fed Docket, SLOOS Later
Nov-12 11:41
- Cash Treasuries return after extended Veterans Day holiday, yields higher but off early London session highs (2s +.0547 at 4.3086%, 10Y +.0526 at 4.3569%).
- Treasury futures near steady in the short end vs modestly lower levels out the curve amid improving volumes: Dec'24 10Y -1.5 at 109-27.5 vs. 109-24 low on just over 370,000 contracts currently traded. Initial technical support holds at 109-07, last week's Nov 6 low and bear trigger. Curves remain under modest flattening pressure: 2s10s -.190 at 4.636, 5s30s -2.307 at 25.321.
- US data resume, higher than expected NFIB Small Business Optimism just reported at 93.7 vs. 92.0 est, 91.5 prior. Regional NY Fed 1Y inflation expectation release at 1100ET. Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) release this afternoon at 1400ET. US Tsy bill auctions $81B 13W, $72B 26W at 1130ET, $80B 42D CMB auction at 1300ET.
- But main data focus remains on Wednesday's CPI and Thursday's PPI.
- Fed speakers return with busy schedule ahead: Fed Gov Waller moderated discussion bank conf at 1000ET, Richmond Fed Barkin summit discussion (text, Q&A) at 1015ET, MN Fed Kashkari moderated discussion (no text, media Q&A) at 1400ET, Philly Fed Harker on Fintech & AI (text, Q&A) at 1700ET while Richmond Fed Barkin is expected to answer more questions at an economic development conf at 1730ET.
- Cross market roundup: crude rebounds from Monday's sell-off (WTI +0.63 at 68.67), Gold adds to Monday's sharp decline (-20.60 at 2,598.22), USD gaining - extending higher.
