FOREX: US Dollar Loses Ground as Jobless Claims Rise, Equities Gain
Dec-05 17:41
- Major equity benchmarks have consolidated solid gains this week, keeping the greenback on the backfoot Thursday. The USD index is down 0.42% on the session, with the weakness extending after the release of higher-than-expected weekly jobless claims in the US. The poorer data adds a moderately negative tilt leading into tomorrow’s key US employment report.
- The Euro and Swiss Franc lead gains in G10, slightly outpacing the DXY adjustment. EURUSD has remained unfazed by political developments in France, and following the US figures, the pair rose to a high of 1.0590 before reversing 30 pips lower ahead of the APAC crossover.
- EURJPY price action was most notable over the course of Thursday trade, with the higher front-end yields in the US also weighing on the Yen. EURJPY rose to a session high of 159.39, almost 200 pips off the lows. Expectations for the December BOJ meeting continue to stoke JPY volatility, with the market split between whether the bank will hike on December 19.
- Elsewhere, GBPUSD has established itself back above 1.2700 and trades closer to 1.2750 in late trade. Recent gains are considered corrective, and the move higher is allowing an oversold trend condition to unwind. Initial firm resistance at 1.2716, the 20-day EMA, has been pierced. A clear break of the average would signal scope for a stronger recovery and expose the 50-day EMA, at 1.2843.
- Friday’s release of the US employment report will be the data highlight of the week, a key input for the Fed ahead of its final decision of 2024. Non-farm payrolls is expected to bounce sharply to 215k in November in a reversal of October’s strike and weather-related weakness.
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FOREX: EURUSD Extending Highs, Approaching 50-Day EMA
Nov-05 17:41
- Broad greenback weakness has been extending in recent trade and EURUSD (+0.45%) has edged up to a fresh recovery high of 1.0927. Price action continues to narrow the gap with the 50-day EMA resistance, intersecting today at 1.0938. However, given the expected overnight volatility, more meaningful resistance is found between 1.0997/1.1040, the October 08 and 04 highs respectively.
- The ECB have repeatedly stressed the importance of the productivity-wage-profit channel as a fundamental driver of the inflation outlook, suggesting that growth concerns have moved the meter for the Governing Council. With that said, last week’s moderate upside surprises for Eurozone Q3 GDP will have likely been assisting the single currency bounce.
- However, overall trend conditions continue to suggest the move higher for EURUSD is corrective, and a Trump victory would likely weigh on the pair and reassert the dominant downtrend. Note too, that moving average studies remain in a bear-mode position.
- The bear trigger is unchanged at 1.0761, the Oct 23 low. Below here, market attention would be focused on 1.0710, the July 02 low and 1.0666, the June 26 low.
US BONDS: BONDS: EGBs-GILTS CASH CLOSE: Gilts Extend Underperformance With Event Risk Eyed
Nov-05 17:24
Gilts underperformed again Tuesday, ahead of major global event risk the next couple of sessions.
- Today's US election and Thursday's multitude of central bank decisions (including the BoE and Fed) have set a bearish backdrop for core European FI so far this week, with Gilts continuing to reel from last week's UK fiscal announcement.
- Today saw weak demand at the 10Y Gilt auction, underlining the negative sentiment. A strong US ISM Services number saw Gilt weakness extent, with selling continuing into the close. The belly of the UK curve underperformed on the day, with 5Y yields up 10bp.
- Gilt underperformance to Bunds continued: 10Y spread up 4+bp today to a fresh post-Oct 2022 high of 210bp.
- As with Monday, German yields traded largely within last week's ranges, with some bear flattening seen in today's trade. Periphery EGB spreads narrowed for the session, tracking a bounce in equities, after having widened early.
- After hours we hear from ECB's Schnabel. All attention overnight will be on the US election outcome. Early Wednesday we get German factory orders data and final Services PMIs for the Eurozone, in addition to multiple ECB speakers.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 3.9bps at 2.303%, 5-Yr is up 3.4bps at 2.292%, 10-Yr is up 3bps at 2.425%, and 30-Yr is up 2.7bps at 2.609%.
- UK: The 2-Yr yield is up 7.8bps at 4.513%, 5-Yr is up 10bps at 4.434%, 10-Yr is up 7.2bps at 4.53%, and 30-Yr is up 3.4bps at 4.958%.
- Italian BTP spread down 2.6bps at 124.6bps / Spanish down 0.5bps at 70.3bps
US TSYS/SUPPLY: 10Y Auction Preview: Awkward Timing
Nov-05 17:08
In one of the more awkwardly-timed 10Y Note refunding auctions in recent times, Treasury comes to market at 1300ET today to sell $42B (CUSIP: 91282CLW9). It comes against the backdrop of US election day, and two days before the Fed meeting.
- Since the last auction (4.066% high yield) on Oct 9, yields have moved up significantly, with the current when-issued yield currently standing around 30bp higher at 4.35% which would make it the highest at a 10Y auction since June.
- The move has been exacerbated by both speculation over the election result (a "Republican Sweep" is the modal implied outcome, which is considered Treasury-negative), and strong data pushing up both real yields and breakevens as Fed cuts get priced out. It's hard not to see participation in today's auction as something of a play on the electoral outcome. Meanwhile today's stronger-than-expected Services ISM has been a reminder of recent good data, just ahead of the Fed's expected 25bp cut Thursday. Already, Monday's 3Y auction proved weak ahead of such significant event risk.
- There have been two tails and 3 trade-throughsfor 10s in the last 5 auctions; average bid/cover of 2.54x, with primary dealer uptake 13.0%, indirects taking 72.4% and directs 14.6%.
| High yield | When-issued yield | Trade through (tail) | High - Median Spread | Bid-to-cover | Primary Dealer Percent | Indirect Percent | Direct Percent | Offering Amount | |
| 5- Auction Avg | 4.078% | 4.079% | 0.2 | 5.9 | 2.54 | 13.03% | 72.41% | 14.55% | 39.6 |
| 9-Oct-24 | 4.066% | 4.061% | -0.5 | 5.8 | 2.48 | 13.93% | 77.63% | 8.44% | 39 |
| 11-Sep-24 | 3.648% | 3.662% | 1.4 | 4.3 | 2.64 | 10.25% | 76.05% | 13.71% | 39 |
| 7-Aug-24 | 3.960% | 3.930% | -3.0 | 7.2 | 2.32 | 17.88% | 66.17% | 15.95% | 42 |
| 10-Jul-24 | 4.276% | 4.285% | 0.9 | 5.8 | 2.58 | 11.53% | 67.61% | 20.86% | 39 |
| 11-Jun-24 | 4.438% | 4.459% | 2.1 | 6.4 | 2.67 | 11.59% | 74.60% | 13.81% | 39 |
