STIR: US Rates Extend Post-NFP Rally, Dec Pause Still Deemed Slightly In Favor
Nov-21 11:53
- Fed Funds implied rates are 0.5-1.5bp lower on the day for meetings out to mid-2026.
- Cut prospects for the Dec 9-10 FOMC meetings have increased to 10bp (+1bp from the close) vs as little as 6bp prior to yesterday’s September payrolls report, as investors continue to weigh up a higher unemployment rate against stronger than expected payrolls growth.
- It was 11-12bp prior to the BLS decision on Wednesday to roll the Oct establishment survey into the Nov payrolls release not due until Dec 16 (a delayed date also published at that time).
- Cumulative cuts from 3.87% effective: 10bp Dec, 24bp Jan, 35bp Mar, 44bp Apr, 60.5bp Jun.
- SOFR futures are 1 tick firmer for the SFRZ5 through to 4.5 ticks firmer through 2027 contracts as US equity futures consolidate yesterday’s heavy losses.
- The SOFR implied terminal yield has dipped under 3% (SFRH7) for fresh lows since Powell's Oct 29 FOMC press conference.
- Today’s heavy Fedspeak can help shape market assessments for next month’s meeting, with members yesterday not sounding concerned, along with the flash November PMIs.
- JPMorgan and Morgan Stanley both altered their Fed calls yesterday, eyeing no change next month. JPM see cuts in Jan and May before going on hold, MS see cuts in Jan, Apr and June for the same 3-3.25% terminal they had pre-payrolls.
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OUTLOOK: Price Signal Summary - Bull Cycle In Gilts Extends
Oct-22 11:29
- In the FI space, short-term resistance in Bund futures remains intact for now. The trend outlook is bullish following recent strong impulsive gains and sights are on the next key resistance at 130.80, the Jun 13 high. Clearance of this level would strengthen the bullish condition. Note that the contract is overbought, a deeper pullback would allow this condition to unwind. Initial key support is 129.30, the 20-day EMA.
- A bull cycle in Gilt futures remains intact and today’s gap higher strengthens the bullish condition. The contract is through its recent high of 93.17, the Oct 17 high. This confirms a resumption of the uptrend and signals scope for an extension towards 93.95 next, a 1.500 projection of the Sep 3 - 11 - 26 price swing. Note that the contract is overbought, a pullback would allow this condition to unwind. A key support to watch lies at 91.65, the 20-day EMA. Initial support lies at 93.17, the Oct 17 high.
CHINA-EU: EU Preparing Responses To Rare Earth Restrictions: BBG
Oct-22 11:25
Bloomberg reporting on potential EU responses to China's rare earth restrictions:
- "The European Union is working on trade options to counter China’s planned export controls on critical raw materials should the bloc fail to reach a diplomatic solution with Beijing."
- "The European Commission is preparing a list of trade measures by the end of the month that can later be deployed against China to boost its negotiating leverage, according to people familiar with the matter. The commission is also developing a plan to protect critical supplies in the short-term and secure other sources. "
- "The issue will likely be addressed at an EU leaders’ summit in Brussels this week, though the commission wants to avoid a discussion on specific measures, said the people, who spoke on the condition of anonymity. They declined to say what trade options the EU could consider, citing the sensitive nature of the matter."
OPTIONS: Larger FX Option Pipeline
Oct-22 11:17
- EUR/USD: Oct23 $1.1515-25(E1.1bln), $1.1555-65(E1.3bln), $1.1575(E1.2bln), $1.1650(E1.1bln), $1.1670-80(E1.0bln), $1.1750-70(E2.8bln); Oct24 $1.1500-20(E1.2bln), $1.1635-50(E1.1bln); Oct27 $1.1520-35(E1.2bln), $1.1670-80(E1.1bln), $1.1700-10(E1.1bln)
- USD/JPY: Oct24 Y150.00($2.0bln), Y151.00-20($1.4bln)
- AUD/USD: Oct23 $0.6585-00(A$1.1bln); Oct24 $0.6450(A$1.6bln); Oct27 $0.6490(A$1.8bln)
