Americas Breakfast Briefing

US OPEN/EVENTS AHEAD

The FOMC lowered the benchmark rate 50bps to a 4.75-5.0% range in line with market expectations although most economists f/c a 25bps move. Fed Bowman dissented in favour of a 25bps cut, 9 members pencilled in 75bps or less of cuts this year but 10 pencilled in 100bps or more. Fed Chair Powell said no one should see the 50bps cut as 'the new pace', they were not declaring victory on inflation & that his own sense was they were not going back to a low neutral rate. A Bloomberg survey sees an huge 75% majority expecting a soft landing. Looking a event risk, the US sells $17bn 10yr TIPS (1.883% & 2.38 b/c previously). Data brings Sep Philly Fed Business Outlook (0% f/c vs -7.0 prior), Initial Jobless Claims (seen steady at 230k), Leading Index (-0.3% predicted from -0.6% last time) & Existing Home Sales (-1.3% f/c from +1.3% prior). Dec24 US 10yr notes hit a 10 day low at 114-22 (-12.5 ticks) then traded back to unch & the 2-10yr yield spread widened to a wide since June 2022 at 11.1bps (24.9bps target). S&P500 shed 0.3% on Wed & futures are up 1.3% to 5754.7 vs a 2mth high at 5755.7 yest.

• The US 2/10yr spread builds on the recent two-year base completion to post new reach a 2-1/4yr highs above 10 (1 July 2022 lower high)
• Firming studies (note the '100% higher' rating on this week's Sentiment Matrix) and the recent Golden Cross (50/200DMAs) should underpin continued steepening
• The initial target is the 17/20 zone (16 June 2022 high and .764x -111/-11 advance from -56), a clearance of which exposes 25 (50% retracement of the 162/-111 decline)
• Only a return below initial support at -6 (30 August/6 September lows) would caution and suggest a period of extended bullish consolidation over the -21 higher trough

EUROPEAN ROUND UP

Core EGB futures kicked off the session at 9-10 day lows but stabilised quite quickly and traded in comparatively calm 1/5-1/3pt ranges. Gilts outperformed their German counterpart by as much as 1/5pt and this divergence narrowed the 10yr yield spread between the benchmarks by circa 1.4bps & the German 2-10yr yield spread steepened around 3bps at most (currently +2.5bps). Risky assets have been underpinned by the aggressive FOMC rate move with France's CAC & Germany's DAX indices pushing up to 16 day highs and front month Brent futures advancing to a 15 day best. There was scant noteworthy first half data but there was plenty of government supply. Spain sold the 4, 7 & 20yr maturities at lower yields and softer covers, the French 3yr bond sale followed suit conversely, the 5 & 7 year tenors attracted firmer average yields and stronger coverage. There were plenty of ECB officials on the wires with Knott and Centeno appearing relatively dovish (see bullet points below for actual comments) while their colleague Schnabel warned that 'sticky services is keeping inflation elevated'.

• The DAX index resumes the broad uptrend via 18208.84 (11 September corrective low) to re-test 18990.78 (3 September record high)
• Studies build (note the '75% bullish' rating on this week's Sentiment Matrix) and we await new record highs over the psychological 19000.00 barrier
• The initial target is 19296.34 (equality of 11862.84/16528.97 rally projected up from 14630.21), beyond which opens 19897.38 (equality of the long-term 8255.65/16290.19 rally from 11862.84)
• Any near-term dips should hold significantly above the 18208.84 corrective low

MARKET HEADLINES

• BoE interest rate decision looms, no change expected
• ECB's Knot: is 'more or less' fine with the market's rate cut expectations
• ...& there is room for further cuts if the inflation outlook holds
• ECB's Centeno: the central bank may have to accelerate the pace of rate cuts
• ...to avoid inflation falling short of forecasts
• ECB's Schnabel: Sticky Services Inflation keeps headline elevated
• Norges Bank: rates are likely to be held at 4.5% to the end of the year
• ...but the time to ease policy is 'fast approaching'
• Spain sold 4, 7 & 20yr bonds at lower yields & softer covers
• France sold 3yr bonds at lower yield & weaker coverage
• France sold 5 & 7yr bonds at firmer average yields & cover
• US 2-10yr yield spread steepened to wide since June 2022
• Dec24 BTP/OAT/Bund futures fly out to contract wide at 118 ticks
• CAC & DAX both firmed to 16 day highs
• Front month Brent futures up to a 15 day best
• Norges Bank hawkish whilst noting easing is approaching

DAY AHEAD

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