Dollar bid with Stocks and Bonds sold as CPI awaits - Newsquawk US Market Wrap

SNAPSHOT: Equities down, Treasuries down, Crude up, Dollar up
REAR VIEW: US labour costs revised further down than expected; Average US 3yr auction; Dovish RBA hold: China Imports/Exports miss expectations; JPM exe said NII outlook has firmed; Biden plans to kill Nippon & US Steel deal; WBA in talks to sell itself; KR & ACI deal blocked by Federal judge
COMING UP: DATA: US CPI. EVENTS: BoC & BCB Policy Announcement. SPEAKERS: BoC Governor Macklem, Rogers. SUPPLY: Australia, UK, US. EARNINGS: Macy's, Adobe.

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MARKET WRAP

The Dollar saw slight gains on Tuesday, albeit in pretty thin newsflow as participants await the pivotal US CPI report on Wednesday. In FX, GBP and CAD were the relative G10 outperformers, while Antipodeans lagged and weighed on by the dovish RBA hold. US indices ground lower throughout the US session with SPX, NDX, and RUT all seeing roughly similar weakness, although the latter continues to lag. Sectors were almost exclusively in the red with only Communication Services and Consumer Staples in the green as the former was the distinct gainer and buoyed by gains in Alphabet (GOOGL) (+5.7%). Real Estate and Technology lagged with the latter hit by Nvidia (NVDA) (-2.5%), Micron (MU) (-4.7%), and AMD (AMD) (-2.3%) weakness, albeit with a lack of headline newsflow. In terms of stock-specific highlights, Oracle (ORCL) (-7%) earnings and guidance disappointed, while JPM exec said the NII outlook has firmed up. On the M&A footing, Kroger's (KR) USD 24.5bln Albertsons (ACI) deal was reportedly blocked by a federal judge; Walgreens (WBA) are in talks to sell itself to Sycamore Partners, and President Biden plans to formally block the USD 14.1bln sale of United States Steel (X) (-9.7%) to Nippon Steel (NPSCY) on national security grounds. Elsewhere, the US 3yr note auction was pretty average while the US Q3 Unit Labor Costs were revised below expectations, albeit both saw little market moves.

NORTH AMERICA

UNIT LABOR COSTS: US unit labour costs for Q3 were revised lower to 0.8% from 1.9%, undershooting the expected 1.5% revision, while productivity was left unchanged at 2.2%, as expected. On the latter, Oxford Economics think the strength of productivity growth is partly a response to the tight labour market conditions over the past few years and may be seeing the start of more modest gains given the loosening in the labour market. Furthermore, and on the headline, OxEco says unit labour costs were revised lower, consistent with their view, and the Fed’s, that the labour market and wage growth are receding as a source of inflationary pressures.

BOC PREVIEW: The BoC is widely expected to cut rates on Wednesday 11th December, with the consensus looking for another 50bps rate cut, but with a risk of a smaller 25bp move. Recent data has been mixed, the latest inflation report was hotter than forecast while growth data disappointed. However, the November jobs report saw a notable rise in the unemployment rate, which led to a dovish shift in expectations towards a 50bps move. Before the jobs report, market pricing was more split between a 25 or 50bps move, but now prices in 47bps of easing, implying an 88% probability of such a move, with a 12% probability of a 25bps cut. The Reuters survey also noted that many economists shifted to a 50bps rate cut view after the jobs report. The prior BoC meeting saw the central bank cut rates by 50bps, a decision made to support economic growth and keep inflation close to the middle of the 1-3% target range. Participants have been questioning whether the BoC will go ahead with another 50bps rate cut to support economic growth, or perhaps slow to a 25bps rate cut due to the recent uptick in inflation, but the recent jobs report has seen these expectations lean towards the more dovish outcome. Note, the policy announcement and Governor Macklem's text will be released at 14:45GMT/09:45EST, ahead of the 15:30GMT/10:30EST press conference. There will be no update to the Monetary Policy Report and economic forecasts at this meeting. To see the full Newsquawk preview, please click here.

FIXED INCOME

T-NOTE (H5) FUTURES SETTLED 5+ TICKS LOWER AT 111-00

T-Notes bear steepened ahead of CPI and supply while NFIB Business Optimism improved, labour cost revisions were soft but productivity revisions were steady. At settlement, 2s +2.0bps at 4.147%, 3s +2.4bps at 4.110%, 5s +2.8bps at 4.098%, 7s +3.1bps at 4.161%, 10s +2.9bps at 4.228%, 20s +2.7bps at 4.497%, 30s +3.0bps at 4.420%

INFLATION BREAKEVENS: 5yr BEI +2.4bps at 2.375%, 10yr BEI +3.1bps at 2.296%, 30yr BEI +3.1bps at 2.255%.

THE DAY: T-Notes continued to see pressure following the weakness on Monday ahead of Treasury supply and as participants turn their eye to the US CPI report due on Wednesday. The CPI report will be viewed as a way to further cement expectations for the FOMC December meeting, where a 25bps rate cut is expected. The latest Fed poll saw that 93/103 economists expecting this to be the case, with most expecting a pause in January. Money markets currently assign an 82% probability of a 25bp cut in December, with an 18% probability of rates being unchanged - a hot CPI print may see markets start to price in an unchanged decision with greater certainty, with many on the Fed saying they are waiting for the inflation data before making up their mind, but an inline or cool print will likely cement a 25bps rate cut. The US data releases saw a strong NFIB Business Optimism index, which did weigh on T-Notes at the time but steady productivity and labour cost data put a brief pause in the selling pressure, before likely concession took place ahead of the 3yr auction (more below).

3YR:

US sold USD 58bln of 3yr notes, which saw a tail of 0.1bps, better than the prior 0.9bps tail, but not quite as good as the six-auction average of on-the-screws. Bid-to-cover was 2.58x, marginally less than the prior 2.6x, but ever-so-slightly higher than the average of 2.56x. Dealers took 15.1%, less than last time out and the average (prev. 19.8%, avg. 16.6%), but Directs took more at 20.7% (prev. 9.6%, avg. 17.1%). Lastly, Indirects took 64.2% notably lower than the prior 70.6%, but more-or-less unchanged from the average of 66.4%.

THIS WEEK SUPPLY: US Treasury to sell USD 39bln of 10yr notes on Dec 11th and USD 22bln in 30yr bonds; all to settle Dec 16th (sizes as expected).

STIRS:

Market Implied Fed Rate Cut Pricing: December 21bps (prev. 21bps), January 27bps (prev. 28bps), March 44bps (prev. 45bps).
US sold USD 70bln of 42-day CMBs at 4.320%, covered 2.67x
US to sell USD 64bln of 17-wk bills on December 11th, and to sell USD 80bln of 4-wk bills and USD 75bln of 8-wk bills on December 12th; all to settle on December 17th
NY Fed RRP op demand at USD (prev. 153bln) across counterparties (prev. 52).
SOFR at 4.63% (prev. 4.60%), volumes at USD 2.305tln (prev. 2.277tln).
EFFR at 4.58% (prev. 4.58%), volumes at USD 100bln (prev. 107bln).

CRUDE

WTI (F5) SETTLED USD 0.22 HIGHER AT 68.59/BBL; BRENT (G5) SETTLED USD 0.05 HIGHER AT USD 72.19/BBL

The crude complex saw marginal gains, albeit sold off into settlement, despite strength continuing from Monday for a large duration of the session after the Chinese Politburo helped sentiment. Newsflow for the energy space was sparse, as traders await the pivotal macro releases later in the week, in the form of US CPI (Wed) and PPI (Thurs) ahead of the FOMC next week. Nonetheless, the EIA STEO sees 2024 world oil demand at 103.03mln BPD (prev. forecast of 102.6mln BPD), with 2025 at 104.32mln BPD (prev. 104.7mln BPD). On the supply footing, the crude unit at BP (BP/ LN) Rotterdam oil refinery (200k BPD) shut on December 10th due to an electrical issue and is expected to restart by December 11th. Ahead, private inventory data after-hours is the next risk event whereby expectations are (bbls): Crude -0.9mln, Distillate +1.4mln, Gasoline +1.7mln.

EQUITIES

CLOSES: SPX -0.30% at 6,035, NDX -0.34% at 21,368, DJIA -0.35% at 44,248, RUT -0.42% at 2,383.

SECTORS: Real Estate -1.63%, Technology -1.26%, Materials -0.93%, Utilities -0.82%, Energy -0.62%, Health -0.46%, Industrials -0.22%, Financials -0.11%, Consumer Discretionary +0.14%, Consumer Staples +0.5%, Communication Services +2.61%.

EUROPEAN CLOSES: DAX: +0.02% at 20,349, FTSE 100: -0.86% at 8,280, CAC 40: -1.14% at 7,395, Euro Stoxx 50: -0.68% at 4,952, AEX: -0.15% at 893, IBEX 35: -0.38% at 11,966, FTSE MIB: -0.10% at 34,525, SMI: -0.95% at 11,642, PSI: -0.19% at 6,343.

EARNINGS

Oracle (ORCL): Profit and revenue lagged forecasts and profit guidance disappointed.
MongoDB (MDB): COO and CFO Michael Gordon to step down, although it did beat on earnings for the quarter and raised guidance.
AutoZone (AZO): EPS and comparable sales fell short.
HealthEquity (HQY): FY25 revenue outlook underwhelmed.
Toll Brothers (TOL): 2025 adj. home sales gross margin was marginally short, but did beat on most major metrics for the quarter.

STOCK SPECIFICS

JPMorgan (JPM): Executive said NII outlook has firmed up and expects 2025 NII to be about USD 2bln higher. Sees Q4 NII and expenses a little bit better than consensus. IB fees will increase about 45% vs. last year in Q4..
TMSC (TSM): Combined October and November sales were up 31.4%, below the expected
Micron Technology (MU): White House said the Commerce Department has invested over USD 6.1bln in Micron.
SiriusXM (SIRI): Announced an additional USD 200mln of annualised savings exiting 2025 and sees FY25 revenue below the St. consensus.
Eli Lilly (LLY): Announced a USD 15bln share repurchase programme and a +15% increase in its quarterly dividend to USD 1.50/shr.
Boeing (BA): Restarted production of its 737 MAX jetliner last week, via Reuters sources.
Alaska Air (ALK): Raised Q4 EPS guidance, with 2025 profit guidance above expectations; announced 2025 share buybacks of ~ USD 250mln.
Fluence Energy (FLNC): Announced USD 300mln convertible senior notes offering due 2030.
Arthur J. Gallagher (AJG): 30.4mln shares secondary offering, priced at USD 280.00.
eBay (EBAY): Downgraded at Jefferies and says firm's decelerating advertising revenue combined with increased marketing investments for "sluggish" profit growth and downside to consensus estimates.
Boeing (BA): Reported 370 orders net of cancellations/conversions through 30th November. November deliveries of 13 commercial jets incluing 9 737 MAX jets., 427 gross aircraft orders through November 30th, and 49 gross aircraft orders in November.
Goldman Sachs (GS) - CEO Solomon said the shift in the admin which is more growth focused will be good for its business and bank expects a more constructive environment from a regulatory perspective; 2025 investment banking activity maybe at or ahead of 10yr averages.
Tesla (TSLA): Reportedly resumed the search for a showroom space in Indian capital New Delhi, in talks with India's largest real estate developer DLF for a showroom space, according to Reuters citing sources.
Walgreens (WBA): Reportedly in talks to sell itself to Sycamore Partners, via WSJ.
Warner Brothers Discovery (WBD): Executive said Max is to launch in UK, Iyaly and Germany in 2026.
Apple (AAPL): To bring Globalstar satellite connections to Smartwatch, via Bloomberg.
Kroger (KR): The USD 24.5bln Albertsons (ACI) deal was blocked by a federal judge.
US Steel (X): President Biden plans to formally block the USD 14.1bln sale of US Steelto Nippon Steel (NPSCY) on national security grounds once the deal is referred back to him later this month, according to Bloomberg citing sources.

US FX

The Dollar was stronger against most peers as US news continued to be thin ahead of US CPI on Wednesday. The DXY saw a third consecutive session of gains, reaching highs of 106.63, benefitting from EUR, CHF, JPY, and AUD weakness, with higher US yields supporting in the background. Separately, Unit Labour Costs were revised down in Q3 to 0.8% (exp. 1.5%) while Productivity was unrevised; little reaction was seen in the buck. Ahead the focus will be on US CPI on Wednesday, where monthly expectations are 0.3% for the headline and core figures, while Core Y/Y is seen rising 3.3% and the headline by 2.7% Y/Y. As it stands, money markets price a ~85% chance of a 25bps rate cut at the Fed's December meeting. The latest Reuters poll, unveiled 93/103 of economists surveyed see the Fed cutting the FFR by 25bps at the December meeting; 56/97 see the Fed cutting rates to 3.50-3.75% or lower by the end of 2025. Meanwhile, November's Federal Budget is due, expectations are for a 353bln deficit (prev. -257bln).

GBP and CAD were the only G10 currencies to strengthen against the Dollar, as quiet newsflow dominated the space, whereas the remaining constituents weakened, with Antipodes the bottom dwellers. The highlight was the RBA, which held rates as expected at 4.35% for the ninth straight meeting. However, the central bank struck a dovish tone, with the Board gaining some confidence that inflation is moving sustainably towards the target, sparking Aussie weakness; AUD/USD dropped below 0.63. Regarding AUD/NZD, Rabobank believes the weakness of the New Zealand economy and risk for further aggressive rate cuts from the RBNZ suggests that fundamentals are not supportive of much additional outperformance of the NZD vs the AUD. "We expect a bounce back to the AUD/NZD 1.12 area on a 1-to-3-month view."

Going forward, the CAD is the centre of attention ahead of the BoC announcement on Wednesday, with expectations for a consecutive 50bps cut (~92% chance priced in). A Reuters survey noted that many economists shifted to a 50bps rate cut view after the jobs report which saw a notable rise in the unemployment rate. For a BoC Newsquawk preview, please click here.

Elsewhere, the NOK failed to capitalise on a hotter-than-expected CPI November release, as the initial downside in EUR/NOK later pared. Note, the monthly figures continued to show disinflation despite beating the forecasts. That said, NOK/SEK managed a rebound from December lows to above 0.98.

EMFX: In China, exports and imports both fell short of forecasts, although the value of outbound shipments hit its highest amount in over two years as some manufacturers front-loaded orders in anticipation of additional tariffs from the US in the upcoming Trump administration. Weak domestic demand also weighed on imports which experienced the steepest drop in 9 months; CNY strength continued from Monday into overnight trade. In CEE, inflation from Hungary and Czech came in cooler-than-forecasts on all bases; HUF underperformed CZK, losing ground against the USD and EUR, in particular the latter, while CZK eked out gains versus the buck. Regarding LatAm, BRL saw large gains at the open, though pared over half of the upside seen, with hotter-than-expected IPCA inflation metrics helping. Ahead lies the BCB's Selic rate decision, where expectations are for a 75bps hike.