Market 01/10: 10Y Treasury auction not promising

Public debt and macro risks weigh heavily on the US 10Y Treasury auction session.

Today's 10Y Treasury auction results not too favorable for the US Treasury:

• Highest accepted yield (High Yield): 4.024% – up to 44.07% of auction participants demanded this high yield! 

  => It seems the public debt issue is affecting the US government's borrowing costs:

  • … this auction's High Yield higher than the pre-auction free market yield: 4.019% => tails: 15bps (i.e., bond sale price lower than market price).

=> Market demand for US 10Y Treasury bonds is weakening day by day:

• Over the past more than 1 year, only 3 T-bond 10Y auctions reached stop-through (or traded-through) (auction bond sale price higher than free market price).

• And this is the 11th consecutive tails auction for the 10Y bond.

• Total successful auction value: USD 37 billion.

• Bid-to-Cover ratio: 2.56 (up from previous auction: 2.53%) - highest since February 2023.

• Indirects (foreign bidders): 66.1% (up from previous 63.8% but still below average of 66.7%)

• Direct (domestic bidders): 18.7% (equivalent to the average of 18.8%).

• Dealers take the remaining bonds 15.1% (higher than the average of the last 6 auctions at 14.5%) …

  => another sign of weak demand for the benchmark 10Y bond.

• Read more: Things to know about US Government Treasury Auctions.

• The entire market is anxiously awaiting tomorrow's 30Y Treasury auction.

Update on banks' December CPI forecasts ahead of release

Wall Street banks expect:

• Core CPI +0.27% m/m and 3.9% y/y => Down from November 2023.

• Headline CPI +0.3% m/m and 3.3% y/y => Up from November 2023.

WTI oil price slides - Cushing inventory down for first time since October

Update on gasoline and oil inventory data:

API

• Crude oil -5.125 million barrels (expected -600,000)

• Cushing -625,000

• Gasoline +4.896 million barrels (expected +2.1 million barrels)

• Distillates +6.873 million barrels (expected +1.0 million)

DOE

• Crude oil +1.2338 million barrels (expected -600,000)

• Cushing -506,000 - first decline since 10/23

• Gasoline +8.028 million barrels (expected +2.1 million barrels)

• Distillates +6.528 million barrels (expected +1 million barrels)

Government added +606,000 barrels to Strategic Petroleum Reserve (SPR) last week - 4th consecutive week of SPR inventory increase

• Cushing inventories rise to highest since July 2023.

• US crude production unchanged, still at record high.

• WTI fluctuates just above $73 before official report and slips lower after surprise build

• US benchmark’s prompt spread - indicator of supply-demand, shifted to backwardation (i.e., spot price > futures price) for the first time since November.

November wholesale inventories dip slightly, consumer goods imports rise

• November wholesale inventories -0.2% M/M

• Sales flat m/m (but revenues -1.3% M/M).

Consumer goods imports improved with significant increase:

• Consumer goods import y/y growth returned to 0.44% - equivalent to previous recoveries after sharp drops.

Hewlett Packard Enterprise buys Juniper Networks for $14 billion

• Acquisition price: $40/share → deal worth ~$14 billion

• HPE's sales network doubles

  • And saves $450 million in costs (cost synergies) over 3 years.

• Deal to close late 2024 or early 2025

Other news

1. VinFast targets eligibility for US tax credits in 2025.

   • VinFast is currently building a factory in North Carolina.

2. Magnificent 7 market cap now FOUR TIMES that of Russell 2000.

• Microsoft's market cap alone equals the entire Canadian stock market

• Total Magnificent 7 market cap equals UK, Canada, and Japan stock markets combined

3. World Bank expects China's growth to slow to 4.5% in 2024 — lowest in over three decades (excluding Covid period).

4. Japan's Nikkei 225 stock index rises above 34,000 for the first time since March 1990.

• Along with hitting 33-year high, Japanese stock market now up 120% from 2020 lows.

5. Nvidia market cap +$130 billion in just 6 trading days in 2024

• As of today, stock officially up 400% from 2022 lows.

• In 2 years, Nvidia went from top 30 largest market cap to 6th largest public company in the world.

6. Flows into US large-cap ETFs nearly $1 billion last week (8th straight week of ETF inflows)

7. For the first time in history, China's FDI sees net outflows for the full year from foreign investors

8. US experiences fastest financial conditions easing in history over the past 2 months.

   • This also explains why markets continue to bet on high-risk financial assets.

9. Amazon cuts hundreds of jobs at Prime Video and MGM Studios