Limited Asia Futures Trade

TYM2 is -0-06+ at 118-30+, 0-01 off the base of its 0-12 overnight range, operating on under 65K lots. Cash Tsys are closed until London hours owing to the observance of a Japanese holiday, while there hasn’t been much in the way of meaningful macro news flow to digest during Asia hours.

• Two-way, but limited, trade was evident overnight with an early bid in Tsy futures reversing. TYM2 had a brief look above its NY session high after regional Fed follow through, a weak post-holiday start for Chinese tech names and a bid in the ACGB market were penned as potential driving factors for the early, limited richening in futures, before a pullback took place as the ChiNExt moved away from worst levels.
• A quick reminder that Fed Chair Powell’s pushback against the idea of a 75bp rate hike and guidance towards 50bp hikes at the next couple of FOMC meetings meant that short-end rates unwound a little of the embedded rate hike premium that could be observed pre-FOMC, resulting in bull steepening of the Tsy curve into the NY bell.
• Softer than expected Chinese services PMI data provided no real tangible impact on the space. Although the reading was much softer than expected (36.2 vs. BBG median of 40.0, representing the fastest rate of contraction observed since the initial COVID outbreak in early ‘20) the market was already looking for a weak print given the well-documented, localised COVID restrictions that have been implemented in China. The key findings of the survey largely reflected knowns. The details revealed the quickest fall in service sector output for over two years as COVID-19 restrictions tighten, a decline in new business gathering pace & a slight fall in employment. Still, Caixin noted that “businesses were moderately optimistic. Even as regional Covid-19 outbreaks dragged on, entrepreneurs were confident that they would be brought under control, although some worried that the control measures would last too long."
• Looking ahead, the latest BoE decision will be eyed during Thursday’s London/NY crossover. The MNI markets team expects a 25bp hike. We think that the biggest thing that could impact market pricing re: the BoE would be the removal of “coming months” from the forward guidance.
• NY hours will bring the release of weekly jobless claims data, challenger job cuts, as well as the monthly productivity and unit labour cost metrics.