MNI ASIA MARKETS ANALYSIS - Moderna's Turn For Risk-On Spotlight

FED: JPMorgan Now Sees Tsy Maturity Extension At Dec FOMC

JPMorgan now sees the FOMC opting to extend the maturity of Treasury purchases at the next meeting in December.

• JPM cites the surge in COVID cases as presenting a "considerable downside risk" to the near-term economic outlook, and "recent Fed rhetoric [indicating] growing concern about the months between now and when a vaccine is widely available".
• With Powell at the November pressure suggesting that the acceleration of COVID cases may spur the Fed and Congress to "do more", JPM sees the FOMC finding consensus on the approach suggested by Boston Fed Pres Rosengren [as per his interview with MNI of Nov 10: "Fed's Rosengren Favors Longer QE Duration"] which is to lengthen the weighted average maturity of Treasury purchases while keeping the monthly buying pace at $80bn.
• This could involve a doubling of the current weighted average maturity, per JPM rate strategists.
• The case for doing more on asset purchases would be further supported if the Fed board runs into challenges in extending 13-3 lending facilities past their Dec 31 expiry date.
• Rosengren told MNI on Nov 10: "The preferred step in my view would be to change the duration rather than increase how much we purchase...It could be done either by purchasing more at the long-end of what we are currently purchasing or do something more like an 'Operation Twist,' where we are selling some of our short-term securities and buying some of our long-term securities."

US TSY SUMMARY

Risk assets get a boost, much like a week ago. Tsys gapped lower, equities plowed higher (ESZ0 +48.0) on back of Moderna headlines: vaccine more stable at normal refrigerated temps (36F-46F) and for longer period (30 days) as well as near 95% efficacy compared to Pfizer's 90%.

• Ostensibly better news, markets did not react anywhere near with as much euphoria as last week: Tsy futures recovered half the initial move and traded sideways through the close while equities looked to finish higher on the day were back near pre-announcement levels in late trade (ESZ0 +32.0).
• Sources posited the reason for the lack of follow through is that as chances of a vaccine grow, chances of additional fiscal remedies decline. Needless to say, the surge in cases globally is still going to weigh on economies while markets await distribution of a vaccine to the broader populace.
• Multiple fed speakers this week, little react Mon w/Clarida underscoring lower for longer, yield curve control in their toolkit but not needed at the moment. The 2-Yr yield is down 0.2bps at 0.1771%, 5-Yr is up 0bps at 0.4063%, 10-Yr is up 0.8bps at 0.9045%, and 30-Yr is up 1.1bps at 1.6582%.

US TSYS: Short Term Rates

US DOLLAR LIBOR: Latest settles

• O/N +0.00038 at 0.08363% (+0.00062 last wk)
• 1 Month +0.00712 to 0.14350% (+0.00863 last wk)
• 3 Month -0.00162 to 0.22038% (+0.01612 last wk)
• 6 Month +0.00300 to 0.24900% (+0.00262 last wk)
• 1 Year +0.00025 to 0.33963% (+0.00605 last wk)

• Daily Effective Fed Funds Rate: 0.09% volume: $57B
• Daily Overnight Bank Funding Rate: 0.09%, volume: $165B

• Secured Overnight Financing Rate (SOFR): 0.09%, $904
• Broad General Collateral Rate (BGCR): 0.07%, $344
• Tri-Party General Collateral Rate (TGCR): 0.07%, $315
• (rate, volume levels reflect prior session)

• Tsy 4.5Y-7Y, $6.001B accepted vs. $18.843B submission
• Next scheduled purchases:
• Tue 11/17 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Tue 11/17 1100-1120ET: Tsy 2.25Y-4.5Y, appr $8.825B
• Wed 11/18 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
• Thu 11/19 1010-1030ET: Tsy 7Y-20Y, appr $3.625B
• Fri 11/20 1010-1030ET: Tsy 0Y-2.25Y, appr $12.825B

EGBs-GILTS CASH CLOSE: Recovery After Vaccine Jab

Bunds and Gilts were hit by a promising Moderna COVID vaccine report around midday GMT hurting safe havens, but yields settled back down as exuberance waned. Periphery spreads tightened modestly on the day.

• A fairly quiet session apart from the vaccine news - ECB speakers basically reiterated what we already anticipated about the Dec meeting (e.g. de Cos noting TLTROs and PEPP are under discussion), while there was no new clarity on the state of the ongoing Brexit talks.
• Tuesday sees appearances by BOE's Bailey and Ramsden, and ECB's Lagarde. Germany sells E5bn of Schatz and the UK sells GBP5.25bn in 2024 and 2050 Gilts.

Closing Levels / 10-Yr Periphery EGB Spreads:

• Germany: The 2-Yr yield is up 0.6bps at -0.721%, 5-Yr is up 0.4bps at -0.732%, 10-Yr is up 0.2bps at -0.545%, and 30-Yr is down 0.7bps at -0.135%.
• UK: The 2-Yr yield is up 0.2bps at -0.025%, 5-Yr is up 0.4bps at 0.019%, 10-Yr is up 1.1bps at 0.349%, and 30-Yr is up 1.9bps at 0.945%.
• Italian BTP spread down 1.5bps at 119.7bps
• Spanish bond spread down 1.4bps at 64.4bps
• Portuguese PGB spread down 1.2bps at 62.2bps
• Greek bond spread down 4.1bps at 126.3bps

EUROPEAN OPTIONS SUMMARY: Mixed Rates Trades

Today's options flow included:

• RXF1 176p/179c^^, sold at 64 in 1.2k
• ERM2/0RM1 100.50^, sold at 8.75 in 750
• ERU2 100.50^, sold at 25.5 in 500
• 0LG1 100.125 call bought for up to 1.25 in 5k (v 99.93)

FOREX: Moderna Update Sees AUD, NZD Outperform

News that Moderna's vaccine candidate was found to have a 95% efficacy rate sent stocks soaring ahead of the Monday open, putting the S&P 500 on track to clock a record high close. This filtered through into USD sales, favouring high beta currencies and putting the likes of AUD and NZD at the top of the G10 board.

USD sales but the USD index at its lowest levels since last Monday, and a further 0.5% decline from here would see the index touch levels not seen since the start of September.

GBP traded poorly, with the ebb and flow of Brexit news still proving to be the primary driver. EU diplomatic sources noted that gaps remain between the two sides - no surprise after UK's chief negotiator Frost confirmed there would be no change in approach after the staff turnover in Downing Street last week.

Focus Tuesday turns to the RBA minutes and US retail sales & industrial production data. Central bank speak includes RBA's Debelle, BoE's Bailey, ECB's Lagarde and BoC's Macklem.

OPTIONS: Expiries for Nov17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1700-20(E1.4bln), $1.1830(E881mln), $1.1850(E2.0bln-EUR calls), $1.1895-1.1905(E1.2bln)
• USD/JPY: Y104.00-09($516mln), Y105.00($556mln)
• EUR/GBP: Gbp0.8900(E923mln), Gbp0.9050(E804mln)
• USD/CAD: C$1.3195-00($645mln)

EQUITIES: Reflation Trades Back as S&P500 Surges On Moderna Update

Equities surged globally Monday, with the S&P500 adding well over 1% to trade on track to secure a record close after Moderna's release showed their virus candidate had a 95% efficacy rate.

Reflation trades seen in the wake of the Pfizer release last Monday were repeated, leading energy, financials and industrials to outperform at the expense of healthcare and tech. Once again, firms with particular sensitivity to COVID including Carnival, Simon Property Group and Boeing surged, while Electronic Arts and Activision Blizzard lagged.

The VIX traded heavy, leaving the index close to multi-month and post-Coronavirus crisis lows.

PIPELINE: Goldman Sachs Lead

$9.5B To Price Monday

• Date $MM Issuer (Priced *, Launch #)
• 11/16 $2.5B #Goldman Sachs $2B 3NC2 +45, $500M FRN SOFR+54
• 11/16 $1.75B #Phillips 66 $450M +3NC1 FRN L+62, $800M +3NC1 +70, $500M +5Y +90
• 11/16 $1.6B #Georgia Pacific $900M +3Y +40, $700M +5Y +55
• 11/16 $1B #Avalon Holdings +5Y +385
• 11/16 $1B FFCB 2Y
• 11/16 $650M #Athene Global Funding 10Y +165
• 11/16 $500M *Kommunalbanken 2Y tap, +3
• 11/16 $500M #Guardian Life 7Y +65

COMMODITIES: WTI Shows Above $41/bbl

The energy complex outperformed Monday, with the weak USD backdrop helping support oil prices alongside a statement from OPEC+'s JTC, who suggested delaying the group's planned output hike by as much as six months. This could curb supply hitting the market in the first half of 2021 by as much as 2mln bpd.

Gold was hit hard on Moderna headlines disclosing their vaccine candidate was found to have a 95% efficacy, slipping around $30/oz before rallying into the close on USD weakness. Bulls are still clearly finding trouble topping $1900/oz, after failing twice Monday.