MNI ASIA MARKETS ANALYSIS: Neutralizing Omicron

US TSYS: Omicron? There's a Vacc For That

• Not quite the risk-on move some had hoped for: equities sat this one out, trading only modestly higher late in the day (EDZ1 +10.5 at 4695.5), Gold gained 2.0 and WTI crude held around 72.40.
• Early trade, trading desks reported domestic real$ buying 2-3s, leveraged accts buying 5s after chunky 5Y futures block sales (-16.9k) and sell-stops triggered on first and second downdrafts.
• Yield curves bear steepened/bonds extending session lows after huge JOLTS openings rate of 11.033M -- near record high, quits rate 2.8%. Equities holding near steady (ESZ1 4685.0 last). Trading desks report domestic and foreign real$ selling 10s and 30s. Central bank bought 2s, contributing to bear steepener.
• Tsy had firmed off session lows in lead-up to the Tsy auction, drew modest two-way after $36B 10Y note re-open (91282CDJ7) tailed slightly:1.518% high yield vs. 1.515% WI; 2.43x bid-to-cover better than last month's 2.35x but still shy a 2.51x 5-month average.
• The 2-Yr yield is down 1.6bps at 0.6735%, 5-Yr is down 0.2bps at 1.2532%, 10-Yr is up 2.9bps at 1.5024%, and 30-Yr is up 6.9bps at 1.8716%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00550 at 0.07025% (-0.00625/wk)
• 1 Month -0.00063 to 0.10138% (-0.00275/wk)
• 3 Month +0.00225 to 0.20050% (+0.01287/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00475 to 0.28813% (+0.01700/wk)
• 1 Year +0.00625 to 0.48875% (+0.02725/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $74B
• Daily Overnight Bank Funding Rate: 0.07% volume: $257B

• Secured Overnight Financing Rate (SOFR): 0.05%, $989B
• Broad General Collateral Rate (BGCR): 0.05%, $349B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $338B
• (rate, volume levels reflect prior session)

• Tsy 2.25Y-4.5Y, $7.351B accepted vs. $19.865B submission
• Next scheduled purchases -- two for Thursday:
• Thu 12/09 1010-1030ET: Tsy 0Y-2.25Y, appr $10.875B
• Thu 12/09 1100-1120ET: Tsy 10Y-22.5Y, appr $1.425B
• Fri 12/10 1010-1030ET: Tsy 7Y-10Y, appr $2.825B

FED Reverse Repo Operation

NY Fed reverse repo usage rebounds to $1,484.192B from 71 counterparties vs. $1,455.038B on Monday. Record high remains at 1,604.881B from Thursday, September 30.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +20,000 Blue Mar 97.87/98.12 put spds, 8.5 vs. 98.215/0.16%
• +5,000 Red Dec'22 98.62/98.87 put spds 5.5 over 99.50/99.62 call spds vs. 98.97/0.20%
• +2,000 Green Jun 99.37/99.50 call spds, 0.5
• 3,000 Green Sep 97.25/97.37 put spds
• +20,000 short Jun 97.75/98.25 put spds, 11.5
• +5,000 Blue Jun 97.75/98.00 put spds, 7.5
• +5,000 Apr 99.12 puts, 4.25
• Update, +15,000 Mar 99.25/99.43/99.50/99.62 put condors, 2.5
• -4,000 Jun 99.00 puts, 4.5
• Overnight trade
• 10,000 Blue Dec 98.25 puts
• 3,500 short Jan 98.43/98.56 put spds
• 6,000 short Dec 98.87 puts
• 1,500 short Dec 98.81/98.93 2x1 put spds

• -5,000 TYH 128/133 strangles, 44
• -7,500 TYG 128.5/132 strangles, 34-35
• Update, -18,100 FVG 121 calls, 16
• +7,000 TYG 125.5/128/129/130 put condors 1 over TYG 132/133.5 call spds on screen
• Overnight trade
• 20,000 TYF 128.5 puts, 3
• 10,000 TYF 128/128.5 put spds, 2

EGBs-GILTS CASH CLOSE: Gilts Outperform On "Plan B"

Gilts easily underperformed Bunds Wednesday, with periphery spreads also widening.

• UK yields had fallen sharply by late morning following reports that the gov't would move to "Plan B" Covid restrictions, but the move fully reversed and then some after a promising Omicron efficacy report just before midday from vaccine-makers Pfizer/Biontech.
• The latter saw 10Y Bund yields rise nearly 10bp from the low over the afternoon.
• No particular trigger for BTP weakness, but some big cash selling noted in the morning set off spread-widening (and equities weakened over the session, so modestly risk-off).
• ECB's Schnabel noted the bank would not hike before ending net asset purchases (contrasting w Holzmann's comments earlier in the week).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.5bps at -0.676%, 5-Yr is up 4.6bps at -0.555%, 10-Yr is up 6.2bps at -0.313%, and 30-Yr is up 7.7bps at -0.016%.
• UK: The 2-Yr yield is unchanged at 0.462%, 5-Yr is up 1bps at 0.582%, 10-Yr is up 4.5bps at 0.775%, and 30-Yr is up 3.4bps at 0.837%.
• Italian BTP spread up 4.3bps at 133.9bps / Greek up 6bps at 169.6bps

EGB Options: German Put Spreads And Vol Trades

Wednesday's Europe rates / bond options flow included:

• RXF2 173.5/172.0 1x2 put spds, 12.5 paid in 2k
• DUG2 112.0/112.3 strangle, 10.5-12.0 paid in 4.5k
• DUG2 112.00/111.90ps, bought for 2 in 2k

FOREX: Greenback Under Pressure As Aussie Extends Gains

• The dollar index fell 0.45% on Wednesday, turning negative on the week, largely resulting from strong performances in CNH, AUD and the Euro.
• Commodity and risk-tied currencies remain optimistic, evident by the near 1% rallies in both AUDJPY and EURJPY.
• With the greenback weakness, AUDUSD has further distanced itself from major noted support below the 0.7000 mark and is now closing in on the 20-day EMA, at 0.7187. A clear breach of this average would strengthen the current bull phase.
• EURUSD has bounced well from the day’s low at 1.1267 and is now trading towards the upper bound of last week’s range. Key short-term resistance is unchanged at 1.1383, Nov 30 high where a break would signal scope for a stronger corrective bounce and open 1.1514, Nov 5 high.
• USDCAD had trended lower ahead of the Bank of Canada rate announcement, however, a marginally dovish-to-expectations statement prompted a 50-pip bounce for the pair, in the face of dollar weakness.
• GBP came under pressure following reports that the Government are set to announce further covid restrictions. ‘Plan B’ is widely expected to have a working from home which spooked GBPUSD to fresh 2021 lows below 1.3200 to a low print of 1.3163. The pair has since bounced amid a weaker dollar, however, remains lower on the day with EURGBP up 0.77%.
• EURGBP’s recent breach of 0.8544, 76.4% of the Nov 5 - 22 sell-off has prompted an extension towards a key short-term resistance at 0.8595, the Nov 5 high.
• Chinese CPI/PPI scheduled overnight, before a light European and US calendar ahead of Friday’s US CPI data. BOC’s Gravelle is due to speak about the Economic Progress Report with a Q&A expected.

FX: Expiries for Dec09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1380-00(E978mln), $1.1425(E534mln), $1.1560-70(E1.1bln)
• USD/JPY: Y113.00-25($1.6bln), Y114.00-20($2.4bln)
• EUR/GBP: Gbp0.8550-60(E694mln)
• AUD/USD: $0.7250-60(A$567mln)
• USD/CNY: Cny6.34($2.3bln), Cny6.43($1.1bln); Cny6.3500($1.8bln)

EQUITIES: Markets Fade Off Vaccine-Induced Highs

• Equity markets faded off their highs into the Wednesday close, with the cash S&P500 dipping just below unchanged following the London close. Stock futures enjoyed an initial boost from a Pfizer/BioNTech press release which talked up the likelihood of a three jab regime protecting effectively against the new omicron variant. Sentiment faded from there, with weight in consumer staples and financials dragging headline indices across the US morning.
• Bearish pressure in the S&P E-minis has eased significantly this week and the contract rallied sharply higher Tuesday. Futures are once again back above the 50-day EMA, at 4569.94 today. This average highlights a pivot level and a stronger recovery through it would improve conditions for bulls. The focus is on 4717.00 next, the Nov 26 high ahead of the all-time high of 4740.50. Key support and the bear trigger is at 4492.00, the Dec 3 low.

COMMODITIES: Oil Sees Further Support From Vaccine Efficacy

• Oil futures are up a little over 1% today, supported by various positive headlines from Pfizer relating to three vaccine effectiveness against Omicron. This is a relatively modest move after sizeable rises over the past two days.
• US DOE inventories were mixed, with crude inventories seeing a smaller draw than forecast at -241k barrels but sizeable builds in both gasoline and distillates.
• WTI is +1.3% at $72.98, very close to the 20-day EMA of $73.07 whilst initial firm support lies at $65.60 (Dec 3 low). Latest price gains have been predominantly in shorter-dated contracts.
• Brent is +1.1% at $76.28, at the first resistance level of $76.27 (Dec 7 high) whilst first support is tighter at $73.20 (Dec 7 low).

• Gold meanwhile is flat at $1784.4. Short-term conditions remain bearish after breaching both the 20- and 50-day EMAs with attention on the base of a bull channel at $1763.8, drawn off the Aug 9 low.