MNI ASIA MARKETS ANALYSIS: Fed Bullard: Four Hikes Likely in '22

US TSYS: CPI As Exp; Bullard Cites Inflation For Likely Mar Hike, Four in '22

• Not much fanfare to largely in-line Dec CPI: CPI 0.5%, CORE 0.6%; CPI Y/Y 7.0%, CORE Y/Y 5.5%. Markets had priced in higher inflation metrics already, delayed rally in rates and equities as measure not much worse than expected. US$ to two-month lows, however (DXY -.685 to 94.939).
• Cross asset inflation observations -- CRUDE OIL INVENTORIES FELL 4.55 MLN BARRELS, EIA vs. exp decline of 1.85 million barrels. West Texas crude surged to near 83.0 (82.94H).
• Tsy futures pare gains after $36B 10Y note auction re-open (91282CDJ7) tailed slightly again: 1.723% high yield vs. 1.719% WI; 2.43x bid-to-cover better than last month's 2.43x but still shy a 2.51x 5-month average
• Indirect take-up falls to 65.53% (lowest since July) vs. Dec's 68.84%; direct bidder take-up highest since June at 17.86% while primary dealer take-up bounces to 16.61% vs. 13.37% prior.
• The 2-Yr yield is up 2.6bps at 0.9089%, 5-Yr is up 0.2bps at 1.5007%, 10-Yr is down 0.2bps at 1.734%, and 30-Yr is up 2bps at 2.0817%.

SHORT TERM RATES

US DOLLAR LIBOR: Settlement resumes:

• O/N -0.00014 at 0.07729% (+0.00458/wk)
• 1 Month -0.00286 to 0.11014% (+0.00485/wk)
• 3 Month +0.00614 to 0.24443% (+0.00829/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month -0.00243 to 0.38371% (+0.00728/wk)
• 1 Year +0.00357 to 0.69914% (+0.03743/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $71B
• Daily Overnight Bank Funding Rate: 0.07% volume: $260B

• Secured Overnight Financing Rate (SOFR): 0.05%, $935B
• Broad General Collateral Rate (BGCR): 0.05%, $358B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $338B
• (rate, volume levels reflect prior session)

• Tsy 22.5Y-30Y, $1.799B accepted vs. $3.364B submission
• Next scheduled purchases:
• Thu 01/13 1010-1030ET: Tsy 2.25Y-4.5Y, appr $6.325B
• Thu 01/13 1500ET: Updated NY Fed Operational Purchase Schedule

FED Reverse Repo Operation

NY Fed reverse repo usage bounces to $1,536.981B (78 counterparties) vs. $1,527.020B on Tuesday.
Remains well off all-time high of $1,904.582B on Friday, December 31.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• -10,000 Sep 98.93/99.06 put spds, 5.25
• Update, +12,000 May 98.87/99.12/99.18 broken put trees, 0.25 ref: 99.315
• +10,000
• Update, appr -20,000 Jun 99.06/99.31/99.56 iron flys
• 11,000 Mar 99.62 puts, 5.5
• Overnight trade
• +7,500 Sep 98.75/99.37 put over risk reversals, 1.0 vs. 99.06/050%
• +14,000 Jun 99.75 calls, 1.25
• 6,000 Dec 99.37/99.62/99.87 2x3x1 put flys
• +4,000 May 99.25/99.31/99.43 put trees, 1.0
• 4,000 Jun 99.25 puts
• 3,250 Green Jan 98.12/98.18 1x2 call spds
• 3,000 Blue Jan 98.00 put/Blue Feb 98.12 call calendar

• 3,000 TYH 126/127 put spds, 10
• +1,500 TYH 127/TYJ 126 put spds, 5 net - Apr over
• 10,000 FVH 119/119.75 put spds, 17.5
• -10,000 TYH 126 puts, 7
• 5,000 TYG 127 puts, 4
• Overnight trade
• 5,000 TYJ 124.5/126 put spds
• Block, +20,000 FVG 120.25 calls, 4
• +8,000 TYH 127 puts, 20 vs. 128-11.5/0.10%
• +5,000 TYG 127 puts, 4 vs. 128-12.5/0.10%

EGBs-GILTS CASH CLOSE: Mixed Curve Movements Amid Broader Rally

Gilts and Bunds strengthened Wednesday, with mixed curve movements on display (German bull flattening, UK bull steepening).

• Little thematically to tie the moves together, though an in-line US CPI reading out in the afternoon led to a "buy the rumour, sell the fact" style rally across global core FI.
• The strength defied equity and oil price gains.
• German Bund auction (E1.3bln allotted) was the supply highlight this morning, with no top tier European data.
• Little on the data front Thursday either, though we get Irish and Italian supply.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.9bps at -0.587%, 5-Yr is down 2.4bps at -0.377%, 10-Yr is down 3.2bps at -0.059%, and 30-Yr is down 4bps at 0.251%.
• UK: The 2-Yr yield is down 3.4bps at 0.807%, 5-Yr is down 2.5bps at 0.978%, 10-Yr is down 3bps at 1.14%, and 30-Yr is down 2.4bps at 1.243%.
• Italian BTP spread down 1.2bps at 132.2bps / Spanish up 0.7bps at 68.6bps

EGB Options: Put Structures And Risk Reversals

Wednesday's Europe rates / bond options flow included:

• DUH2 112.00/111.90/111.80p ladder bought for 0.75 in 4k
• DUH2 111.80, bought for 4 in 5k
• RXH2 173.5/168 RR, sold the put at 14 in ~6k (nb: bought for 3 last week)
• ERZ2 100.25/100.12/99.87 broken p fly 1x1.5x0.25, bought for half in 10kx15kx2.5k

FOREX: US Dollar Substantially Lower, Technicals Deteriorate

• Broadly in line US CPI data was not enough to support a struggling US dollar. Shortly after the release, the greenback significantly weakened with the Dollar index (DXY) reaching near two-month lows as we approach the NY close.
• The weakness has solidified the break below its 50-day moving average that had been underpinning price action of the index since October. Furthermore, and adding weight to the technical deterioration, the Bloomberg dollar index has recently breached its 100-day MA, an indicator that had not been intersected since June 2021.
• The softer greenback resulted in very strong one percent gains for the likes of CHF, AUD and NZD.
• Close on their heels was EURUSD which has broken some notable levelsat 1.1383/86, Nov 30 and Dec 31 highs. Clearance has prompted a stronger short-term recovery to the initial touted target of 1.1437, the top of a bear channel drawn from the Jun 1 high. The next notable resistance point resides at 1.1514, low Nov 5.
• CAD also picked up steam, following on from a stellar session on Tuesday. Oil prices continue to support the Canadian dollar recovery as well as multiple firms now forecasting rate lift-off as soon as the January meeting. USDCAD is close to support seen at 1.2493 (Nov 16 low) after which it would open 1.2448 (76.4% retracement of the Oct-Dec rally). Firm short-term resistance is 1.2726 (20-day EMA).
• The dollar weakness also exacerbated some recent strength in EMFX, with the South African Rand rallying 1.5% and TRY seen back in the limelight, advancing 4.5% throughout US trading.
• US PPI headlines Thursday’s data docket before potential comments from Fed’s Brainard - due to testify on the nomination of Vice Chair of the Federal Reserve Board of Governors before the Senate Banking Committee.

FX: Expiries for Jan13 NY cut 1000ET (Source DTCC)

• USD/JPY: Y115.00($612mln), Y115.50($1.07bln), Y116.00($960mln)
• USD/CAD: C$1.2650($531mln)

EQUITIES: Stocks Return Higher, With Growth Outstripping Value

• Stocks returned higher Wednesday, with the e-mini S&P climbing to fresh weekly highs and narrowing the gap with the alltime highs posted in early January at 4808.25. Gains across Wall Street were led by the tech, communication services and consumer discretionary sectors, putting growth stocks above value into the Wednesday close.
• The risk-on sentiment was underlined by the lagging healthcare, utilities and consumer staples sectors, representing the more defensive stocks.
• Across Europe, equity trade was similarly positive, with most continental markets adding 0.8%, helping put the EuroStoxx50 back above the Monday high. Spain's IBEX-35 lagged slightly, but still managed to add 0.2% ahead of the close.
• Focus turns to the looming earnings schedule, with big banks kicking off the quarterly reporting cycle. JPMorgan, Wells Fargo, BlackRock and Citigroup due on Friday.

COMMODITIES: Oil Clears Further Resistance Levels

• Crude oil prices are up 1.3-1.9% today, helped by weekly DoE data showing a far larger-than-expected draw in US crude inventories to the lowest since Oct 2018.
• WTI is +1.9% at $82.77, clearing two resistance levels including major resistance of $82.13 (Oct 25 high). Next resistance is seen at $83.71 (1.618 proj of the Dec 2-9-20 price swing).
• Consistent with the move being supported by an inventory drag, gains are concentrated in front-dated contracts.
• Brent is +1.23% at $84.77, also clearing a new resistance level after yesterday's major resistance. It next eyes the round $85 and then $85.80 (1.5 proj of Dec 2-9-20 price swing).
• Gold meanwhile is up +0.25% at $1826.2, having signalled scope for a climb towards key near-term resistance at $1831.9 (Jan 3 high). A reversal could open $1800.2 (Jan 11 low).