MNI ASIA MARKETS ANALYSIS: BoE to Resume Gilt Sales Nov 1

HIGHLIGHTS

• FED'S BOSTIC: INFLATION `TOO HIGH', HAVE TO GET `UNDER CONTROL, Bbg
• TWITTER LOCKS EMPLOYEE STOCK ACCOUNTS IN 'ANTICIPATION' OF DEAL, Bbg
  
• NAHB SAYS HOUSING INDEX AT LOWEST SINCE AUGUST 2012, Bbg
• IRAN AGREES TO SHIP MISSILES, MORE DRONES TO RUSSIA: Reuters
• EU PROPOSES RULES TO LAUNCH JOINT GAS BUYING AMONG EU COUNTRIES, Reuters

Key links: MNI BRIEF: BOE Confirms Gilt Sales To Commence Nov 1 /

US TSYS: Sovereign Issuance, BOE Gilt Sale Annc Weighs on Tsys

Inside range session for Tsy - well off late morning lows after the bell, US$ index midrange (DXY +.050 at 112.089) while stocks are firmer, they remain off highs after Apple annc production cuts for IPhone.

• Tsys extended session lows in late morning trade - partially tied to larger than expected $5B Saudi 2pt debt issuance as participant hedged/rate locked prior to launch after noon hour.
• Rates staged a modest midday rebound until reversing lower again after BoE confirms resumption of Gilt sales to November 1. Review: Bonds had extended highs overnight after FT article reported the BoE would pause Gilt sales past current Oct 31 resumption date. Bounce short-lived as rates steadily pared gains after the BOE issued statement the FT article was "inaccurate".
• Limited reaction to earlier data: INDUSTRIAL PROD +0.4%; CAP UTIL 80.3%; NAHB HOUSING MARKET INDEX 38 well below 43 est. Later this afternoon: Net Long-term TIC Flows ($21.4B, --) Total Net ($153.5B, --) at 1600ET.
• Fed Speakers: Nothing new from Atlanta Fed Bostic: INFLATION `TOO HIGH', HAVE TO GET `UNDER CONTROL' Bbg, while MN Fed Kashkari speaks on economy participates in moderated Q&A at 1730ET.
• Reminder: Fed goes into media Blackout at midnight Friday, through Nov 3, day after the next FOMC policy annc.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00143 to 3.06229% (-0.00385/wk)
• 1M +0.00928 to 3.48914% (+0.04614/wk)
• 3M +0.01600 to 4.24257% (+0.04886/wk) * / **
• 6M +0.04129 to 4.71500% (+0.02971/wk)
• 12M +0.02642 to 5.33886% (+0.05572/wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.24257% on 10/18/22

• Daily Effective Fed Funds Rate: 3.08% volume: $103B
• Daily Overnight Bank Funding Rate: 3.07% volume: $275B

• Secured Overnight Financing Rate (SOFR): 3.05%, $979B
• Broad General Collateral Rate (BGCR): 3.00%, $389B
• Tri-Party General Collateral Rate (TGCR): 3.00%, $373B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage rebounds to $2,226.725B w/ 99 counterparties vs. $2,172.301B in the prior session. Prior record high stands at $2,425.910B on Friday, September 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • 4,200 SFRZ2 95.62/95.87 call spds
• Eurodollar Options:
  • 25,000 Dec 98.25/98.50 put spds ref 94.92
  • 5,000 Jun 94.75 puts
  • 4,000 Dec 94.87/95.12 put spds
• Treasury Options:
  • over 12,800 TYZ 113 calls, 29 last 28-33 range
  • 11,000 TYZ2 116 calls, 6 last, 6-8 range
  • Over 12,000 FVZ2 107.5 calls, 34 last, mostly 32.5-34
  • 20,000 TYZ2 115 calls, 10 ref 110-26.5
  • 4,000 TYZ2 116 calls, 7 ref 110-29.5
  • 2,000 TYZ2 114.5/115.5 call spds, 6
  • 1,500 TYX2 109.75/110.25 put spds
  • 2,000 TYX2 108.75/110 put spds
  • 5,000 USX2 120/122 put spds
  • Block/screen, 20,000 TYX2 109.5 puts, 4

EGBs-GILTS CASH CLOSE: Yields Eventually Shrug Off BoE QT Intrigue

Gilts strengthened again Tuesday, outperforming Bunds. The UK curve bull flattened again, with Germany's bear steepening.

• The main market attention in the morning was an FT article pointing to the BoE postponing QT, but this was subsequently denied by the Bank, leading Gilts to sell off.
• However, yields fell again in the early afternoon as US trading desks came online, and broadly shrugged off a spike in Treasury yields toward the cash close.
• No particular catalyst seen for the sustained afternoon recovery, though falling oil prices were seen underpinning European bonds.
• Periphery spreads were mixed, with the higher-beta instruments (BTPs, GGBs) underperforming.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is up 2.1bps at 1.975%, 5-Yr is up 0.7bps at 2.087%, 10-Yr is up 1.4bps at 2.283%, and 30-Yr is up 2.7bps at 2.321%.
• UK: The 2-Yr yield is down 2.6bps at 3.563%, 5-Yr is down 4.7bps at 3.895%, 10-Yr is down 3.1bps at 3.946%, and 30-Yr is down 7.6bps at 4.302%.
• Italian BTP spread up 2.2bps at 241bps / Greek up 5.2bps at 272.2bps

EGB Options: All Schatz

Tuesday's Europe rates / bond options flow included:

• DUZ2 108.10/108.60cs, sold at 4.5 in 4.5k
• DUZ2 106.40/106.00/105.80 put fly bought for 8 in 3k

FOREX: USD Index Consolidates Leg Lower As Stocks Hold Monday Gains

• Despite a volatile session for equities and a strong reversal from session highs, major benchmarks overall are holding onto gains made on Monday, leading to the greenback consolidating yesterday’s weaker session.
• Topping the G10 leaderboard is Kiwi, with New Zealand's Q3 CPI coming in well ahead of expectations (2.2% Q/Q vs. Exp, 1.5%) and fuelling potential for a further 75bps move at the November 23rd RBNZ decision.
• Both the AUD and Euro are set to modestly extend on Monday’s advance amid the more positive short-term outlook for risk sentiment. The Canadian dollar, however, has fallen 0.45% as oil prices continue their descent and WTI futures pierce through short-term support levels.
• Showing similar weakness is GBPUSD which has also fallen just under half a percent. Early sterling strength faded through the NY crossover and cable remains 0.45% lower on the day as the Bank of England has confirmed it will start its delayed bond sales early next month.
  • EUR/GBP briefly tested above the Monday high at 0.8722 with the focus on 0.8738, the 20-day EMA.
• Both UK and Canadian CPI data headline Wednesday’s docket, with US building permits & housing starts data also scheduled for release.

FX: Expiries for Oct19 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9750(E1.3bln), $0.9785-00(E549mln), $0.9940-50(E518mln)
• USD/JPY: Y148.00($1.0bln), Y149.25-40($876mln)
• EUR/GBP: Gbp0.8645-50(E520mln)
• USD/CAD: C$1.3800($696mln)

Late Equity Roundup: Apple Sours

Stocks saw gains trimmed in late trade, partially tied to Apple (6.95% of the S&P) reversing gains/trading lower on reports of IPhone production cuts. That said, Industrials, Utilities and Materials sectors continued to buoy indexes. Currently, SPX eminis trade +28 (0.76%) at 3716.75; DJIA +248.03 (0.82%) at 30432.3; Nasdaq +44 (0.4%) at 10719.19.

• SPX leading/lagging sectors: Industrials (+1.69%) lead by capital goods sectors: with aerospace & defense gaining: Lockheed Martin +8.9% after better than expected Q3 earnings ($6.87 vs. $6.722 est). Utilities (+1.46%) and Materials (+1.26%) follow. Laggers: Information Technology (+0.10) weighed by declines in semiconductor makers; Communication Services (+0.13%) - Netflix (NFLX) trading -1.76% ahead their Q3 annc after the close ($2.123 est).
• Dow Industrials Leaders/Laggers: Goldman Sachs (GS) trades strong +7.12 at 313.83 after earnings beat this morning ($8.25 vs. $7.746 est); Salesforce.com (CRM) +6.09 at 153.27. Laggers: United Health (UNH) -2.22 at 519.66; Amgen (AMGN) -0.93 at 252.00, Intel (INTC) -0.84 at 25.58.

E-MINI S&P (Z2): Clears The 20-Day EMA

• RES 4: 4023.44 61.8% retracement of the Aug 16 - Oct 13 downleg
• RES 3: 3923.88 50.0% retracement of the Aug 16 - Oct 13 downleg
• RES 2: 3849.78 50-day EMA
• RES 1: 3820.00 High Oct 5 and a bull trigger
• PRICE: 3730.00 @ 1530 eT Oct 18
• SUP 1: 3590.52/3502.00 Low Oct 17 / 13 and the bear trigger
• SUP 2: 3491.13 50.0% retracement of the 2020 - 2022 bull cycle
• SUP 3: 3453.78 1.618 proj of the Aug 16 - Sep 7 - 13 price swing
• SUP 4: 3388.70 1.764 proj of the Aug 16 - Sep 7 - 13 price swing

S&P E-Minis are firmer this week as the contract extends its climb following last week’s reversal from 3502.00, the Oct 13 low. The latest recovery suggests the contract has entered a corrective phase and if correct, this will allow an oversold trend condition to unwind. The 20-day EMA has been breached. The break reinforces a bullish theme and opens 3820.00, the Oct 5 high and a bull trigger. Key support lies at 3502.00.

COMMODITIES: White House Looking At Tapping Oil Reserves

• Crude oil sees a larger slide after yesterday’s broad tracking sideways, having now fallen over $8/bbl since the peak after the OPEC+ production cut announcement at the start of the month.
• Earlier declines came without clear drivers in the US session but later saw the Biden administration moving toward a release of at least another 10-15mln barrels of oil from the SPR according to people familiar with the matter, with Bloomberg reporting it's effectively the tail end of the 165mln delivered or put under contract of the 180mln barrels total.
• In other news, Exxon, Shell, Chevron, BP and ConocoPhillips are being sued by New Jersey over climate change whilst Mexico confirms it now has an oil hedge program that protects itself if prices decline below $68.70 through 2023.
• WTI is -2.7% at $83.14, through support at 84.61 (Oct 17 low) and having earlier cleared $82.89 (61.8% retrace of Sep 26 – Oct 10 rally), opening $79.14 (Sep 30 low).
• Brent is -1.4% at $90.30 having cleared $90.59 (50% retrace of Sep 26 – Oct 10 rally) to open the 61.8% retrace at $88.67.
• Gold is +0.1% at $1651.30 after a more subdued session. The trend signals remain bearish with support at $1640.2 (Oct 14 low) whilst resistance is seen at $1684.0 (Oct 11 high).

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
19/10/2022	0600/0700	***		UK	Consumer inflation report
19/10/2022	0600/0700	***		UK	Producer Prices
19/10/2022	0830/0930	*		UK	ONS House Price Index
19/10/2022	0900/1100	***		EU	HICP (f)
19/10/2022	0900/1000	**		UK	Gilt Outright Auction Result
19/10/2022	0900/1100	**		EU	Construction Production
19/10/2022	1100/0700	**		US	MBA Weekly Applications Index
19/10/2022	1230/0830	***		CA	CPI
19/10/2022	1230/0830	*		CA	Industrial Product and Raw Material Price Index
19/10/2022	1230/0830	***		US	Housing Starts
19/10/2022	1430/1030	**		US	DOE weekly crude oil stocks
19/10/2022	1500/1600			UK	BOE Mann Panels Webinar on ERM Crisis
19/10/2022	1700/1300			US	Minneapolis Fed's Neel Kashkari
19/10/2022	1700/1300	**		US	US Treasury Auction Result for 20 Year Bond
19/10/2022	1800/1400			US	Fed Beige Book
19/10/2022	2230/1830			US	St. Louis Fed's James Bullard
19/10/2022	2230/1830			US	Chicago Fed's Charles Evans