MNI ASIA MARKETS ANALYSIS: Fed Bowman, Logan Led Day's Hawks

US TSYS: Fed Gov Bowman Remains Hawkish, Tsy Curves Bull Flatten

• Tsy futures are drifting near late session highs after the bell, curves flatter with the short end underperforming (2Y10Y -4.508 at -34.067). Light on data, markets showed muted reaction to multiple Fed speakers on the day.
• Fed Gov. Bowman (voter) maintained her hawkish stance in prepared remarks at the 2023 Ohio Bankers League (full here).
• Bowman supported the FOMC’s decision last week to hold rates unchanged but continues to expect that the Fed will need to hike further “to bring inflation down to our 2 percent target in a timely way”.
• On inflation: "Some components of core services inflation have picked up, and I see a continued risk that core services inflation remains stubbornly persistent. In my view, there is also a risk that higher energy prices could reverse some of the progress made to bring overall inflation down."
• Despite this afternoon's hawkish Fed speak, projected rate cut chance into early 2024 gains some ground: December holds at 2.4bp at 5.347%, January 2024 cumulative 3.9bp at 5.368%, while March 2024 pricing in -28.1% chance of a rate cut (-27.6 this morning) with cumulative at -3.1bp at 5.292%, May 2024 cumulative -15bp at 5.174%. Fed terminal at 5.365% in Feb'24.
• Meanwhile, Treasury futures holding narrow range near session highs after $48B 3Y note auction (91282CJK8) largely as expected 4.701% high yield vs. 4.702% WI; 2.67x bid-to-cover vs. 2.56x prior month.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00147 to 5.32197 (+0.00021/wk)
• 3M -0.00239 to 5.36567 (-0.01450/Wk)
• 6M -0.00497 to 5.39322 (-0.03267/wk)
• 12M -0.00116 to 5.26162 (-0.06428/Wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $101B
• Daily Overnight Bank Funding Rate: 5.32% volume: $251B

• Secured Overnight Financing Rate (SOFR): 5.32%, $1.559T
• Broad General Collateral Rate (BGCR): 5.30%, $583B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $570B
• (rate, volume levels reflect prior session)

FED REEVERSE REPO OPERATION

The NY Fed Reverse Repo operation usage falls to new two-year low of $1,008.685B w/97 counterparties vs. $1,062.787B in the prior session. Today's usage compares to prior two year low of $1,054,986B from Nov 2.

SOFR/TREASURY OPTION SUMMARY

SOFR option trade remained pared Tuesday, Treasury options saw better 10Y puts in addition to decent volume in Dec'23 5Y 107 calls. Underlying futures stronger, curves flatter with short end underperforming. Despite this afternoon's hawkish comments from Bowman and Logan, projected rate cut chance into early 2024 gains some ground: December holds at 2.4bp at 5.347%, January 2024 cumulative 3.9bp at 5.368%, while March 2024 pricing in -28.1% chance of a rate cut (-27.6 this morning) with cumulative at -3.1bp at 5.292%, May 2024 cumulative -15bp at 5.174%. Fed terminal at 5.365% in Feb'24.

• SOFR Options:
  • Block, 25,000 SFRJ4 95.18/95.37/95.62/95.81 call condors, 2.0 net ref 94.975
  • 5,000 SFRF4 94.68/94.75/94.87/94.93 call condors
  • Block, 5,000 SFRJ4 95.25/95.37/95.62/95.75 call condors, 1.0 net ref 94.975
  • 2,000 SFRF4 94.50/94.62/94.68/94.75 put condors
  • Block, 5,000 0QZ3 95.25/95.37/95.50/95.62 put condors, 3.0 net
  • Block, 2,500 SFRZ4 93.75/94.50 2x1 put spds 4.5 vs. 95.55
  • 1,750 SFRH4 94.56/94.68/94.81 put flys ref 94.735
  • Block, 7,750 0QZ3 95.12/95.37/95.50/95.62 put condors, 1.0 vs. 95.63/0.05%, another 4k/screen
  • 11,000 SFRH4 94.62/95.37/95.62 broken call trees ref 94.74
  • 1,600 SFRH4 94.75/95.75 1x2 call spds ref 94.735
  • 1,250 2QZ3 96.00/96.37/96.75 call flys ref 96.085
  • Block, 5,000 SFRH4 94.75/94.93 2x1 put spds, 5.5 net ref 94.73
• Treasury Options:
  • 2,000 TYZ3 105/106.5 put spds
  • 6,000 TYZ3 102/104 put spds, ref 107-30.5 to -30
  • over 10,600 FVZ3 107 calls, 5.5 last ref 105-16 to -13.5
  • 1,800 FVF4 102.75 puts, 3.5 ref 105-31
  • 7,000 TYZ3 105/106 put spds ref 107-30
  • 8,000 weekly 10Y 108/108.5 2x1 put spds, 1 net ref 107-21.5

EGBs-GILTS CASH CLOSE: Long End Impresses As Oil Sinks

European core FI rallied sharply Tuesday in a bull flattening move, with strong outperformance at the long end.

• There were few macro catalysts evident in the session, with a weak German industrial production figure already telegraphed by Monday's factory orders data.
• But Bunds and Gilts were boosted by a 3+% drop in oil prices, and overnight central bank developments including BoE chief economist Pill making remarks about possible mid-2024 rate cuts, and a dovishly-perceived RBA hike.
• While UK instruments outperformed overall, 30Y German yields fell by the most in 3 months.
• Portugal underperformed on the EGB periphery following the surprise resignation of Prime Minister Costa amid a corruption probe into his office and gov't ministries.
• ECB's Nagel speaks after the cash close, with tomorrow's docket including Bund supply, German final CPI, Italian and Eurozone retail sales, the ECB's consumer expectations survey, and an appearance by BOE Gov Bailey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.9bps at 2.984%, 5-Yr is down 5bps at 2.577%, 10-Yr is down 8.1bps at 2.658%, and 30-Yr is down 11.2bps at 2.894%.
• UK: The 2-Yr yield is down 8.9bps at 4.632%, 5-Yr is down 8.5bps at 4.244%, 10-Yr is down 10.7bps at 4.27%, and 30-Yr is down 11.5bps at 4.737%.
• Italian BTP spread down 1.3bps at 189.2bps / Portuguese up 2.5bps at 73.4bps

EGB Options: Largely Upside Eyed Across Bunds And Euro Rates

Tuesday's Europe rates / bond options flow included:

• DUZ3 105.00/105.60^^, sold at 6.5 in 5k.
• RXF4 133c, bought for 48 in 2k
• RXZ3 129/128/127 put fly bought for 10 in 5k
• RXZ3 132.00/132.50 call spread bought for 9.5 in 6k
• RX WK2 130.00/129.50ps 1x2 sold the 1 at 14.5 in 2.7k
• ERH4 96.125/95.875/95.75 broken put fly vs ERF4 96.125/96.00 put spread bought for 1.5 in 2k (bought put fly)
• ERH4 96.00/96.15/96.37 call fly, bought for 2.5 in 5k
• ERH4 95.25/95.125 1x2 put spread bought for 2 in 2.5k
• ERH4/ERJ4 96.12/96.00ps spread, bought the March for 2 in 4k
• ERJ4 96.375/96.75 call spread bought for 11.25 in 5k
• ERJ4 96.37/96.25/96.00 p ladder bought for 3 in 5k
• ERM4 96.375^ bought for 43.25 in 2k
• ERU4 97.25/98.00 call spread bought for 9.25 in 4k (v 96.685)

FOREX: AUD Slumps Following Dovish Hike From RBA, Greenback Inches Higher

• The greenback looks set to be one of the strongest performers in G10 on Tuesday, helping the USD Index (+0.20) post a second consecutive session of gains to partially reverse Friday's sharp pull lower. The USD Index remains below the 50-dma resistance at 105.727, which provides the first upside level.
• AUD (-0.90%) remains the poorest performer after the RBA's 25bps rate hike (as expected) was accompanied by a switch to data-dependency, moderating the tightening message from the bank. AUD/USD erased Friday's rally in response, with 0.6394 marking the next support (50-dma).
• Meanwhile, NOK/SEK (-1.08%) has plumbed new multi-month lows, with the March 21 low of 0.9725 the next downside level to watch. Moves coincide with a further weakening in the oil price, as Brent and WTI crude futures both post multi-week lows on Tuesday, down over 4% amid fresh demand concerns.
• In sympathy with the greenback edging higher, EURUSD slipped back below 1.0700 throughout the session and briefly printed at 1.0664 before stabilising. The move lower failed tor each the pre-NFP levels around 1.0655 and further weakness would focus on the next support zone of 1.0638 and 1.0632 - a 38.2% Fib and the 50-dma respectively.
• A lack of tier-one data releases on Wednesday keeps the focus on central bank speakers. BOE Governor Bailey is due to speak at the Central Bank of Ireland Financial System Conference before Fed Chair Powell is due to deliver opening remarks at the Division of Research and Statistics Centennial Conference.

Expiries for Nov08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E781mln), $1.0520-30(E1.2bln), $1.0565-80(E1.3bln), $1.0600(E1.2bln), $1.0650(E724mln), $1.0700-20(E2.2bln)
• USD/JPY: Y149.50-60($1.8bln), Y150.00($1.3bln), Y151.00($1.8bln)
• AUD/USD: $0.6380-00(A$1.3bln)
• USD/CAD: C$1.3500($520mln)
• USD/CNY: Cny7.3000($2.5bln), Cny7.3140($1.2bln), Cny7.3160($1.1bln)

Late Equity Roundup: Software & Services Buoys IT Sector

• Stocks continue to drift near midday session highs after the bell, Information Technology and Consumer Discretionary sectors outperforming. Currently, S&P E-Mini future are up 16.5 points (0.38%) at 4400.5, Nasdaq up 144.7 points (1.1%) at 13663.21, DJIA up 82.83 points (0.24%) at 34175.51.
• Eminis through initial technical resistance of 4391.75 (Nov 3 high) focus is on 4430.50 (High Oct 12). Initial support well below: 4157.75/4122.25 Low Nov 3 / Low Oct 27 and the bear trigger.
• Leaders: Software and services names buoying the IT sector: Gen Digital +7.88% after 2Q results beat estimates, Adobe +3.46%, Intuit +2.56%. Broadline retail shares lifted the Consumer Discretionary sector: Ulta +2.55%, Etsy +2.5%, Amazon +2.33%.
• Laggers: Energy and Materials sectors continue to underperform: equipment and services shares weighed on the Energy sector: Schlumberger -5.65%, Halliburton -4.10%, Baker Hughes -3.05%. Meanwhile, metals and mining shares weighed on Materials: Freeport-McMoRan -4.11%, Newmont Corp -2.92%.
• Note: corporate earnings expected after the close: Devon Energy Corp, eBay Inc, Mosaic, DaVita Inc and Gilead Sciences Inc.. Big names out before Wednesday's open include: Warner Bros, Biogen and Ralph Lauren.

E-MINI S&P TECHS: (Z3) Short-Term Bull Phase Remains In Play

• RES 4: 4508.00 High Sep 20
• RES 3: 4442.25 Trendline resistance drawn from the Jul 27 high
• RES 2: 4430.50 High Oct 12
• RES 1: 4402.50 Intraday High Nov 7
• PRICE: 4396.50 @ 1500 ET Nov 7
• SUP 1: 4257.75/4122.25 Low Nov 3 / Low Oct 27 and the bear trigger
• SUP 2: 4100.00 Round number support 4124.19
• SUP 3: 4090.35 1.764 proj of the Jul 27 - Aug 18 - Sep 1 price swing
• SUP 4: 4049.00 Low Mar 28

S&P e-minis traded higher last week and the contract is holding on to its recent gains. The latest recovery still appears to be a correction, however, price has cleared the 20- and 50-day EMAs. The break of the 50-day average - a key short-term pivot level - has strengthened bullish conditions. Sights are on 4430.50, the Oct 12 high. Key support and the bear trigger has been defined at 4122.25, the Oct 27 low.

COMMODITIES: WTI Slides On Weaker Demand, Extends Clearance Of Key Support

• WTI has seen a largely one way decline today in an extension of a weaker demand outlook, particularly from China.
• Chinese crude imports totalled 48.97mn metric tonnes in October or 11.53mbpd according to customs data – up from 11.13mbpd in September.
• The EIA’s forecasts Brent spot price to average $90.27/b in Q4 and $93.24/b across 2024, up 1.8%, according to its Short-Term Energy Outlook.
• US crude oil supply is expected to rise to 13.15m b/d in 2024, compared to 12.90m b/d in 2023.
• OPEC Sec Gen comments: OPEC+ will take appropriate measures at the next meeting. Oil demand is set to grow more than 2mbpd in 2024. Oil demand continues to rise significantly. We’re still positive, robust on demand. Buyers in India and China will look for cheaper barrels to buy. Barrels will flow to where demand centres are.
• WTI is -4.3% at $77.38 having cleared further support at $78.51 (Aug 29 low) to open $77.74 (50% retrace of May 4 – Sep 28 bull run). The move builds on an overnight clearance of a key support at $80.20 (Oct 6 low).
• Brent is -4.2% at $81.64, pushing through support at the bear trigger of $82.20 (Oct 6 low) and testing $81.62 (50% retrace of May 4 – Sep 28 bull run) after which lies $81.02 (Aug 24 low).
• Gold is -0.5% at $1967.85 off a low of $1956.81 that pushed below support at $1959.5 (20-day EMA) to open the 50-day EMA of $1935.3. It's seen its lowest settle in nearly three weeks.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
08/11/2023	0001/0001	**		UK	KPMG/REC Jobs Report
08/11/2023	0700/0800	***		DE	HICP (f)
08/11/2023	0745/0845	*		FR	Foreign Trade
08/11/2023	0900/1000	*		IT	Retail Sales
08/11/2023	0900/1000	**		EU	ECB Consumer Expectations Survey
08/11/2023	0930/0930			UK	BOE's Bailey address at CB of Ireland
08/11/2023	1000/1100	**		EU	Retail Sales
08/11/2023	1000/1000	*		UK	Index Linked Gilt Outright Auction Result
08/11/2023	1015/0515			US	Fed Governor Lisa Cook
08/11/2023	1045/1145			EU	ECB's Lane Keynote speech in Latvia
08/11/2023	1200/0700	**		US	MBA Weekly Applications Index
08/11/2023	1330/0830	*		CA	Building Permits
08/11/2023	1415/0915			US	Fed Chair Jerome Powell
08/11/2023	1500/1000	**		US	Wholesale Trade
08/11/2023	1530/1030	**		US	DOE Weekly Crude Oil Stocks
08/11/2023	1800/1300	**		US	US Note 10 Year Treasury Auction Result
08/11/2023	1830/1330			CA	BOC minutes from last rate meeting
08/11/2023	1840/1340			US	New York Fed's John Williams
08/11/2023	1900/1400			US	Fed Vice Chair Michael Barr
08/11/2023	2145/1645			US	Fed Vice Chair Philip Jefferson