MNI ASIA MARKETS ANALYSIS: Inflation Far From Turning

HIGHLIGHTS

• MNI: Inflation Is Far From Healthy Turning Point, Daly Says
• MESTER: I DON'T THINK THE MARKET EXPECTATION IS REALLY OFF, CNBC/Bbg
• SAUDI ARABIA EYES OPEC+ INCREASE OF UP TO 500,000 BPD: DJ
• SAUDIS DENY REPORT OF DISCUSSIONS ABOUT OPEC+ OIL-OUTPUT HIKE, Bbg
• ECB'S VILLEROY DE GALHAU: WE CANNOT EXCLUDE THE POSSIBILITY OF A RECESSION

US TSYS: FI/EQ Support Evaporates as Saudis Deny Production Increase Talk

• Stocks gained and crude prices fell appr $4.5/bbl for a couple hours until Saudi officials denied headlines of a production hike - FI and equity support evaporating.
• Tsys had been holding near session highs after the $42B 2Y Note auction (including $45B 26W bills) stopped out: 4.505% high yield vs. 4.512% WI; 2.64x bid-to-cover vs. 2.59x prior.
• Tsy futures holding near session lows (shifted lower on crude oil production cut denial from Saudis) after $43B 5Y note auction (91282CFZ9) small tail: 3.974% high yield vs. 3.970% WI; 2.39x bid-to-cover vs. 2.48x the prior month. (Tsy auctions front ended ahead Thursday Thanksgiving holiday closure (full session Wednesday, Friday 1200ET close/1215ET Globex).
• Deceptively robust futures volumes at noon: TYZ2>1.5M due to pick-up in rolling to Mar'23 futures ahead next week's first notice on Wed, Nov 30.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00071 to 3.81143% (-0.00272 total last wk)
• 1M +0.02229 to 3.97900% (+0.07142 total last wk)
• 3M +0.02700 to 4.69186% (+0.03872 total last wk) * / **
• 6M +0.02886 to 5.17157% (+0.05871 total last wk)
• 12M 0.05643 to 5.56586% (+0.05814 total last wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.69186% on 11/21/22

• Daily Effective Fed Funds Rate: 3.83% volume: $102B
• Daily Overnight Bank Funding Rate: 3.82% volume: $283B

• Secured Overnight Financing Rate (SOFR): 3.80%, $1.037T
• Broad General Collateral Rate (BGCR): 3.76%, $411B
• Tri-Party General Collateral Rate (TGCR): 3.76%, $400B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $2,125.426B w/ 93 counterparties vs. $2,113.413B in the prior session. Prior record high stands at $2,425.910B on Friday, September 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • Block, 15,000 SFRZ 95.31/95.43 call spds, 9.75 ref 95.4425
  • Block, 10,000 SFRH3 94.87/95.62 put spds, 52.0 vs. 95.005/0.10%
  • Block, +5,000 SFRZ3 94.25/94.75/95.25 put flys, 7.0 net ref 95.445
  • Block, +2,500 SFRH3 95.06/95.18/95.37/95.56 call condors, 2.5 vs. 95.03/0.10%
  • Block, -20,000 SFRZ4 96.62 calls, 76.0 ref 96.585
  • Block, total 25,000 SFRZ3 97.00/98.00 call spds, 9.0
  • Block, 20,000 SFRH4 97.00/98.00 call spds, 15.5 ref 95.82
  • 15,000 SFRF 95.12/95.37 2x3 call spds ref 95.015
  • Block, 2,000 SFRF3 95.06/95.18/95.25/95.37 call condors, 2.5
  • Block, 2,000 SFRF3 95.06/95.18/95.31 call flys, 1.75
  • Block, 7,932 SFRF3 95.00/95.12 call spds, 5.0 vs. 94.96/0.05%
  • Block, 10,000 SFRH4 97.00/98.00 call spds, 14.5 vs. 95.78
• Treasury Options:
  • 2,500 TYH 118/120/122 call flys
  • 10,000 TYZ 111.5/113 call over risk reversal, 1 net ref 112-08
  • -2,000 TYF 110/115 strangles, 38
  • Blocks overnight: total 15,000 FVF3 106/107.5 put spds, 25-26 ref 107-29.25 to -27.25

EGBs-GILTS CASH CLOSE: Core Yields Drop Alongside Oil Prices

The UK and German curves bull flattened to open the week, with periphery EGB spreads marginally wider.

• After a mixed morning session, Bund and Gilt futures jumped to session highs in the afternoon as oil prices plummeted (front Brent dropped $6%) on a WSJ report that OPEC+ was considering raising output.
• ECB Chief Economist Philip Lane told MNI that he didn't think December would mark the last rate hike, but the Governing Council would consider slowing the pace of hikes at the next meeting.
• Rate futures largely took the comments in stride.
• BTPs underperformed, with spreads widening throughout the session, accelerating toward the cash close on no particular catalyst.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.1bps at 2.095%, 5-Yr is down 1.7bps at 1.969%, 10-Yr is down 2.5bps at 1.989%, and 30-Yr is down 2.2bps at 1.907%.
• UK: The 2-Yr yield is up 0.9bps at 3.188%, 5-Yr is down 2bps at 3.275%, 10-Yr is down 5.5bps at 3.184%, and 30-Yr is down 8.2bps at 3.306%.
• Italian BTP spread up 3.4bps at 191.8bps / Greek up 2.6bps at 227.5bps

EGB Options: Limited German Trade Includes Bund Liquidation

Monday's Europe rates/bond options flow included:

• RXF3 141/144cs, sold at 91 and 90 in 4k. Hearing this is liquidation
• OEZ2 120.25/120.75cs, sold at 10.5 in 6k

FOREX: Greenback Strength Underpinned By China Covid Backdrop

• Concerns in China have been renewed as Beijing reported two more Covid deaths on Sunday amid a spike in cases, heightening concern the capital could see a return of tougher restrictions. The news has aided the greenback bid/recovery on Monday and the USD index has risen 0.8% throughout the session.
• USD strength has been broad based alongside pressure on major equity indices. The Japanese Yen and the Australian dollar are the weakest performers across G10.
• USD/JPY traded comfortably back above the previously well-held 100-dma resistance of 141.03 and the pair has significantly narrowed the gap with the next upside resistance level of 142.48, the November 11th high.
• The euro was also among the early victims to the greenback’s advance, weakening further upon release of an MNI interview with ECB's Lane. Lane flagged that the ECB will consider a slower pace of tightening at the December meeting, with the governing council weighing signs that bank lending conditions are already tightening against accelerating wage inflation.
  • EUR/USD traded to a low of 1.0223 Monday, narrowing the gap with support at 1.0193 - the 38.2% retracement for the November upleg.
• Canadian retail sales and US Richmond Manufacturing are data points on Tuesday. There may be potential comments from Fed’s Mester, George and Bullard which will be monitored ahead of Wednesday’s FOMC minutes and the Thanksgiving Holiday. Wednesday will also see the RBNZ decision and the release of Eurozone PMIs.

FX: Expiries for Nov22 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9835-50(E878mln)
• USD/CNY: Cny7.1000($525mln), Cny7.2500($810mln)

Equity Roundup: Tesla Weighing on Consumer Discretionary Sector

Stocks indexes trading weaker, inside relatively narrow ranges, SPX and Nasdaq underperforming DJIA. Consumer Discretionary and Energy sector shares weighing on SPX as crude prices fell over $4Bbl on on spurious production cut headlines earlier, bounced as Saudi Arabia denied the reports. SPX eminis currently trade -17 (-0.43%) at 3957.25; DJIA -3.34 (-0.01%) at 33744.34; Nasdaq -120.5 (-1.1%) at 11026.46.

• SPX leading/lagging sectors: Consumer Discretionary (-1.68%) with auto shares under pressure - particularly Tesla (TSLA) -6.23%; Energy sector (-1.61%) as energy equipment makers/services lagged oil & gas drillers/refiner names.
  Leaders: Consumer Staples (+1.02%) , Industrials (+0.35%) and Health Care (+0.25%)
• Dow Industrials Leaders/Laggers: Disney (DIS) +5.28 at 97.08, Home Depot (HD) +3.23 at 316.41, Amgen (AMGN) +2.42 at 289.71. Laggers: United Health (UNH) -9.93 at 519.07, Salesforce.Com (CRM) -3.55 at 144.49, Visa (V) -2.90 at 209.70.

E-MINI S&P (Z2): Bull Flag

• RES 4: 4175.00 High Sep 13 and a key resistance
• RES 3: 4146.63 76.4% retracement of the Aug 16 - Oct 13 downleg
• RES 2: 4100.00 Round number resistance
• RES 1: 4050.75 High Nov 15
• PRICE: 3958.5 @ 1515ET Nov 21
• SUP 1: 3861.92 50-day EMA
• SUP 2: 3750.00 Low Nov 9
• SUP 3: 3704.25 Low Nov 3 and key short-term support
• SUP 4: 3641.50 Low Oct 21

The short-term outlook in S&P E-Minis remains bullish. Price is consolidating and a bull flag has appeared on the daily chart - a continuation pattern. Recent gains resulted in a break of 3928.00, the Nov 1 high. This has established a positive price sequence of higher highs and higher lows on the daily scale. The focus is on 4100.00 next. Initial firm support lies at 3861.92, the 50-day EMA.

COMMODITIES

OPEC+: Saudi Energy Minister Denies Reports Of Oil Production Hike The Saudi Energy Minister Prince Abdulaziz bin Salman has told reporters that Saudi Arabia and OPEC+ members have had not discussed increasing oil production ahead of next month's OPEC+ ministerial.

• Saudi Gazette: "Saudi Energy Minister Prince Abdulaziz bin Salman denies recent reports that Saudi Arabia is discussing with other OPEC producers output increase of 500,000 barrels per day."
• Bin Salman's comments come after the Wall Street Journal, citing unnamed delegates within the group, reported that Saudi Arabia and other OPEC oil producers are discussing an output increase.

OIL: Russian Dep PM: Russia May Cut Oil Production In Response To Oil Price Cap According to Reuters, Russian Deputy Prime Minister Alexander Novak has claimed that, "Moscow remains reliable supplier but will not ship oil/oil products setting price cap."

• Novak also says Russia may also cut oil production if an agreement is reached to enact a US-led price cap on Russian oil.
• Novak's comments come after an eventful day on oil markets as rumours of a OPEC production hike drove Brent and WTI crude to lows not seen since January.
• Saudi officials have since denied reports and oil prices have clawed back losses.

Tuesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
22/11/2022	0700/0700	***		UK	Public Sector Finances
22/11/2022	0900/1000	**		EU	EZ Current Account
22/11/2022	1330/0830	**		CA	Retail Trade
22/11/2022	1330/0830	**		US	Philadelphia Fed Nonmanufacturing Index
22/11/2022	1355/0855	**		US	Redbook Retail Sales Index
22/11/2022	1500/1600	**		EU	Consumer Confidence Indicator (p)
22/11/2022	1500/1000	**		US	Richmond Fed Survey
22/11/2022	1600/1100			US	Cleveland Fed's Loretta Mester
22/11/2022	1630/1130	**		US	US Treasury Auction Result for 2 Year Floating Rate Note
22/11/2022	1645/1145			CA	BOC's Sr Deputy Rogers talk on financial stability
22/11/2022	1800/1300	**		US	US Treasury Auction Result for 7 Year Note
22/11/2022	1915/1415			US	Kansas City Fed's Esther George
22/11/2022	1945/1445			US	St. Louis Fed's James Bullard