MNI ASIA MARKETS ANALYSIS: Open To But Bar High For More Hikes

US Tsy Yields Retreat After FOMC Leave Rates Steady

• Tsy futures near highs after the bell, Dec'23 10Y at 107-00.5 vs. 107-04 high(+30.5), 10Y yield -.1693 to 4.7614% after the FOMC left rates unchanged for the second consecutive time, stocks higher as well as market take away is the Fed is farther along the hiking path.
• While discussing whether every meeting is "live", Chairman Powell said "we are going meeting by meeting, asking ourselves whether we achieved a stance of policy sufficiently restrictive to bring inflation down 2% over time" - "we have come very far with this rate hiking cycle, very far."
• Projected rate hikes into early 2024 continue to step down: December cumulative of 4.8bp at 5.373%, January 2024 cumulative 7.3bp at 5.398%, while March 2024 starts pricing in a cut (20.3%) with cumulative at 2.6bp at 5.350%. Fed terminal has slipped to 5.385% in Feb'24.
• Projected rate hikes into early 2024 continue to step down: December cumulative of 4.8bp at 5.373%, January 2024 cumulative 7.3bp at 5.398%, while March 2024 starts pricing in a cut (20.3%) with cumulative at 2.6bp at 5.350%. Fed terminal has slipped to 5.385% in Feb'24.
• Busy first half saw Treasury futures turn higher after lower than expected ADP private jobs data (113k vs. 150k est, 89k prior). Futures bounced again after nominal Tsy refunding hikes ($112B vs. $114B estimate).
• Tsy futures surged higher yet again after weaker than expected ISM data: Mfg (46.7 vs. 49.0 est), Employ (46.8 vs. 50.6 est), New Orders (45.5 vs. 49.8 est) and Prices Paid (45.1 vs 45.0 est).
• Meanwhile, Construction Spending MoM (0.4% vs. 0.4% est, prior up-revised to 1.0 from 0.5%) while JOLTS Job Openings firmed (9.553M vs. 9.400M est, prior down-revised to 9.497M from 9.610M).

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00312 to 5.32271 (-0.00141/wk)
• 3M +0.00915 to 5.39190 (+0.00869/wk)
• 6M +0.01094 to 5.45367 (+0.01304/wk)
• 12M +0.02628 to 5.39369 (+0.02074/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $86B
• Daily Overnight Bank Funding Rate: 5.32% volume: $201B

• Secured Overnight Financing Rate (SOFR): 5.35%, $1.582T
• Broad General Collateral Rate (BGCR): 5.30%, $585B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $567B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

The NY Fed Reverse Repo operation usage falls to the lowest level since mid-September 2021: $1,079.462B w/97 counterparties vs. $1,137.697B in the prior session. Latest usage compares to prior low of $1,082.399B on October 17. The high for 2023 stands at $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.

SOFR/TREASURY OPTION SUMMARY

Better late session upside call and call spread buying as underlying futures forge higher as Chairman Powell press conf continued. Projected rate hikes into early 2024 continue to step down: December cumulative of 4.8bp at 5.373%, January 2024 cumulative 7.3bp at 5.398%, while March 2024 starts pricing in a cut (20.3%) with cumulative at 2.6bp at 5.350%. Fed terminal has slipped to 5.385% in Feb'24.

• Late trade highlights:
  • Over 40,000 SFRZ3 94.62/94.75 call spds ref 94.585 to -.55, all in small pieces
  • 2,500 SFRH4 94.75/94.80 call spds ref 94.685
  • 2,500 2QZ3 96.00/96.50/96.75 broken call flys
  • 2,000 SFRM4 96.00/97.00 call spds, 8.5 ref 94.925
  • over -5,000 SFRG4 94.25/94.37 put spds
  • +10,000 SFRF4 94.68/94.75/94.87/94.93 call condors, 1.0 vs. 94.69/0.05%
  • +1,500 2QZ3 95.12/95.62 put spds vs. 3QZ3 95.00/95.50 put spds, 1.0 net db bear curve flattener
    
  • Block, 10,000 0QX3 95.50/95.75 call spds, 4.0 ref 95.385
  • Block, 5,000 SFRU4 95.00/95.50/96.00 call flys, 5.0 ref 95.115
    
  • Block, 15,000 SFRH4 94.00/94.12 put spds 1.0 ref 94.63
    
  • 3,250 SFRF4 94.56/94.62/94.69/94.75 call condors ref 94.625
    
  • 2,000 0QX3 95.12/95.25/95.37 put flys, ref 95.35
  • over 6,000 SFRZ3 94.62 calls outright, ref 94.56

• Treasury Options:
  • +10,000 wk2 10Y 105.5/108 call over risk reversals, 2 vs. 106-24.5
  • 1,250 USZ3 111/113/115/117 call condors
  • -4,000 wk2 30Y 106 puts, 14
  • *another +12,000 wk2 TY 105 puts, 11 (exp Nov 10)
  • 2,000 TYZ3 103/104.5 3x2 put spds vs. TYZ3 108/109.5 2x3 call spds ref 106-01.5
  • over 5,100 TYZ3 104.5 puts, 22 ref 106-02.5
  • *+5,000 wk2 TY 105 puts, 16 ref 105-31.5 (exp Nov 10)
  • 4,000 FVZ3 104.25/105 call spds ref 104-11.5
  • 2,800 TYZ3 104.75 puts, 26 ref 105-29

EGBs-GILTS CASH CLOSE: Afternoon Rally Ahead Of Fed, BoE

Bunds outperformed Gilts Wednesday as US developments set a bullish tone, helping reverse early weakness.

• In a quiet session for European data/speakers (a holiday was observed across much of the region), a combination of smaller-than-expected announced US supply at the Treasury's quarterly refunding and a weak ISM Manufacturing PMI print spurred afternoon gains in risk assets and core FI alike, led by a strong long-end UST rally.
• The UK curve twist flattened with 2Y yields higher ahead of Thursday's BoE decision (our preview went out this morning). Bunds outperformed in a German curve bull flattening move out to the 10Y segment.
• Periphery EGB spreads clawed back earlier losses in the afternoon, with 10Y BTP/Bund spreads tightening from wides above 200bp.
• The Federal Reserve decision and communications will be the focus this evening, and Thursday's European schedule is busy.
• The morning sees the Norges Bank decision, German labour market data, final Oct PMIs, and an appearance by ECB's Lane. We also get Spanish and French supply.
• Later, the BoE decision is set to be the main event: with a rate hold almost assured, MNI thinks the main driving factor is likely to be the vote breakdown, with <3 hawkish dissenters potentially seeing a small dovish reaction in markets.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.5bps at 2.991%, 5-Yr is down 3.9bps at 2.616%, 10-Yr is down 4.2bps at 2.764%, and 30-Yr is down 2bps at 3.074%.
• UK: The 2-Yr yield is up 1.7bps at 4.797%, 5-Yr is down 0.8bps at 4.458%, 10-Yr is down 1.3bps at 4.499%, and 30-Yr is down 1.5bps at 4.961%.
• Italian BTP spread up 4.3bps at 196.3bps / Spanish down 0.3bps at 107.4bps

EGB Options: Several Call Spread Structures Wednesday

Wednesday's Europe rates / bond options flow included:

• ERH4 96.12/96.25cs vs ERU4 96.6296.75cs, bought the Sep for 1.5 in 10k.
• ERM4 96.50/96.62cs sold at 3.5 in 10k.
• 0RZ3 97.25/97.62cs vs ERZ3 96.50/96.87cs, sold the mid at 2.25 in 6k
• 0RF4 97.25/97.50 1x2 cs bought for 0 in 5k (bought the 1 leg)
• SFIH4 94.80/94.95/95.05 call fly vs 94.45/94.35 put spread - pays 0.5 for the call fly in 5k

FOREX Mixed Performance in G10 Amid Significantly Lower US Yields

• Despite the significantly lower yields in the US, the USD index trades close to unchanged as we approach the APAC crossover, with G10 currencies exhibiting mixed performance across Wednesday’s session.
• The key outperformer has been the Australian dollar with a number of factors working in favour of the AUD on Wednesday. Primarily, the outperformance of major equity indices has underpinned the Aussie’s resilience. Additionally, the break lower in EURAUD is also adding to the theme, there a multi-year uptrendline drawn off the 2022 low that is being tested in AUD’s favour today.
• While this could also be weighing on the broad single currency, it is worth noting that there were muted volumes across EUR given the European holidays, leaving EURJPY (-0.70%) pullback of the sharp Tuesday rally to lead the Euro’s decline.
• A brief EURUSD rally on treasury refunding headlines faded ahead of the Fed and with the FOMC changing very little and appearing to maintain its tightening bias, EURUSD made fresh lows for the week at 1.0517 in the aftermath of the Fed decision. However, the extension lower for US yields eventually filtered through into the greenback weakening which saw EURUSD rise back to 1.0565, but remains moderately lower on the day.
• The lower yields and higher equities benefitted some major EM currencies substantially, with the likes of USDMXN and USDBRL falling an impressive 1.35%.
• The action continues on Thursday with the Bank of England rate decision before focus turns to the US employment report on Friday.

FX Expiries for Nov02 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0450(E1.3bln), $1.0475(E875mln), $1.0520-30(E915mln), $1.0540-45(E2.4bln), $1.0600(E579mln), $1.0625-30(E724mln), $1.0650(E1.5bln)
• USD/JPY: Y150.00-20($1.0bln), Y151.00($1.5bln), Y151.50($620mln), Y152.00($2.4bln), Y152.50($692mln)
• GBP/USD: $1.2130-50(Gbp973mln)
• AUD/USD: $0.6310-15(A$1.5bln), $0.6330(A$666mln), $0.6400-20(A$1.5bln)
• NZD/USD: $0.5900-15(N$673mln)
• USD/CAD: C$1.3875($680mln)
• USD/CNY: Cny7.3300($857mln)

Late Equity Roundup: IT, Communication Services Outperform

• Stocks holding near late session highs after the FOMC left rates steady for the second consecutive meeting. Stocks followed Tsys higher after Chairman Powell stated "we have come very far with this rate hiking cycle, very far." Currently, DJIA is up 232.71 points (0.7%) at 33285.9, S&P E-Mini futures up 47.5 points (1.13%) at 4260, Nasdaq up 213.5 points (1.7%) at 13064.06.
  
• Leaders: Information Technology and Communication Services sectors continue to outperform, software and semiconductor makers supporting the former: Advanced Micro Devices +9.27%, Arista Networks +5.07%, Western Digital +4.06%, Micron +3.69%. Interactive media and entertainment stocks buoyed Communication Services: Meta +3.28%, Netflix +1.95%, Google +1.75%.
  
• Laggers: Materials and Energy sectors lagged in the second half, container and packaging shares weighing on the former: Amcor -1.91%, Sealed Air -1.67%, Ball Corp -1.27%. Energy sector saw oil and gas shared lagging: Conoco Philips -1.23%, EOG Resources -0.95%, Chevron -0.81%.
  
• Reminder that a slew of corporate earnings annc's are expected after the close ,include: Allstate, Williams Cos, Avis Budget Group, Zillow, Ingersoll Rand, DoorDash, Electronic Arts, American International Group, Albemarle Corp, MetLife Inc, Marathon Oil, Airbnb, Roku, Etsy, QUALCOMM, PayPal and APA Corp.

E-MINI S&P TECHS: (Z3) Gains Considered Corrective

• RES 4: 4455.75 Trendline resistance drawn from the Jul 27 high
• RES 3: 4430.50 High Oct 12
• RES 2: 4359.41 50-day EMA
• RES 1: 4278.42 20-day EMA
• PRICE: 4256.75 @ 1550ET Nov 1
• SUP 1: 4122.25 Low Oct 27
• 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 maintain a softer tone and the latest recovery appears to be a correction. The contract traded to a fresh cycle low last Friday. The recent breach of support at 4235.50, Oct 4 low and bear trigger, confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. MA studies are in a bear-mode position too. The focus is on 4100.00. Initial firm resistance is at 4278.42, the 20-day EMA.

COMMODITIES: US Stock Build Helps Erase Crude Gains

• Crude has erased all its earlier gains, seemingly helped by a build in US stocks despite one being expected, although with the intraday decline halted by a tailwind from the softer USD index following a dovish leaning Powell.
• Earlier gains had come Iran’s Supreme Leader Ali Khamenei for Muslim countries to stop oil exports to Israel boosted prices.
• Iran's IRGC-linked Tasnim News Agency reporting comments from Supreme Leader Ayatollah Ali Khamenei calling for the export of oil and food to Israel to be cut and arguing that Muslim countries should halt economic cooperation with Israel amid the widening IDF ground offensive into Gaza.
• EIA Weekly US Petroleum Summary - w/w change week ending Oct 27: Crude stocks +773 vs Exp +1,001, Crude production 0, SPR stocks 0, Cushing stocks +272
• WTI is -0.2% at $80.85 with an earlier low of $80.33 coming close to a key support at $80.20 (Oct 6 low).
• Brent is -0.05% at $84.98 with an earlier low of $84.63 coming close to support at $84.09 (Oct 11 low) after which sits a bear trigger at $82.20 (Oct 6 low).
• Gold is -0.3% at $1978.53, having not troubled support at $1947.0 (20-day EMA) or resistance at $2009.4 (Oct 27 high).

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
02/11/2023	0030/1130	**		AU	Trade Balance
02/11/2023	0730/0830	***		CH	CPI
02/11/2023	0815/0915	**		ES	IHS Markit Manufacturing PMI (f)
02/11/2023	0845/0945	**		IT	S&P Global Manufacturing PMI (f)
02/11/2023	0850/0950	**		FR	IHS Markit Manufacturing PMI (f)
02/11/2023	0855/0955	**		DE	Unemployment
02/11/2023	0855/0955	**		DE	IHS Markit Manufacturing PMI (f)
02/11/2023	0900/1000	***		NO	Norges Bank Rate Decision
02/11/2023	0900/1000	**		EU	IHS Markit Manufacturing PMI (f)
02/11/2023	1100/1200			EU	ECB's Lane lectures on EZ monetary policy
02/11/2023	1200/1200	***		UK	Bank Of England Interest Rate
02/11/2023	1200/1200	***		UK	Bank Of England Interest Rate
02/11/2023	1230/0830	***		US	Jobless Claims
02/11/2023	1230/0830	**		US	WASDE Weekly Import/Export
02/11/2023	1230/0830	**		US	Preliminary Non-Farm Productivity
02/11/2023	1230/1230			UK	MPR Press Conference
02/11/2023	1400/1000	**		US	Factory New Orders
02/11/2023	1400/1400			UK	BOE DMP Survey
02/11/2023	1430/1030	**		US	Natural Gas Stocks
02/11/2023	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
02/11/2023	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
02/11/2023	1730/1830			EU	ECB's Schnabel presentation at Fed St Louis
03/11/2023	2200/0900	*		AU	IHS Markit Final Australia Services PMI