MNI ASIA MARKETS ANALYSIS: Paring Post PPI Highs

US TSYS Inside Range Into Early Holiday Close

• Still weaker, Tsy futures back near midmorning highs at the early close" TYH4 at 112-13.5 (-5.5) last, compares to session low of 112-07 -- well inside technical levels: initial resistance above at 112-26+ (High Jan 12), initial support at 111-06+ (Low Jan 05)
• Volumes remain very light, TYH4 just over 250k, with most markets closed in observance of the Martin Luther King Holiday. Monday Globex re-open at 1800ET precedes normal session hours Tuesday.
• As noted earlier, Tsys appeared to follow EGBs lead after ECB Holzmann's hawkish opinion of no rate cut in 2024. On the flipside, former ECB economist Riccardo Trezzi told MNI he expects the ECB to reduce its benchmark deposit rate by around 150 basis points this year.
• Cross assets: CME S&P Eminis see-saw off lows: ESH4 -3.0 at 4813.5 (DJIA and Nasdaq closed for MLK holiday), Crude weaker (WTI -.23 at 72.45), Gold firmer: +5.79 at 2054.85.

FIXES AND PRIOR SESSION REFERENCE RATES

No settles for Monday due to Martin Luther King holiday, below are Friday's fixes for reference:

SOFR Benchmark Settlements:

• 1M +0.00482 to 5.33798 (-0.00126/wk)
• 3M +0.00254 to 5.31653 (-0.01273/wk)
• 6M -0.00218 to 5.15347 (-0.03937/wk)
• 12M -0.01317 to 4.78978 (-0.06472/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.648T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $681B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $668B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $96B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $255B

SOFR/TREASURY OPTION SUMMARY

SOFR put trade gathered momentum as weaker underlying took cues from EGBs following hawkish ECB Holzmann comments: "SHOULDN'T COUNT ON RATE CUTS AT ALL IN 2024" Bbg. Better call trade on lighter volumes overnight. Projected rate cuts for the first half of 2024 receded slightly: January 2024 cumulative -1.1bp at 5.318%, March 2024 chance of rate cut -71.2% vs. -77% late Friday w/ cumulative of -18.9bp at 5.139%, May 2024 still fully pricing in 25bp cut now, cumulative -47bp at 4.859%. June 2024 cumulative -78.1bp at 4.548%. Fed terminal at 5.3275% in Jan'24.

• SOFR Options:
  • Block 5,000 SFRU4 96.00/96.50 call spds 3.5 over 2QU4 97.12/97.62 call spds
  • 4,625 SFRH4 95.25 puts vs. 96.75/97.00 call spd ref 96.59
  • 5,000 SFRZ4 97.75/98.00 call spds ref 96.31
  • 6,000 SFRH4 95.00/96.00 1x2 call spds
  • 2,500 SFRM4 94.75/95.00 2x1 put spds
  • 7,000 SFRH4 95.12/95.37 1x2 call spds
  • 22,000 SFRM4 95.25/95.50/95.75 put trees
  • 10,600 2QJ4 95.75/96.00/96.25 put trees
  • 9,000 SFRH4 95.12 calls ref 94.98/0.32%
  • 2,000 SFRH4 95.00/95.12/95.25/95.37 call condors ref 94.98
  • 4,000 SFRZ4 96.50 calls ref 96.32/0.38%
  • 5,000 0QH4 96.87/97.37 call spds 9.5 ref 96.645/0.19%
  • 2,000 0QM4 96.00/96.25 put spds ref 96.765/0.09%
  • 2,500 SFRJ4 95.25/95.37/95.50 put flys
  • 2,000 SFRJ4 95.87/96.00/96.12 call flys ref 95.535
• Treasury Options:
  • 3,000 wk3 TY 111.75 puts, 8 ref 112-09
  • over 9,000 TYG4 111 puts, 6 last
  • 4,000 TYG4 114 calls, 6 last
  • 2,000 FVG4 109.25 calls, 10.5 ref 108-19.75

EGBs-GILTS CASH CLOSE: German Short End Retreats On ECB Cut Pushback

Bunds underperformed Gilts Monday in a quieter session amid a US bond market holiday.

• The German curve bear flattened, with short-end underperformance reflecting 2024 rate cut pushback from across the ECB hawk-dove spectrum: this included Nagel, Holzmann, Herodotou, and (on Saturday) Lane.
• By comparison to Bunds, Gilt yields were steady across the curve, ahead of labour market and inflation data out Tuesday and Wednesday.
• Periphery spreads widened slightly, with GGBs underperforming.
• Data included soft (as expected) Eurozone industrial production data and an in-line German 2023 GDP growth estimate that underlined weakness in domestic demand.
• On Tuesday, in addition to the UK labour market data, we get final German/Italian inflation and the ZEW survey, with ECB inflation expectations featuring. Additionally we have appearances by ECB's Villeroy and BoE's Bailey.

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

• Germany: The 2-Yr yield is up 8.1bps at 2.598%, 5-Yr is up 6.4bps at 2.142%, 10-Yr is up 4.9bps at 2.233%, and 30-Yr is up 4bps at 2.435%.
• UK: The 2-Yr yield is up 0.1bps at 4.161%, 5-Yr is up 0.9bps at 3.67%, 10-Yr is up 0.4bps at 3.797%, and 30-Yr is up 2.7bps at 4.451%.
• Italian BTP spread up 2.3bps at 157.3bps / Greek up 2.4bps at 108.2bps

EGB Options: Mixed Rates Trade Monday

Monday's Europe rates/bond options flow included:

• ERG4 96.25/96.37/96.62c fly, bought for 2 in 2.25k
• ERH4 96.25/96.12/96.00p fly, 1x3x2, bought for 3 in 2.5k
• ERK4/ERM4 96.75/96.62/96.50/96.25p condor strip, bought for 4.25 in 10k
• SFIK4 95.30/95.45/95.60c fly, bought for 2.5 in 5k
• SFIM4 95.45/95.55/95.65/95.75c condor, bought for 1.25 in 5k

FOREX Early Yen Weakness Consolidates, NZD Underperforms

• Despite a US session that was void of any meaningful moves across the currency space, early weakness for the likes of the Japanese Yen and New Zealand dollar have been consolidated as we approach Tuesday’s APAC crossover.
• USD/JPY's spot strength (+0.62%) on Monday puts the pair within range of the more sizeable option expiries rolling later this week, with over $4bln notional set to roll-off between Y145.70-00 across the Tues-Friday NY cuts. Close proximity of the more notable strikes likely aiding the pullback in 1w vols today, which is nearing the lowest levels of the year so far. However, subdued front-end vols unlikely to persist, with the BoJ decision next week (Jan23) likely to become a focal point for markets.
• Spot moves today further undermining a recent bearish theme for USDJPY and instead highlights potential scope for a continuation of the bull cycle, opening 147.32, the Dec 7 high.
• NZD (-0.61%) screens as the worst performer in G10, alongside JPY, and maintains the downward bias seen in 2024. NZDUSD fell just short of immediate support seen at 0.6181.
• The tilt towards greenback strength was potentially aided by the ongoing tensions surrounding the red sea. There has been a very tight range for the likes of EURUSD with earlier lows intact at 1.0934, with the Jan11 low just below at 1.0930. USD/CAD has maintained an upward bias also, adding to recent strength and briefly putting the pair above last week's peak at 1.3443 - the YTD high.
• UK employment data and German ZEW sentiment figures cross tomorrow morning. That will be followed by Canadian CPI for December, alongside US Empire State Manufacturing data. Bank of England Governor Bailey is due to testify on the UK economy before the Lords Economic Affairs Committee.

FX Expiries for Jan16 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800(E1.5bln), $1.0922-25(E1.1bln), $1.0965-75(E968mln), $1.1015-25(E863mln), $1.1075-85(E1.5bln)
• USD/JPY: Y144.00($585mln), Y144.25-50($759mln), Y146.80-00($1.5bln), Y147.50($629mln)
• AUD/USD: $0.6455(A$1.0bln), $0.6840-45(A$2.0bln)
• USD/CNY: Cny7.1700($530mln)

COMMODITIES Crude Oil Lower On Net Despite Continued Red Sea Disruption

• Crude futures are off lows but have still softened through the day despite continued disruption in the Red Sea, driven by a stronger dollar and a lack of material effects on supply due to diversions around the Cape of Good Hope.
• The Red Sea remains too dangerous for merchant ships to pass due to Houthi attacks according to shipping trade group BIMCO citing the US Navy.
• Navcent confirmed on X that the US-owned Gibraltar Eagle container ship had suffered a missile attack from Houthi rebels at 1pm GMT Jan. 15 in the seas southeast of Aden. No damage is reported. On the matter, about 209 tankers or 4% of the active tanker fleet are caught up in Red Sea escalations according to an Oil Brokerage note Sunday.
• The discount on Western Canadian Select v WTI narrowed by $1.20/b to $17.75/b, sources told Bloomberg, after the country’s energy regulator approved a variance request to the Trans Mountain Pipeline.
• WTI is -0.5% at $72.32 whilst Brent is -0.3% at $78.04, both remaining within last week’s range and not troubling technical levels.
• Gold is +0.3% at $2055.35 despite a stronger USD, with the yellow metal buoyed by increased geopolitical risks following Houthi strikes. Resistance is seen at $2064.0 (Jan 5 high).

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
16/01/2024	0700/0800	***		DE	HICP (f)
16/01/2024	0700/0800	**		NO	Norway GDP
16/01/2024	0700/0700	***		UK	Labour Market Survey
16/01/2024	0900/1000	**		IT	Italy Final HICP
16/01/2024	0900/1000	**		EU	ECB Consumer Expectations Survey
16/01/2024	0900/1000			EU	ECB's De Guindos in ECOFIN meeting
16/01/2024	1000/1100	***		DE	ZEW Current Conditions Index
16/01/2024	1000/1100	***		DE	ZEW Current Expectations Index
16/01/2024	1000/1000	*		UK	Index Linked Gilt Outright Auction Result
16/01/2024	1315/0815	**		CA	CMHC Housing Starts
16/01/2024	1330/0830	***		CA	CPI
16/01/2024	1330/0830	**		US	Empire State Manufacturing Survey
16/01/2024	1500/1500			UK	BOE's Bailey Lords Economic Affairs Committee
16/01/2024	1600/1100			US	Fed Governor Christopher Waller
16/01/2024	1630/1130	*		US	US Treasury Auction Result for 13 Week Bill
16/01/2024	1630/1130	*		US	US Treasury Auction Result for 26 Week Bill
16/01/2024	1800/1300	*		US	US Treasury Auction Result for Cash Management Bill