MNI ASIA MARKETS ANALYSIS: Soft US Data Outweighs Policy Hawks

HIGHLIGHTS

• ECB FACED SIZABLE PUSH FAVORING 75 BASIS-POINT RATE HIKE, Bbg
• ECB SAYS RATES STILL NEED TO RISE SIGNIFICANTLY, AT STEADY PACE, Bbg
• LAGARDE: SHOULD EXPECT TO HIKE AT 50BPS PACE FOR PERIOD OF TIME, Bbg

Off Midday Highs, Policy-Driven Vol Receding

Bonds near top end of range after extending session highs (30YY 3.4622% low ahead midday vs. 3.5605% post-ECB high) past midday. Curves bull flattening on average volumes (TYH>1.1M) following a volatile early session.

• Little react to expected 50bp hike from the BOE - not the case following ECB annc: Tsys pared gains after ECB hiked 50bp to 2.0%, focus on persistent inflation at 6.3% in 2023 (5.5% forecast).
• Data driven rebound: Tsys bounced off hawkish ECB guidance lows to new session highs (30YY back down to 3.5042% couple minutes after tapping 3.5605% high) following Empire Manufacturing sharply lower than expected at -11.2 vs. -1.0 est, weekly claims lower than expected at 211k vs. 232k est, retail sales weaker at -0.6% vs. -0.2% est.
• Real vol continues to deliver: Tsys scaled off post-data highs amid hawkish comments from ECBs Lagarde regarding 50bp hikes "for some time".
• While weaker than forecasted data (claims, retail sales and NY mfg index) helped futures jump off post-ECB lows to new session highs, yield curves remain stubbornly flatter: 2s10s -6.648 at -80.667.
  • In-line trade: large 5s/10Y ultra-bond flattener block: -18,125 FVH3 109-10, sell through 109-13.5 post-time bid vs. +8,079 UXTH3 121-30, through 121-29.5 post-time offer.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.50243 to 4.31829% (+0.50029/wk)
• 1M +0.01285 to 4.33771% (+0.06885/wk)
• 3M +0.00142 to 4.73771% (+0.00557/wk)*/**
• 6M +0.02700 to 5.15229% (+0.01258/wk)
• 12M +0.06043 to 5.46729% (-0.03214/wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.77857% on 11/30/22

• Daily Effective Fed Funds Rate: 3.83% volume: $101B
• Daily Overnight Bank Funding Rate: 3.82% volume: $281B

• Secured Overnight Financing Rate (SOFR): 3.80%, $1.045T
• Broad General Collateral Rate (BGCR): 3.76%, $411B
• Tri-Party General Collateral Rate (TGCR): 3.76%, $397B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage recedes to $2,123.995B w/ 98 counterparties vs. $2,192.864B in the prior session. Prior record high stands at $2,425.910B on Friday, September 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • +10,000 2QM3 97.50/97.75/97.87 broken call flys, 5.0
  • Block, -5,000 SFRZ3 95.75 straddles, 96.0 (99.0 set')
  • 2,500 SFRZ4 (Green-Dec) 95.00 puts, 21.5 ref 96.98
  • Block 3,750 SFRH 95.12/95.37/95.62 call flys, 8.0 ref 95.16
  • Block, -5,000 SFRZ3 95.75 straddles, 94.0 (99.0 set')
  • +10,000 SFRZ3 94.00/94.50/95.00/95.50 put condors, 12 vs. 95.75/0.10%
  • Block/screen, 8,500 SFRH 94.93/95.06/95.18/95.31 put condors, 3.75 ref 95.165-.15
• Eurodollar Options
  • Note: December futures and options expire Friday.
• Treasury Options:
  • 3,000 TYH 110/111.5 put spds, 11
  • 3,000 TYG 111/112 put spds, 8 ref 114-25.5-26
  • +3,000 FVF 109.5 calls, 20 vs. 109-16
  • +1,500 TYG 112.5/113/113.5/114 put strip, 2-11
  • Block, 3,750 TYH 114/115.25 put over risk reversal, 6 vs. 114-25/0.62% (2.5k more on screen)
  • 3,000 TYF 111.75 puts
  • 3,500 TYG 113.5 puts, 42 ref 114-24

EGBs-GILTS CASH CLOSE: Dovish BoE Contrasts With Very Hawkish ECB

A hugely busy session Thursday centred on central bank decisions saw EGB yields soar and Gilt yields decline, with periphery spreads widening sharply.

• The BoE hiked by 50bp as expected, but the dovish-leaning 3-way vote split and suggestion that UK inflation had peaked pulled UK yields lower.
• In contrast, the ECB meeting was very hawkish: while the expected 50bp hike was duly delivered, the statement revealed concrete details on QT to start next March, and noted rates "will still have to rise significantly at a steady pace".
• The resultant EGB selloff extended after Lagarde said this could mean 50bp hikes at each of the next 2-3 meetings.
• BTPs saw their biggest sell-off since March 2020, with 10Y yields up 30bp and spreads to Bunds 16bp wider.
• The schedule picks up first thing Friday with UK retail sales and Europe PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 25.4bps at 2.387%, 5-Yr is up 22.7bps at 2.16%, 10-Yr is up 14.3bps at 2.083%, and 30-Yr is up 4.6bps at 1.89%.
• UK: The 2-Yr yield is down 5.5bps at 3.396%, 5-Yr is down 6.6bps at 3.231%, 10-Yr is down 7.1bps at 3.244%, and 30-Yr is down 4.7bps at 3.649%.
• Italian BTP spread up 15.7bps at 208.3bps /Spanish up 4.6bps at 107.8bps

EGB Options: Large Euribor Put Spread Buying Follows Hawkish ECB

• ERZ2 97.75/97.625/97.50p fly, bought for 2.25 in 2k
• Post-ECB:
  • ERM3 96.875/96.75ps, now bought for 6.5 in 20k, was bought earlier for 6 in 10k
  • OEH3 116.50/116.00ps sold at 14 in 5k

FOREX: Dampened Sentiment Bolsters Greenback, AUDUSD Plummets

• The widespread dampening of risk sentiment across global markets has prompted a strong recovery for the US Dollar on Thursday. The USD index has seen a strong recovery over the course of the US session, advancing 0.75% on the day as hawkish central bank rhetoric continues to hamper the mood across equity indices
• Despite a hawkish ECB president Lagarde, EURUSD had a swift turn lower, making new session lows below 1.0600, soon after reaching fresh six-month highs during the press conference at 1.0735.
• Losses against the greenback are broad based across G10, however, underperformance for commodities and in particular metals is significantly weighing on AUD, which has plummeted ~2.5%.
• Despite overall bullish trend conditions AUDUSD has broken initial support at 0.6731, the 20-day EMA and is now approaching the key support level of 0.6657, the 50-day EMA. A clear break of this average would highlight a possible reversal and signal scope for a deeper retracement.
• Not quite as extreme, yet still substantial, GBP, JPY and NZD have all lost between 1.5-1.9% on the session.
• Amid the hawkish ECB, EURGBP (+1.45%) has broken above the 50-day EMA, at 0.8653, which marked a key short-term resistance point and in turn eases the bearish technical threat. This opens up a move to 0.8778, the Nov 16 high.
• No rest on the economic calendar with UK retail sales and Eurozone PMIs headlining a busy European docket on Friday.

FX OPTION EXPIRY

• EURUSD: 1.0600 (551mln), 1.0650 (295mln), 1.0700 (2.09bn).
• GBPUSD: 1.2350 (1.54bn).
• USDJPY: 136.15 (335mln).
• USDCAD: 1.3500 (709mln), 1.3625 (250mln).
• AUDUSD: 0.6770 (235mln).
• NZDUSD: 0.6400 (250mln).
• USDCNY: 0.6990 (600mln), 7.000 (1.3bn).

Late Equity Roundup: Inching Off Lows

Weaker stocks drifting off second half lows. after Tue's shooting star formation candle pattern, e-mini S&P march futures breached key support of 50-day EMA (3960.81) and Dec-7 low (3945.75) to 3910.00 low. Next key support of 3782.75 Nov 9 low. SPX eminis currently trade -95.25 (-2.36%) at 3936.25; DJIA -699.81 (-2.06%) at 33272.27; Nasdaq -326.4 (-2.9%) at 10846.12.

• SPX leading/lagging sectors: Communication Services (-3.74%) continue to underperform, weighed by Netflix (NFLX) -8.73% following 4Q financial results show ad target miss, Warner Bros/Discovery (WBD) -7.83%, Paramount (PARA) -7.80, META -5.64%. Information Technology next up (-3.39%) w/ hardware, software and semiconductor makers evenly underperforming. Leaders: Energy (-0.54%), Real Estate (-0.60%) and Utilities (-0.97%).
• Dow Industrials Leaders/Laggers: Goldman Sach (GS) -10.46 at 349.92, United Health (UNH) -10.37 at 527.99, Microsoft (MSFT) -7.84 at 249.38. Leaders: Verizon (VZ) +0.43 at 37.88, Intel (INTC) -0.97 at 27.37, Coca-Cola (KO) -1.00 at 62.99.

Shooting Star Candle Highlights A Reversal Threat

• A rally in the S&P E-Minis Tuesday saw price trade above 4142.50, Dec 1 high.
• However, a strong reversal, resulted in a sharp move lower and price remains below Tuesday high.
• The contract is trading lower today and this highlights a possible bearish threat.
• Note that Tuesday’s candle pattern is a shooting star formation - a reversal signal.
• Through key support of 3945.75, Dec 7 low to 3915.00 low, next key support 3782.75, Nov 9 low
• Key resistance is 4180.00, Dec 13 high.

COMMODITIES: Oil Rally Fizzles Out With Hawkish ECB, Keystone Partial Restart

• A surprisingly hawkish ECB and a section of the Keystone pipeline restarting saw the three-day, 8% rally in crude oil pause for breath.
• There could be further supply chain disruption ahead: Some of the biggest companies in ship reinsurance are planning to cease to cover key war-related risks for vessels going to Russia and Ukraine by the end of the year according to Bloomberg sources.
• WTI is -0.7% at $76.74 having very briefly tested resistance at the 20-day EMA of $77.50. Support is seen at $73.21 (Dec 13 low).
• Today’s most active strikes in the CLF3 have been $75/bbl puts.
• Brent is -1.1% at $81.81, briefly clearing resistance at the 20-day EMA of $83.04. Support is seen at $78.10 (Dec 13 low).
• Gold is -1.6% at $1778.93 as USD strength resumed in a risk-off environment after the ECB decision and in particular the press conference. It brings the yellow metal closer to support at $1771.9 (20-day EMA).

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
16/12/2022	0001/0001	**		UK	Gfk Monthly Consumer Confidence
16/12/2022	0030/0930	**		JP	IHS Markit Flash Japan PMI
16/12/2022	0700/0700	***		UK	Retail Sales
16/12/2022	0700/0800	**		SE	Unemployment
16/12/2022	0815/0915	**		FR	IHS Markit Services PMI (p)
16/12/2022	0815/0915	**		FR	IHS Markit Manufacturing PMI (p)
16/12/2022	0830/0930	**		DE	IHS Markit Services PMI (p)
16/12/2022	0830/0930	**		DE	IHS Markit Manufacturing PMI (p)
16/12/2022	0900/1000	**		EU	IHS Markit Services PMI (p)
16/12/2022	0900/1000	**		EU	IHS Markit Manufacturing PMI (p)
16/12/2022	0900/1000	**		EU	IHS Markit Composite PMI (p)
16/12/2022	0930/0930	***		UK	IHS Markit Manufacturing PMI (flash)
16/12/2022	0930/0930	***		UK	IHS Markit Services PMI (flash)
16/12/2022	0930/0930	***		UK	IHS Markit Composite PMI (flash)
16/12/2022	1000/1100	*		EU	Trade Balance
16/12/2022	1000/1100	**		IT	Italy Final HICP
16/12/2022	1000/1100	***		EU	HICP (f)
16/12/2022	1030/1330			RU	Russia Central Bank Key Rate Decision
16/12/2022	-			US	'Continuing Resolution On US Government Funding Expires
16/12/2022	-			UK	BOE Announce Q1 Active Gilt Sales Schedule
16/12/2022	1445/0945	***		US	IHS Markit Manufacturing Index (flash)
16/12/2022	1445/0945	***		US	IHS Markit Services Index (flash)
16/12/2022	1700/1200			US	San Francisco Fed's Mary Daly