MNI ASIA MARKETS ANALYSIS: Speakers Quell Doves Ahead Blackout

US Tsys Off Lows Despite SF Fed President Daly Comments

• US treasury futures are drifting off lows despite headlines from SF Fed President Mary Daly interview on Fox Business in the last few minutes. Leaning toward the hawkish side of balanced, Daly's comments strike a familiar refrain for the week:
  • PREMATURE TO THINK RATE CUTS AROUND THE CORNER
  • WE HAVE A LOT OF WORK LEFT TO DO ON INFLATION
  • NEED MORE EVIDENCE TO FEEL CONFIDENT TO ADJUST POLICY RATE
  • ANY EARLY SIGNS THAT LABOR MARKET COULD FALTER COULD ALSO TRIGGER POLICY ADJUSTMENT
• Mar'24 10Y futures climbed back to 111-06 (-.5) before settling back in at 111-04, well inside technical ranges: initial support of 110-26 Intraday low, resistance above at 111-28+/112-26+ (20-day EMA / High Jan 12). 10Y yield remains well above 4% at 4.1437% (0.17) vs. 4.1957% session high.
• Reminder, SF Fed Daly will attend a fireside chat/economic roundtable with Q&A at 1615ET.
• Fast two-way in Treasury futures reported after the UofM data came out much higher than expected, but quickly reversed course to session low (TYH4 110-26).
  
  • U. of Mich. Sentiment (78.8 vs. 70.1 est, 69.7 prior)
  • Expectations (75.9 vs. 67.0 est, 67.4 prior)
  • Current Conditions (83.3 vs. 73.0 est, 73.3 prior)
  • Inflation expectation dip slightly:
    • 1 Yr Inflation (2.9% vs. 3.1% est, 3.1% prior)
    • 5-10 Yr Inflation (2.8% vs. 3.0% est, 2.9% prior)
    • Meanwhile, Existing Home Sales lower than expected (3.78M vs. 3.83M est), MoM (-1.0% vs. 0.3% est, 0.8% prior).
  • Trading desks tied the post-data sell-off to ongoing rate cut unwinds, but took a stab at buying the dip.

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00072 to 5.33594 (-0.00204/wk)
• 3M -0.00201 to 5.31580 (-0.00073/wk)
• 6M -0.00430 to 5.15933 (+0.00586/wk)
• 12M -0.00421 to 4.79849 (+0.00871/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (-0.01), volume: $1.746T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $671B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $659B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $87B
• Daily Overnight Bank Funding Rate: 5.31% (-0.01), volume: $260B

FED Reverse Repo Operation

• RRP usage climbs to $625.182B vs. $618.234B Thursday. Compares to $583.103B on Tuesday - the lowest level since mid-June 2021.
• Meanwhile, the number of counterparties recedes to 79 from 81 on Thursday (65 Tuesday, the lowest since July 7, 2021)

SOFR/TREASURY OPTION SUMMARY

• SOFR Options:
  • 15,000 SFRM4 95.37/95.62 call spds vs. SFRM4 94.87 puts ref 95.255
  • 3,000 SFRM4 94.87/95.12 put spds, ref 95.29
  • 7,500 SFRZ4 96.87/97.12 call spds, ref 96.045
  • 4,000 0QG4 96.25/96.37 put spds, ref 96.315
  • 4,000 SFRM4 95.50/95.75 call spds vs. SFRM4 94.87/95.06 put spds ref 95.33
  • 6,000 SFRK4 95.50/95.75/95.87 broken call flys vs. SFRK4 94.87/95.00 put spds ref 95.33
  • 3,000 3QJ4 97.50/97.62 call spds ref 96.44
• Treasury Options:
  • 3,000 TYH4 111/111.5 put spds, 13 ref 111-01
  • 1,500 FVH4 108/109/110 call flys ref 107-20.5
  • +5,000 TYH4 116 calls, 3 ref 111-01
  • 1,700 TYM4 106/107.5/109 put flys
  • 5,000 FVH4 108.25 calls ref 107-21
  • 5,000 FVH4 108.25 calls ref 107-21
  • 6,000 wk3 TY 111/111.5 strangles, 5
  • 5,000 TYH4 108/109 put spds ref 111-08
  • 3,900 TYH4 112.5 calls, 24 last
  • 3,600 TYG4 112 calls, 7 last

FOREX Equities Rally Weighs Modestly On Greenback, USD Index Remains +0.85% on Week

• A significant shift higher for US yields this week sees the USD index set to close 0.85% in the green. A mid-week dip in equity sentiment briefly prompted the DXY to extends the week’s advance to 1.2%, although the more stable backdrop has prompted a moderate paring of gains over the past two sessions. With yield differentials the key focus, the greenback’s advance has been most notable against the Japanese Yen, with USDJPY up a further 2.3% this week.
• This week’s USDJPY gains resulted in a break of 146.41, the Jan 11 high, confirming a resumption of the bull cycle. The move higher opens 149.16 next, a Fibonacci retracement. On the downside, a key short-term support has been defined at 144.36, the Jan 12 low. Clearance of this level is required to signal a top. Initial support moves up to 147.08, the Jan 17 low.
• Ahead of the ECB next week, it is worth noting that EURUSD maintains a short-term weaker tone. The week’s move lower has resulted in the break of a trendline drawn from the Nov 1 low, signalling scope for a continuation of the corrective cycle. Note that key support at 1.0877, the Jan 5 low, has been pierced. A clear breach would further reinforce bearish conditions and open 1.0793, a Fibonacci retracement. Resistance is at 1.0998, Jan 5 high. A break would signal a reversal.
• After a subdued couple of sessions for G10 FX overall, markets will be paying attention to the Bank of Japan decision and New Zealand CPI on Tuesday. Focus then quickly turns to European flash PMIs and the BOC on Wednesday. The action continues on Thursday with the European central bank decision and press conference, as well as the advanced reading of Q4 US GDP, which will include an estimate of Dec core PCE.

FX Expiries for Jan22 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700(E671mln), $1.0800-01(E535mln), $1.1000(E660mln), $1.1080-90(E1.5bln)
• USD/JPY: Y143.50($1.2bln), Y148.00($1.1bln), Y148.50($874mln), Y149.50($688mln)
• AUD/USD: $0.6535(A$777mln), $0.6575-80(A$791mln), $0.6600-05(A$740mln)

Late Equities Roundup: IT Leads SPX Eminis to New Contract Highs

• Stocks remain well bid late Friday, SPX Eminis scaling off contract highs of 4874.25 amid modest selling/position squaring ahead of the weekend.
• Information Technology shares continue to lead while Financials outpaced Communication Services shares in the second half. Currently, S&P E-Mini futures are up 55 points (1.14%) at 4866.75, DJIA is up 399.5 points (1.07%) at 37873.21, Nasdaq up 226.5 points (1.5%) at 15283.73.
• Leading gainers: Chip stocks and hardware makers led gainers in the IT sector amid ongoing/widening AI demand: Broadcom +6.03%, Lam Research +4.92%, Texas Instruments +4.79%, Qualcom +4.71%. Meanwhile, bank shares buoyed Financials in late trade: M&T Bank +5.20%, KeyCorp +4.62%, US Bancorp +3.74%.
• Laggers: Utilities and Consumer Staples sectors underperformed in the second half. Independent power and water providers weighed on the former: AES -2.36%, NextEra Energy -0.80%, American Water Works -.25%. Food and beverage shares weighed on the former: Bunge Global -1.21%, Hormel -0.97%, Tyson Foods -0.77%.
• Corporate earnings resume Monday: United Airlines, Brown & Brown and AGNC Investments expected to announce after the close.

COMMODITIES: WTI Fades But Holds Onto The Week’s Gains, Outperforming Brent

• Crude is trading lower on the day, more than reversing earlier gains as a slight recovery in North Dakota’s production levels and a bearish outlook for demand counter Middle East conflict risks and Libya’s production disruptions.
• Russian and Chinese ships don’t need to fear attack in the Red Sea, Mohammad al-Bukhaiti, spokesman for Yemen’s Houthi militants. A Spokesperson also said Saudi & UAE Not Targets, but warned of cooperation with the US
• Crude oil and refined product diversions due to Red Sea shipping attacks amount to 28mbbls according to OB.
• North Dakota’s oil production remains down around 350-400k b/d, according to the pipeline authority. A return to normal production levels could take a month or more.
• WTI is -0.4% at $73.80 off the earlier high of $74.91 having cleared resistance at $74.28 (50-day EMA) to open the bull trigger at $76.18 (Dec 26 high).
• Brent is -0.3% at $78.85 off the earlier high of $79.73 although that stopped short of resistance at $80.75 (Jan 12 high) after which sits key resistance at $81.45 (Dec 26 high).
• Gold is +0.3% at $2029.26, with more modest gains after yesterday’s bounce although it can’t shake off sizeable declines for the week as the USD index broadly consolidates its strong increase earlier in the week.
• Weekly moves: WTI +2.5%, Brent +0.7%, Gold -1.0%, US nat gas -18%, EU TTF nat gas -11%

MONDAY/TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
22/01/2024	1630/1130	*		US	US Treasury Auction Result for 13 Week Bill
22/01/2024	1630/1130	*		US	US Treasury Auction Result for 26 Week Bill
23/01/2024	0300/1200	***		JP	BOJ policy announcement
23/01/2024	0700/0700	***		UK	Public Sector Finances
23/01/2024	1330/0830	**		US	Philadelphia Fed Nonmanufacturing Index
23/01/2024	1355/0855	**		US	Redbook Retail Sales Index
23/01/2024	1500/1600	**		EU	Consumer Confidence Indicator (p)
23/01/2024	1500/1000	**		US	Richmond Fed Survey
23/01/2024	1630/1130	**		US	US Treasury Auction Result for 52 Week Bill
23/01/2024	1630/1130	*		US	US Treasury Auction Result for Cash Management Bill
23/01/2024	1800/1300	*		US	US Treasury Auction Result for 2 Year Note