MNI ASIA MARKETS ANALYSIS: Strong Data Persists

HIGHLIGHTS

• MNI BRIEF: Fed Could Hike 50bps If Inflation Worsens - Mester
• MNI NATO: Senate Minority Leader To Urge NATO Members To Increase Defence Spending
• MNI US: Trump Report - No Widespread Fraud In GA 2020, Indictments Remain Sealed
• MNI SECURITY: Moldova Approves Pro-Western Govt Following "Coup" Allegations
• BOE'S HUW PILL: SUGGESTS SLOWDOWN IN PACE OF RATE HIKES, Bbg

US TSYS: Potential Pivot From Feb 1 FOMC Pivot?

Heavy session volumes (TYH3>1.8M) as rates extend past midmorning lows (30YY 3.9262% high) as StL Fed Bullard puts his thumb on the scale stating he wouldn't rule out a move back to 50bps hike at the March 22 FOMC. Yield curves hold onto steeper levels, however, 2s10s +5.338 at -78.306. Reminder, Cleveland Fed Mester speaks about her economic outlook later this evening (1815ET).

• Tsy had gapped lower earlier as PPI (+0.7%, ex-food/energy +0.5%) and Jobless (194K) both indicated strength and inflation, while Philly Fed at -24.3 has only been lower in covid spike and the global financial crisis.
• The sell-off accelerated on comments from Fed Mester that rates need to rise above 5% and stay there for some time, warning inflation risks are still tilted to the upside and the cost of prematurely loosening policy outweighs the cost of doing too much. Mester "SAW A 'COMPELLING' CASE FOR 50 BPS HIKE AT LAST FOMC MEETING .. adding the "FED CAN ACCELERATE PACE OF HIKES IF CONDITIONS WARRANT" Bbg.
• Fed funds implied hike for Mar'23 +2.1 at 28.2bp, May'23 cumulative +3.2 at 49.2bp to 5.073%, Jun'23 +3.4 at 63.4bp to 5.215%, terminal at 5.26% in Aug'23.
• Heavy session volumes before noon included several steepener (flattener unwind) blocks (5s/ultra-30s, 2s5s, 10s/ultra-30s) while the roll from Mar'23 to Jun'23 Tsy futures has begun.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00372 to 4.55814% (-0.00115/wk)
• 1M -0.00357 to 4.59786% (+0.01986/wk)
• 3M +0.02429 to 4.90086% (+0.03143/wk)*/**
• 6M +0.00014 to 5.18043% (+0.05329/wk)
• 12M -0.01129 to 5.57314% (+0.08857/wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.90086% on 2/16/23

• Daily Effective Fed Funds Rate: 4.58% volume: $111B
• Daily Overnight Bank Funding Rate: 4.57% volume: $319B

• Secured Overnight Financing Rate (SOFR): 4.55%, $1.239T
• Broad General Collateral Rate (BGCR): 4.53%, $470B
• Tri-Party General Collateral Rate (TGCR): 4.53%, $458B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage rebounds to $2,032.457B w/ 98 counterparties vs. prior session's $2,011.998B. Compares to Friday, Dec 30 record/year-end high of $2,553.716B (prior record high was $2,425.910B on Friday, September 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • Block, 20,000 SFRH3 94.81/95.00 2x1 put spds, 1.0-1.25 ref 95.055 to -.0575
  • Block, 10,000 SFRZ3 94.50 straddle, 36 ref 95.01
  • Block, 46,000 OQM3 95.50 puts, 21.0 vs 95.79/0.44%
  • over +35,000 SFRH3 94.75/94.87 put spds, 0.5
  • -10,000 SFRU3 94.25 puts, 6.0 vs. 94.82/0.16%
  • 9,500 SFRN3 94.62/94.68/94.75 put flys, ref 94.785
  • 27,250 SFRZ3 98.00/100.0 put spds, parity
  • Block, +6,000 SFRZ3 95.00 straddles, 77.0 ref 94.97
  • 4,000 SFRU3 94.25 puts, 6.25 ref 94.765
  • 5,000 SFRH3 95.00 puts, 1.25 ref 95.05
  • Block, 6,000 2QH3 96.50 puts, 17.0 ref 96.455
  • Block, 5,000 OQJ3 95.50/95.75 put spds, 9.25/splits ref 95.85 to -.845
  • 1,300 SFRM3 94.75/95.00/95.25 call trees
  • over 3,000 SFRU3 94.25/94.50 put spds, 6.0 ref 94.82
  • over 9,900 SFRM3 94.62 puts/94.93 calls (strangle or combo)
• Treasury Options:
  • over 25,000 TYH 110.5 puts,
  • over 14,500 FVH3 107 puts, 12.5 ref 107-08 to -08.25
  • over 5,200 FVH3 108.5 calls, 1.5 ref 107-08.75 to -09.25
  • 5,000 TYH3 111/111.75 put spds, 17 ref 111-28
  • 6,000 TYH3 111/112 2x1 put spds, 16 ref 112-02 to -01
  • 1,800 TYH3 112/116/120 call flys, ref 111-26.5
  • 1,300 FVJ3 105/106.5/107.5 put flys ref 107-30.5
  • over 10,000 TYJ3 110 puts, 13 ref 112-25
  • 1,500 TYJ3 109.5/110/111 broken put flys ref 112-23.5
  • 2,500 TYH3 111.5/TYJ3 113 put diagonal spds, 34

EGBs-GILTS CASH CLOSE: Eyeing Overtightening Risks

UK and German yields saw little net change Thursday, coming off intraday highs set after stronger-than-expected US PPI data.

• Gilt and Bund yields hit the highest since early January before fading toward the close. Schatz yields set a fresh post-2008 high.
• Just after the close, BoE's Pill said there's a risk of overtightening rates, echoing comments by ECB's Panetta early in the session.
• However, ECB terminal rate expectations continued to climb (ECB nearing 3.70%), while BoE fell to a week low (Bank Rate seen peaking just below 4.50%).
• Periphery EGB spreads were steady.in a fairly heavy supply day including Italian 30Y syndication and a Spanish Obli auction.
• Attention first thing Friday will be on UK retail sales data.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.2bps at 2.881%, 5-Yr is up 0.8bps at 2.537%, 10-Yr is up 0.3bps at 2.478%, and 30-Yr is up 0.2bps at 2.436%.
• UK: The 2-Yr yield is up 0.5bps at 3.798%, 5-Yr is down 1.6bps at 3.41%, 10-Yr is up 1.2bps at 3.499%, and 30-Yr is up 2.6bps at 3.896%.
• Italian BTP spread down 0.1bps at 185.5bps / Spanish bond spread unchanged at 96.3bps

EGB Options: Schatz Position Changes Prevalent Thursday

Thursday's Europe rates / bond options flow included:

• RXH3 136.50/133.00ps 1x3, sold the 1 at 129 in 1.5k
• RXJ3 141.00/142.50cs, bought for 3 in 4.4k
  DUJ3 106.10/106.50 call spread bought for 2.5 in 20k. Hearing this is short covering. 20k was bought earlier this week at 3.25 in addition
• DUJ3 105.50/105.00 put spread sold at 25.25 in 20k. Hearing unwinding position
• DUJ3 105.20/104.70 1x1.25 put spread bought for 15.5 in 25k. Hearing new position
• ERN3 96.00/96.125cs, bought for 9.5 in 10k

FOREX: Greenback Relinquishes Post Data Strength

• Despite the greenback receiving an initial boost following higher-than-expected US PPI data, the USD index has slowly been giving back these gains and looks set to post a moderate decline on the day as we approach the end of Thursday trade.
• The reversal could be pinned to the offsetting weaker US data, in the form of below expectation Philly Fed Business Outlook and weaker housing starts. Price action has remained lacklustre, with broad dollar indices grinding south throughout the session and major pairs sitting close to Wednesday's closing levels.
• USDJPY briefly topped Wednesday’s high to print at 133.46, however, now resides roughly 70 pips lower and is approaching the day’s lows approaching the APAC crossover.
• Earlier in the week, the pair broke above the key short-term resistance marking the 50-day EMA, suggesting scope for an extension higher that would expose 134.77, the Jan 6 high more broadly.
• However, the more medium-term trend direction remains down, and recent gains are considered technically corrective.
• For EURUSD, the pair made a new marginal low at 1.0655 and despite constantly testing the 50-day EMA throughout the week has firmed towards 1.0700 once again and looks unlikely to close below this touted support.
• On Friday, German PPI and UK retail sales highlight the European docket before US import price index figures for January will be of note. Worth noting that on Monday, the US will be out for President’s Day.

FX: Expiries for Feb17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600(E1.4bln), $1.0665-80(E2.0bln), $1.0695-00(E623mln), $1.0710-20(E542mln), $1.0795-05(E1.1bln), $1.0850-55(E1.4bln)
• USD/JPY: Y133.50($1.9bln), Y134.30-40($1.2bln), Y135.00($3.5bln)
• EUR/JPY: Y142.25(951mln), Y147.00(E1.1bln)
• GBP/USD: $1.2000-20(Gbp692mln), $1.2110-25(Gbp571mln)$1.2400-15(Gbp1.4bln)
• AUD/USD: $0.6800(A$784mln), $0.6870-75($625mln), $0.7000(A$1.2bln), $0.7100(A1.2bln)
• USD/CAD: C$1.3500($651mln)
• USD/CNY: Cny6.7400($1.7bln), Cny6.7590($1.4bln), Cny6.8500($1.1bln), Cny6.8670($1.3bln), Cny7.0000($2.0bln)

Late Equity Roundup: Holding Weaker

Stocks still weaker in late trade, gradually climbing off midmorning lows after strong data increased expectations of more (potentially larger) rate hikes from the Fed to rein in inflation soured early risk appetite. SPX eminis currently trading -31 (-0.75%) at 4127.75; DJIA - 207.87 (-0.61%) at 33920; Nasdaq -103.2 (-0.9%) at 11967.95.

• SPX leading/lagging sectors: several sectors matched weakness Information Technology (-0.75%) weighed by chip stocks (SEDG -4.85%, AMD -2.43%, KLAC -2.38%, ENPH -2.35%), Utilities, Consumer Discretionary and Industrials all -0.70-0.75% after the FI close.
• Leaders: Similarly, Health Care, Consumer Staples, Materials and Real Estate sectors held -0.40-0.45% in late trade.
• Dow Industrials Leaders/Laggers: Microsoft (MSFT) -4.02 at 265.30, Amgen (AMGN) -3.32 at 236.75, Boeing (BA) -3.02 at 214.42. Leaders: Cisco (CSCO) +3.06 at 51.51, Home Depot (HD) +2.78 at 323.47, Apple (AAPL) +0.88 at 156.20
• Earnings after the close: HubSpot (HUBS, $0.83 est), Redfin (RDFN, -$1.01 est), Digital Reality Trust (DLR, $1.67 est), AMN Healthcare (AMN, $2.16 est), Applied Materials (AMAT, $1.94 est), Atlas Air Worldwide (AAWW, $5.20 est).

COMMODITIES: Crude Reverses Overnight Optimism

• Crude oil has seen a volatile session to close out with only a small decline after overnight gains that had been linked to Chinese growth optimism and supply concerns with the planned production cut from Russia in March. The move lower in European and US hours follows yesterday’s drop on the large build in US crude inventories.
• WTI is -0.2% at $78.46, off a low of $77.92 that held easily clear of support at $76.52 (Feb 9 low). The medium-term view remains unchanged, with key resistance seen at $82.66 (Jan 18 high).
• After lighter volumes, the most active strikes in the CLJ3 have been $70/bbl puts.
• Brent is -0.3% at $85.11, also easily holding above $83.05 (Feb 9 low).
• Gold is +0.4% at $1842.84 having recovered from a day’s low of $1827.72 (coming just above a key near-term support at $1825.2, Jan 5 low) after a turnaround in the USD.

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
17/02/2023	0700/0700	***		UK	Retail Sales
17/02/2023	0700/0800	**		SE	Unemployment
17/02/2023	0700/0800	**		DE	PPI
17/02/2023	0745/0845	***		FR	HICP (f)
17/02/2023	0900/1000	**		EU	EZ Current Account
17/02/2023	1330/0830	*		CA	Industrial Product and Raw Material Price Index
17/02/2023	1330/0830	**		US	Import/Export Price Index
17/02/2023	1330/0830			US	Richmond Fed's Tom Barkin
17/02/2023	1445/0945			US	Fed Governor Michelle Bowman
17/02/2023	1500/1000	*		US	Services Revenues