MNI ASIA MARKETS ANALYSIS: Tsy Ylds Recede Ahead Midweek Data
- GERMANY TO ALLOW OTHER COUNTRIES SUCH AS POLAND TO RE-EXPORT LEOPARD TANKS TO UKRAINE -SPIEGEL
- ECB SHOULD CONTINUE WITH HALF-POINT RATE HIKES, SIMKUS SAYS, Bbg
- U.S. LEANS TOWARD PROVIDING ABRAMS TANKS TO UKRAINE: WSJ
US TSYS: Bonds Regain Footing, Near Late Highs
Tsys holding firmer, near top end session range after extending lows around midmorning, yield curves extend inversion (2s10s -3.299 at -75.263) with Bonds outperforming (30YY -.0638 at 3.6167%).
- Short end weighed down due to moderate deal-tied rate locks and pre-auction short sets ahead today's $42B 2Y note auction (91282CGG0).
- Tsy futures regained upward momentum after strong $42B 2Y note auction (91282CGG0) stops through: 4.139% high yield vs. 4.150% WI; 2.94x bid-to-cover vs. 2.71x prior.
- Cross-market: while Tsys tracked German Bunds around the NY open, the midmorning bounce off lows appeared to be tracking Italian bonds w/ BTP 10Y yld -.11 at 3.92. No obvious headline driver for move in BTPs though ECB hike pricing has receded slightly on recent ECB Panetta comments:
- ITALY’S FISCAL POLICY HAS REMAINED PRUDENT .. CAN AFFORD TO BE `ANXIOUSLY OPTIMISTIC' ON INFLATION .. WE SHOULD REASSESS SITUATION IN MARCH, Bbg -- but not enough to justify such a rally.
- Underlying theme - market depth remains thin and relatively easily moved on smaller orders.
SHORT TERM RATES
US DOLLAR LIBOR: Latest settlements:
- O/N +0.00400 to 4.30857% (+0.000343/wk)
- 1M -0.00728 to 4.50586% (-0.00728/wk)
- 3M +0.00415 to 4.82186% (+0.00629/wk)*/**
- 6M +0.01014 to 5.10857% (+0.00657/wk)
- 12M +0.00171 to 5.34400% (-0.00329/wk)
- * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.82971% on 1/12/23
- Daily Effective Fed Funds Rate: 4.33% volume: $96B
- Daily Overnight Bank Funding Rate: 4.32% volume: $282B
- Secured Overnight Financing Rate (SOFR): 4.30%, $1.150T
- Broad General Collateral Rate (BGCR): 4.26%, $448B
- Tri-Party General Collateral Rate (TGCR): 4.26%, $425B
- (rate, volume levels reflect prior session)
FED Reverse Repo Operation
NY Federal Reserve/MNI
NY Fed reverse repo usage recedes to $2,048.386B w/ 100 counterparties vs. prior session's $2.135.499B. 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 SUMMARYRate hike risk hedging continued Tuesday, Treasury options joining SOFR options after better upside call buying on Monday. Decent volume in Feb'23 and Mar'23 Tsy 10Y puts, put spreads reported (over 31,000 TYG 114 puts, over 22,000 TYH3 111/112 put spds 4-6). Highlight SOFR trade includes:
- SOFR Options:
- Block, 2,500 SFRZ3 94.75/95.12/95.50 4x9x5 put flys, 45.0 net ref 95.605
- +10,000 SFRJ3 94.87/95.00/95.12/95.18 put condors, 0.5 over 95.37/95.50 call spds ref. 95.09
- 2,000 SFRM3 94.93/95.12 2x1 put spds, ref 95.095
- Block, -8,000 OQH3 95.31/95.62 put spds, 3.0 ref 96.125
- 4,000 2QM3 96.25/96.75 put spds, ref 97.16
- Block, 4,500 SFRM3 94.68/94.75 put spds 0.75 vs.95.065/0.05%
- Block, 2,500 OQM3 95.00/95.50/96.00 2x3x1 put flys, 2.5 net ref 96.625
- 2,000 SFRJ3/SFRM3 95.00 put spds ref 95.095
- 3,900 OQK3 95.50 puts 2.5 ref 96.63
- 1,500 SFRZ3 94.62/94.81 put spds, ref 95.61
- 1,500 SFRZ3 94.75/95.00/95.25 put flys ref 95.61
- Block, 2,500 SFRM3 94.68/94.75/94.81 2x1x1 put trees, 2.0 ref 95.095
- Treasury Options:
- Update, over 31,000 TYG 114 puts, latest at 3 ref 114-30.5
- More TYH3 111/112 put spds, over 22,000 from 4-6
- 2,000 TYH3 115 straddles, 152 ref 114-29
- 6,000 TYG3 113.75/114.25 put spds, 12 ref 114-22
- -2,000 TYG 114/114.5 put spds, 12 ref 114-16.5/0.22%
- 1,400 FVJ3 109.5/110.5 strangles, ref 110-00
- over 15,000 TYH3 111/112 put spds, 4-5 ref 114-29.5
- 4,400 TYG3 114 puts, 5 ref 114-29.5
- over 10,000 wk1 TY 116.5/117 call spds, 3-4 ref 114-28 -27.5
EGBs-GILTS CASH CLOSE: Gilts Outperform Bunds As PMIs Diverge
Gilts outperformed Bunds Tuesday as flash PMI outcomes diverged, while periphery EGBs outperformed their core counterparts as ECB hike pricing moderated.
- The flash Eurozone composite PMI was in positive territory in January for the first time since June, while the UK's contracted more than expected, led by a weak services reading.
- There was no particular trigger for the very strong afternoon rally across EGBs (especially given the US PMIs surprised to the upside), which brought yields to session lows, from their session highs mid-afternoon.
- However, it came as ECB hike pricing slid a few basis points with Exec Board's Panetta saying there was not necessarily a commitment to another 50bp hike in March. BTPs outperformed alongside that repricing.
- UK PPI and German IFO are Wednesday's early releases.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 5.4bps at 2.544%, 5-Yr is down 5.2bps at 2.189%, 10-Yr is down 5.1bps at 2.155%, and 30-Yr is down 6.2bps at 2.111%.
- UK: The 2-Yr yield is down 8.7bps at 3.378%, 5-Yr is down 9.7bps at 3.172%, 10-Yr is down 8.3bps at 3.277%, and 30-Yr is down 9bps at 3.622%.
- Italian BTP spread down 6.1bps at 176.1bps / Spanish down 2.2bps at 94.6bps
EGB Options: Outright Put And Call Buying Stands OutTuesday's Europe rates / bond options flow included:
- DUG3 105.60/106.00cs 1x2, sold at 20 in 3k
- DUH3 105.70/105.60/105.50/105.40p condor, bought for 1.25 in 5k
- RXJ3 123.5 put bought for 7.5 in 3.75k
- RXJ3 122.50 put bought for 6 in 4.3k
- RXJ3 146 call, bought for 16 in 3.85k
- RXG3 136/135ps,sold at 6 in 2k
- ERJ3 97.00 calls bought for 1.5 in 10k
FOREX: Post US PMI Greenback Strength Reverses
- Firmer than expected US Manufacturing and Services PMI’s prompted a decent pop in the US dollar on Tuesday. However, this strength quickly reversed course and the USD index looks set to post around a 0.2% decline approaching the APAC crossover.
- USDJPY, once again, had the most significant price action following the data. The pair rallied from 1.3060 to fresh weekly highs of 131.12 but fell short of touted resistance at 131.58, the Jan 18 high. The lack of bullish momentum above the 131 handle dented any optimism and over the course of the US session the pair fell substantially to lows of 129.87 aided by weaker Richmond Fed data, before consolidating around 130. The JPY is the strongest performer in G10, rising 0.5% against the greenback.
- At the other end of the G10 rankings, GBP (-0.35%) is among the poorest performer following a particularly weak set of UK data. Services and composite PMI both fell short of expectations, signalling six consecutive months of contraction across the services sector, with business activity now declining at the fastest pace since the COVID pandemic.
- Markets are now within range of next support at 1.2215/2083, marking the 20-day EMA and Low Jan 9 respectively.
- NOK is also among the session's poorest performers so far, led lower by softer oil prices. Nonetheless, USD/NOK failed to break resistance at the 50- and 200-dmas at 9.9360 and 9.9484 respectively.
- New Zealand and Australia CPI highlight Wednesday’s APAC docket before the focus turns to the Bank of Canada rate decision and press conference.
FX: Expiries for Jan25 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0600-05(E739mln), $1.0900(E549mln)
- USD/JPY: Y129.55($819mln), Y129.90-00($768mln), Y132.00-25($706mln)
- EUR/JPY: Y139.55(E781mln)
- USD/CAD: C$1.3350($520mln), C$1.3375($1.4bln)
Late Equity Roundup: Dow Components Outperform
Major indexes trade mildly mixed after the bell, Dow components continue to outpace SPX and Nasdaq stocks. SPX eminis currently trades -2.5 (-0.06%) at 4034; DJIA +107.43 (0.32%) at 33736.8; Nasdaq -29.3 (-0.3%) at 11335.
- SPX leading/lagging sectors: Industrials (+0.81%) lead gainers with machinery, construction and engineering shares stronger (PCAR +7.93%, CMI +2.78%, RTX +2.72%). Utilities (+0.71%) and Real Estate (+0.57%) follow w/ residential real estate investment trusts leading the latter.
- Laggers: Health Care (-0.65%) weighed by pharmaceuticals and bio-tech stocks (PKI -4.04%, TMO -4.02%, WAT -3.05%). Communication Services (-0.64%) and Energy (-0.52%) followed, the latter weighed by O&G equipment and services names (BKR -1.77%, HAL -1.70%, SLB -0.88%).
- Dow Industrials Leaders/Laggers: Travelers (TRV) +7.00 at 193.86, Caterpillar (CAT) +6.08 at 258.78, Honeywell (HON) +2.95 at 207.41. Laggers: MMM -6.02 at 116.60 after missing earnings expectations this morning ($2.28 EPS vs. 2.36 est), AMGN -1.06 at 259.91, Merck (MRK) -1.40 at 108.48.
E-MINI S&P (H3): Bull Cycle Remains In Play
- RES 4: 4194.25 High Sep 13
- RES 3: 4180.00 High Dec 13 and the bull trigger
- RES 2: 4090.75 High Dec 14
- RES 1: 4056.75 High Jan 23
- PRICE: 4015.00 @ 14:35 GMT Jan 24
- SUP 1: 3901.75/3891.50 Low Jan 19 / Low Jan 10
- SUP 2: 3788.50/78.45 Low Dec 22 / 61.8% of Oct 13-Dec 13 uptrend
- SUP 3: 3735.00 Low Nov 3
- SUP 4: 3670.00 76.4% retracement of the Oct 13 - Dec 13 uptrend
S&P E-Minis traded higher Monday and breached resistance at 4035.25, the Jan 17 high. The break cancels a recent bearish threat and resumes short-term bullish conditions. Note that moving average studies are in a bull mode condition and this reinforces current trend conditions. The focus is on 4090.75 - last seen in mid-December. Key short-term support lies at 3901.75, the Jan 19 low. A break would reinstate a bearish threat.
COMMODITIES: Oil Reverses Course On Growth Concerns
- Crude oil has tilted lower today in a largely one way move after the US open with recession fears sighted and a rally in US fixed income. It unwinds much of the crude rally from the second half of last week in the process.
- Brent’s high of $88.70 failed to reach the technical resistance at $89.18 (Dec 1 high) whilst the prompt spread is back trading negative having only moved positive in trading early yesterday.
- WTI is -1.9% at $80.06 off a high of $82.22 but holding above support at $78.45 (Jan 19 low). By far the most active strikes in the CLH3 today however are $90/bbl and $95/bbl calls.
- Brent is -2.4% at $86.09, holding above key short-term support at the 20-day EMA of $84.07.
- Gold is +0.3% at $1937.13 as it benefits from an on balance weaker DXY index and lower Treasury yields. It touched a fresh cycle high of $1940.7, with moving average studies in a bull mode position with firmer resistance now seen at $1963.0 (76.4% retracement of Mar – Sep 2022 bear leg).
Wednesday Data Calendar
|25/01/2023||0700/1500||**||CN||MNI China Liquidity Suvey|
|25/01/2023||0900/1000||***||DE||IFO Business Climate Index|
|25/01/2023||1200/0700||**||US||MBA Weekly Applications Index|
|25/01/2023||1400/1500||**||BE||BNB Business Sentiment|
|25/01/2023||1500/1000||***||CA||Bank of Canada Policy Decision|
|25/01/2023||1500/1000||CA||Bank of Canada Monetary Policy Report|
|25/01/2023||1530/1030||**||US||DOE weekly crude oil stocks|
|25/01/2023||1600/1100||CA||Bank of Canada Governor press conference|
|25/01/2023||1630/1130||**||US||US Treasury Auction Result for 2 Year Floating Rate Note|
|25/01/2023||1800/1300||*||US||US Treasury Auction Result for 5 Year Note|