MNI ASIA MARKETS ANALYSIS: Tsys Off Early Highs, Fed Blackout

US TSYS Late Market Roundup, Short End Underperforming

• Treasury futures are trading mostly weaker: 2s through 10s holding to a narrow range for much of the second half. Rates pared early gains after Wholesale Inventories comes out softer (-0.2% MoM vs. -0.1% est) Trade Sales firmer than expected (0.8% MoM vs. 0.2% est).
• The Atlanta Fed GDPNow tracker for Q3 was unrevised at 5.6% in today’s latest estimate, with near zero impact from today’s wholesale trade report (changes in inventories are still seen providing a strong 1.4pps to quarterly growth).
• The second unrevised estimate at 5.6% sees some stability having pulled back from earlier vintages of 5.9%, but it’s clearly still incredibly strong after 2.1% in Q2.
• It’s particularly strong when compared to other regional Fed trackers as well, with today’s relaunching of the NY Fed’s take at 2.25% for Q3 and the St Louis Fed’s economic news index at just -0.1% as of last week.
• Consumer Credit figures for July climbed +10.4B with revolving credit +9.6B.
• Cross asset, equities reversed midmorning gains, SPX holding near steady in late trade (4455.0 -1.25); Crude +.50 at 87.37; Gold -1.42 at 1918.26.
• Scant data kicks off the week ahead, Fed in policy blackout, while US Treasury supply resumes with 3Y Note Monday.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00013 to 5.32946 (+.00059/wk)
• 3M -0.00052 to 5.41047 (+0.00817/wk)
• 6M -0.00404 to 5.47197 (+0.01873/wk)
• 12M -0.00088 to 5.42392 (+0.06318/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $105B
• Daily Overnight Bank Funding Rate: 5.31% volume: $266B

• Secured Overnight Financing Rate (SOFR): 5.31%, $1.479T
• Broad General Collateral Rate (BGCR): 5.30%, $574B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $565B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

Repo operation falls to new low of $1,525.403B (last seen early March 2022) w/97 counterparties, compared to $1,535.289B in the prior session. The high for 2023 stands at $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.

SOFR/TREASURY OPTION SUMMARY

Option desks reported mixed SOFR options Friday with a pick-up in low delta puts as underlying futures traded weaker in the short end. Treasury options more consistent upside calls in 5s and 10s on light volumes. Short end underlying futures traded weaker as rate hike projections through year end held steady: Sep 20 FOMC is 6.8% w/ implied rate change of +1.7bp to 5.347%. November cumulative of +12bp at 5.451, December cumulative of 11.3bp at 5.444%. Fed terminal: 5.445% in Nov'23.

• SOFR Options:
  • +8,000 SFRZ3 94.43/94.50/94.56/94.62 put condors, 0.5 ref 94.555
  • -5,000 2QZ3/3QZ3 96.50/97.50 call spd spds, 0.5 net credit on bull curve steepener (Blue Dec sold over)
  • Block, +10,000 SFRV3 94.56/94.68 2x1 put spds, 1.5
  • Block, 6,250 SFRM4 95.00/95.75 call spds, 19.0 ref 94.995
  • Block, 5,000 2QM4 96.50/97.25 call spds, 23.0 ref 96.315
  • +12,000 SFRZ3 94.56/94.62 call spds, 3.0 ref 94.565
  • 3,500 2QV3 96.50 calls ref 96.265
  • 2,500 0QV3 94.87/95.25/95.62/95.87 put condors
  • Block, -4,000 SFRF4 94.25/94.37/94.62/94.75 put condors, 5.5 ref 94.705
  • 4,500 0QU3 95.62/96.12 call spds vs. 2QU3 96.50/97.00 call spds
  • 1,500 SFRV3 94.50/94.56/94.62 put flys, ref 94.565
  • 2,000 0QV3 95.25/95.50 put spds vs. 96.25 calls ref 95.73
• Treasury Options:
  • over 4,800 TYV3 111 calls, 18 last
  • over 2,500 TYX3 112 calls, 27 last
  • 2,500 FVX3 109.5 calls, 5 last
  • 1,500 FVX3 111 calls, 2
  • 3,000 USV3 114/116 put spds, 6 ref 119-21 to -20

EGBs-GILTS CASH CLOSE: Gilts Outperform Again As ECB Hike Seen Possible

Gilts outperformed Bunds for a 3rd consecutive session Friday, with Eurozone core yields relatively steady amid continued uncertainty over the ECB's next move.

• ECB's decision next Thursday, with analysts and market pricing split on whether the Governing Council will deliver a 25bp hike.
• Pricing briefly neared 40% probability of that outcome (vs closer to 33% Thursday) after MNI's latest ECB Exclusive sources piece out today pointed to the decision remaining in the balance, with hawks pushing for what could be their last data-based window to hike.
• This contrasted with a continued pullback in BoE hike pricing, with no particular catalyst but an extension of the recent post-BoE TSC and DMP pricing.
• The net result was a modest bull flattening in the German curve versus fairly sizeable bull steepening in the UK's.
• Greece sees a ratings review by DBRS after the market close Friday. Apart from the ECB meeting next week, UK data will be in focus, starting with the labour market report on Tuesday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.3bps at 3.081%, 5-Yr is unchanged at 2.615%, 10-Yr is down 0.4bps at 2.61%, and 30-Yr is down 1bps at 2.735%.
• UK: The 2-Yr yield is down 6.8bps at 5.069%, 5-Yr is down 5.3bps at 4.663%, 10-Yr is down 3.1bps at 4.423%, and 30-Yr is down 0.2bps at 4.704%.
• Italian BTP spread up 1.1bps at 173.9bps / Greek down 0.6bps at 135.4bps

EGB Options Call Structures In Rates To Close The Week

Friday's Europe rates / bond options flow included:

• ERZ3 96.62c, bought for 2.25 in 20k
• ERZ3 96.25/96.37/96.62 broken call ladder, bought for 0.75 in 20k total
• 0RZ3 97.00/97.50/98.00c fly, bought for 7.5 in 5k

FOREX Greenback Reverses Losses To Consolidate Underlying Uptrend

• The USD regained ground in the second half of the session to lift off lows as Treasuries sold-off with a rare helping hand from higher inflation breakevens. The move saw the USD index reverse at one point a -0.4% decline for back near unchanged on the day, consolidating a strong climb over the week which has continued the medium-term uptrend posted off the mid-July lows. This keeps resistance in the USD Index at 105.157, a break above which resumes the uptrend to target 105.883, the early March highs.
• Meanwhile, the JPY returned lower into the Friday close, wholly shrugging off this week's verbal intervention headlines from cabinet members Matsuno and Kanda. USD/JPY erased an overnight dip to recover close to 147.75 and narrow the gap with the bull trigger of 147.87.
• CAD outperformed, gaining on the back of the solid August jobs release (which saw the unemployment rate dip, net change in employment top expectations and the wage rate top forecast) and further WTI gains. USD/CAD reversed further off the September high in response, making 1.3576 the next downside level of note. Clearance here opens 1.3553 for direction.
• Focus in the coming week turns to US CPI and the ECB rate decision, at which markets remain on a knife edge, split between seeing no change in policy from the Governing Council, or a 25bps rate hike. Scandi CPIs also cross, providing the last look at inflation ahead of rate decisions from both the Norges Bank and Riksbank on September 21st.

Expiries for Sep11 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700(E1.3bln), $1.1030-50(E1.8bln)
• USD/JPY: Y145.00($1.1bln), Y146.00-20($899mln), Y147.75($673mln), Y149.00($599mln)
• EUR/JPY: Y158.90-00(E686mln)
• GBP/USD: $1.2590-00(Gbp939mln)

Late Equity Roundup: Energy & Utilities Outperform

• Stocks coming under some late sell pressure as accounts look to pare risk ahead of the weekend while the Federal Reserve enters policy blackout tonight at midnight. Currently, S&P E-Mini futures are up 1.25 points (0.03%) at 4457.75, Nasdaq up 9.4 points (0.1%) at 13759.4, DJIA up 34.16 points (0.1%) at 34536.18.
• Leaders: Energy, Utilities and Communication Services sectors continued to outperform. Oil and gas refiners buoyed Energy sector shares as crude prices gained (WTI +.84 at 87.71). Valero Energy +4.2%, Philips66 +3.15% while Marathon Oil gained 2.9%.
• Independent, electric and renewable power shares backstopped Utilities for a third consecutive session: NRG +2.6%, AES +1.85%, Dominion Energy +1.5%. Meanwhile, interactive media shares buoyed Communication Services in late trade: Paramount +3.85%, Warner Brothers +3.1%, Charter Communications +1.25%.
• Laggers: Real Estate, Industrials and Consumer Staples underperformed. Real estate investment trusts, particularly residential and industrial weighed on Real Estate: Essex Property Trust -2.85%, Mid-America Appt Community -1.6%.
• Aerospace/defense names weighed on Industrials: Transdigm -1.7%, Boeing -1.65%, Northrop Grumman -1.6%. Household and personal products names weighed on Consumer Staples with Estee Lauder and Clorox both -0.9%.
• Technicals: Despite the late week bounce, a bear cycle remains in play. Key resistance has been defined at 4547.75, Sep 1 high. A break is required to reinstate the recent bullish theme. Note that recent gains stalled at the area of resistance around the former bull channel base - drawn from the Mar 13 low. The line intersects at 4547.83. This is a bearish development and a continuation lower would expose key support at 4350.00, Aug 18 low.

E-MINI S&P TECHS: (U3) Bear Threat Remains Present

• RES 4: 4634.50 High Jul 27 and key resistance
• RES 3: 4593.50 High Aug 2
• RES 2: 4560.75 High Aug 4
• RES 1: 4547.75 High Sep 1 and a near-term bull trigger
• PRICE: 4459.00 @ 1430 ET Sep 8
• SUP 1: 4433.50 Low Aug 29
• SUP 2: 4350.00 Low Aug 18 and a bear trigger
• SUP 3: 4344.28 38.2% retracement of the Mar 13 - Jul 27 bull cycle
• SUP 4: 4305.75 Low Jun 8

The E-mini S&P contract traded lower Thursday and a bear cycle remains in play. Key resistance has been defined at 4547.75, Sep 1 high. A break is required to reinstate the recent bullish theme. Note that recent gains stalled at the area of resistance around the former bull channel base - drawn from the Mar 13 low. The line intersects at 4547.83. This is a bearish development and a continuation lower would expose key support at 4350.00, Aug 18 low.

COMMODITIES Oil Closing Out Week For Strong Gains On OPEC+ Cut Extensions

• Front month crude futures have regained ground during the trading day, despite an intraday recovery in the USD index, seemingly still supported by OPEC+ cut extensions.
• Looking on the week, Brent is up around $4/b compared to Sep. 1, as OPEC+ cuts and larger than expected inventory draws in the US point towards a tightening market. WTI has outperformed brent, aided by the surprisingly large draw in US crude inventories.
• OPEC+ crude oil output in August rose by 120kbpd to 40.52mbpd as increases from Iran, Iraq and Nigeria more than offset further reductions by Saudi Arabia and Russia, according to the latest Platts survey. However, OPEC+ may be forced to once again extend or deepen cuts in 2024 as supply balances remain elevated, Citi said in a note.
• The US oil rig count saw its first weekly increase since June this week, albeit by 1 to 513 according to Baker Hughes.
• WTI is +1.0% at $87.69, coming close to resistance at $88.08 (Sep 6 high) after which lies the round $90.00.
• Brent is +1.0% at $90.81, coming close to resistance at $91.15 (Sep 5 high) after which lies $92.91 (Nov 17, 2022 low).
• Gold is +0.03% at $1920.20, off a high of $1929.71 as the USD clawed back to near unchanged on the day. That high came close to resistance at the 50-day EMA (1931.4) after which lies a key resistance notably higher at $1953.0 (Sep 4 high) to highlight the sizeable decline for the yellow metal this week with the DXY some +0.8% higher over the same period.
• Weekly moves: WTI +4.9%, Brent +2.6%, Gold is -1.0%, US nat gas -6%, EU TTF nat gas -3.1%

MONDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
11/09/2023	0600/0800	*		NO	CPI Norway
11/09/2023	0800/1000	*		IT	Industrial Production
11/09/2023	-	***		CN	Money Supply
11/09/2023	-	***		CN	New Loans
11/09/2023	-	***		CN	Social Financing
11/09/2023	1500/1100	**		US	NY Fed Survey of Consumer Expectations
11/09/2023	1530/1130	*		US	US Treasury Auction Result for 13 Week Bill
11/09/2023	1530/1130	*		US	US Treasury Auction Result for 26 Week Bill
11/09/2023	1700/1300	***		US	US Note 03 Year Treasury Auction Result
12/09/2023	2300/0000			UK	BOE's Mann to Speak in Canada