MNI ASIA MARKETS ANALYSIS: Tsys Rebound Post-Dec FOMC Minutes

US TSYS Bonds Back to Extending Highs Post-Dec FOMC Minutes

• Treasury futures are making new session highs following a moderate round of two way trade after the Dec FOMC minutes release. Mar'24 10Y futures tap 112-20 (+10.5) high, 10Y yield back below 4% to 3.8918%.
• Minutes balanced but with a dovish tone as officials note diminished inflation and need to start discussion of QT wind down sees projected rate cuts for early 2024 slightly better than recent highs:
• January 2024 cumulative -2.1bp at 5.307%, March 2024 chance of rate cut -72.1% vs. -65.4% (-84.3% last Friday) w/ cumulative of -19.7bp at 5.132%, May 2024 chance of cut back to -94.8% vs. -87.2% immediately after the release, cumulative -42.9bp at 4.900%, June'24 cumulative -67.5bp at 4.653%. Fed terminal at 5.327% in Jan'24.
• Still digesting the minutes, market focus turning to Thursday morning's ADP private employment at 0815ET tomorrow, followed by December employment release on Friday at 0830ET.

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00313 to 5.34531 (-0.00941/wk)
• 3M +0.00285 to 5.33018 (-0.00122/wk)
• 6M +0.01501 to 5.16812 (+0.01040/wk)
• 12M +0.02785 to 4.79792 (+0.02694/wk)

• Secured Overnight Financing Rate (SOFR): 5.40% (+0.02), volume: $1.948T
• Broad General Collateral Rate (BGCR): 5.33% (+0.00), volume: $664B
• Tri-Party General Collateral Rate (TGCR): 5.33% (+0.00), volume: $654B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $83B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $222B

FED REVERSE REPO OPERATION

• RRP usage climbs to $719.897B vs. $704.064B yesterday. Latest level compares to December 15 when usage fell to the lowest level since mid-June 2021: $683.254B.
• The number of counterparties at 79 vs. 78 in the prior session - lowest since April 2022.

SOFR/TREASURY OPTION SUMMARY

Early FI trade sees varied SOFR call spread interest carry-over from Tuesday, in addition to Apr'24 put condor buyer. Treasury options seeing better 10Y puts at the moment. Underlying futures are weaker but off overnight lows as projected rate cuts for early 2024 continue to cool: January 2024 cumulative -2.6bp at 5.302%, March 2024 chance of rate cut -67.8% vs. -84.3% last Friday w/ cumulative of -19.6bp at 5.133%, May 2024 chances of a full 25bp cut dips below 100% to 95.2% with cumulative -43.4bp at 4.895%, June'24 cumulative -68bp at 4.648%. Fed terminal at 5.327% in Jan'24.

• SOFR Options:
  • over 6,000 SFRJ4 95.31/95.37/95.56/95.62 put condors ref 95.38
  • +10,000 SFRH4 94.81/94.93/95.06/95.18 call condors, 4.5 ref 94.935
  • Block, -7,500 SFRH5 95.50/96.50 put spds, 38.0 w/ SFRH5 96.50/97.50 call spds, 32.0, collect 70.0 on iron fly sale after -4k at 71.0 in pit
  • +11,250 SFRJ4 95.25/95.31/95.50/95.56 put condors, 1.25 ref 95.385
  • 3,000 SFRU4 96.50 calls ref 95.795
  • 2,000 SFRH4 95.56/95.81 call spds ref 94.945
  • 2,000 SFRF4 94.81/94.93/95.00 broken put flys ref 94.945
  • 6,000 SFRH4 94.81/94.93 call spds ref 94.945 to -.95
  • 2,100 0QF4 96.50/96.62 2x3 call spds ref 96.445
  • 2,000 SFRH4 95.00/95.25/95.50 call flys ref 94.94
• Treasury Options:
  • 4,500 TYG4 111 puts, 28 ref 112-01.5/0.31%
  • 2,500 TYG4 110.75/111.75 2x1 put spds, ref 112-02.5
  • 6,200 wk2 TY 111 puts, 14-15 ref 112-03.5 to -04.5/0.24%

EGBs-GILTS CASH CLOSE: Bunds Gain Ahead Of Eurozone Inflation Data

Bunds easily outperformed the rest of the European FI space Wednesday, ahead of Eurozone inflation data in the upcoming two sessions.

• After a slightly weak start, Bunds gained for most of the session, with Gilts catching up to some extent toward the cash close as global equity futures plumbed session lows. No discernable themes prevailed through the session.
• The belly outperformed on the German curve (Bobl yields down over 5bp), with some bull steepening evident in the UK.
• Periphery spreads widened amid a slightly risk-off atmosphere, but closed off the widest levels of the session: notably 10Y BTP/Bund held below the 170bp level.
• Following the Federal Reserve meeting minutes after the European market close, attention will quickly turn to German state inflation data Thursday morning, starting with NRW at 0630UK time.
• MNI's preview of Eurozone December inflation went out today (PDF here) - in short, a resurgence in energy prices is expected to drive a reacceleration in headline inflation in Friday's Euro area release, but core is seen softening led by weaker goods prices (service disinflation is seen to be limited at best).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.9bps at 2.414%, 5-Yr is down 5.1bps at 1.943%, 10-Yr is down 4.4bps at 2.024%, and 30-Yr is down 3.4bps at 2.278%.
• UK: The 2-Yr yield is up 4.9bps at 4.103%, 5-Yr is up 3.7bps at 3.58%, 10-Yr is up 0.1bps at 3.639%, and 30-Yr is up 2.5bps at 4.294%.
• Italian BTP spread up 3.2bps at 167.8bps / Spanish up 2.5bps at 98.4bps

EGB Options: Largely Downside Rates Structures Wednesday

Wednesday's Europe rates/bond options flow included:

• SFIH4 94.35/94.55/95.10/95.20c condor sold at 17.75 in 6k
• ERM4 96.87/97.37cs vs 96.25p, sold the cs at 10 in 3k
• ERM4 96.00/95.75 put spread bought for 0.75 in 7.5k

FOREX: Greenback Partially Trims Advance Following FOMC Minutes, USDJPY Rises 0.90%

• USDJPY briefly extended its recovery to around 2% off the week’s lows. Early strength for the pair saw a clean break of the overnight highs around 142.20 and topside momentum was evident across the entire trading day. Briefly before the US data, the pair rose to 143.41 to top the 200-dma for first time since mid-December. Weaker-than-expected US data prompted a brief correction to 142.82, however, the dip was very well supported and USDJPY eventually rallied to fresh session highs of 143.73, registering an impressive 187 pip daily range in the process.
• Strength in the pair narrows gap with sizeable option expiries rolling off at the Jan04 NY cut: Y143.25($705mln), Y143.85-00($1.8bln), Y145.00($740mln) and as high as Y146.50-60($1.3bln).
• Similarly weak was the Australian dollar, a victim of the less optimistic tone for risk. AUDUSD (-0.46%) has pierced initial firm support at 0.6714, the 20-day EMA, has been pierced. However, short-term weakness continues to be considered corrective.
• In sympathy with the greenback strength, EURUSD briefly faded back below the 1.0900 handle, closely matching the December 18 low in the process. For now, the pullback looks corrective in nature, with prices holding within the uptrend channel drawn off the October low. This keeps 1.0878 as the key support.
• China’s Caixin Services PMI will highlight Thursday’s APAC data calendar before markets receive a host of Eurozone inflation prints for December. US ADP employment and jobless claims are notable releases in the US, although the focus will quickly turn to non-farm payrolls on Friday.

FX Expiries for Jan04 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0805-10(E510mln), $1.0820-30(E1.5bln), $1.0860-65(E662mln), $1.0880-00(E646mln), $1.0950-55(E511mln), $1.0995-00(E585mln), $1.1065-75(E1.2bln), $1.1140-50(E1.7bln)
• USD/JPY: Y141.00-10($890mln), Y141.50-70($1.2bln), Y143.25($705mln), Y143.85-00($1.8bln), Y145.00($740mln), Y146.50-60($1.3bln), Y147.25($1.1bln)
• EUR/JPY: Y160.95(E641mln), Y161.20(E537mln)
• AUD/USD: $0.6750-55(A$1.9bln)
• USD/CAD: C$1.3395($1.0bln)
• USD/CNY: Cny7.1360($591mln), Cny7.1500($582mln)

Late Equity Roundup

• Stocks drifting back near session lows after the FI close, Real Estate and Consumer Discretionary sectors underperforming. At the moment: DJIA is down 233.5 points (-0.61%) at 37482.98, S&P E-Mini future down 35.5 points (-0.69%) at 4752.0, Nasdaq down 151.1 points (-1%) at 14614.83.
  
• Laggers: Real Estate and Consumer Discretionary sector shares underperforming, estate services shares weighing on the former: CBRE -4.4% after downgrade from Evercore, CoStar Group -2.84%. Autos and parts makers weighed on the Consumer Discretionary sector: Aptiv -6.23% following a downgrade by Baird, Borg Warner -5.2%, Tesla -3.7%, Ford -3.08%.
• Leading gainers: Energy sector shares supported by oil and gas refiners that rallied traded strong with crude prices holding gains (WTI +2.55 at 72.93): Marathon Petroleum +4.78%, Valero +3.0%. Equipment and services shares also helped buoy Energy shares in the first half: Haliburton and Schlumberger both +1.5%, Baker Hughes +0.35%. Meanwhile telecom shares buoyed Communication Services: Verizon +0.87%, T-Mobile +0.03%.
• Reminder, the next quarterly earnings cycle starts in earnest next week Friday with UnitedHealth, BlackRock, Bank of America, Wells Fargo, JPMorgan, Citigroup and Bank of NY Mellon.

COMMODITIES Oil Rebounds On SPR Purchases and Further Middle East Tensions

• Crude heads towards the US close near session highs, with sizeable gains supported by both the announcement that the US will buy 3m bbl for the SPR and widening Middle East tensions.
• WTI is +3.4% at $72.80 as it pushes back closer to yesterday’s high but doesn’t test resistance at $75.64 (50-day EMA).
• Brent is +3.2% at $78.34 but remains off a key short-term resistance at $81.45 (Dec 26 high).
• Gold is -1.0% at $2038.49 despite the heightened geopolitcal tension, coming under pressure from another push higher in the USD index. It’s low of $2030.7 pushed through support at $2034.6 (20-day EMA) to open $1973.2 (Dec 13 low).
• A terrorist attack near the grave site of Iranian commander Qassem Soleimani in the central Iranian city of Kerman had added to tensions in the Middle East.
• The Houthi rebels have fired three missiles a Malta-flagged boxship near its port quarter, according to reports from security firm Ambrey.
• Libya oil protests are forcing the partial reduction in production at Libya’s 300k b/d Sharara oil field, according to two engineers cited by Reuters.
• The US is seeking up to 3 bbl of sour crude for the strategic petroleum reserve, according to a notice by the US Department of Energy.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
04/01/2024	0030/0930	**		JP	IHS Markit Final Japan Manufacturing PMI
04/01/2024	0630/0730	***		DE	North Rhine Westphalia CPI
04/01/2024	0745/0845	***		FR	HICP (p)
04/01/2024	0900/1000	***		DE	Bavaria CPI
04/01/2024	0900/1000	***		DE	Saxony CPI
04/01/2024	0930/0930	**		UK	BOE Lending to Individuals
04/01/2024	0930/0930	**		UK	BOE M4
04/01/2024	0930/0930			UK	BOE's Monthly Decision Maker Panel data
04/01/2024	1000/1000	**		UK	Gilt Outright Auction Result
04/01/2024	1300/1400	***		DE	HICP (p)
04/01/2024	1315/0815	***		US	ADP Employment Report
04/01/2024	1330/0830	***		US	Jobless Claims
04/01/2024	1530/1030	**		US	Natural Gas Stocks
04/01/2024	1600/1100	**		US	DOE Weekly Crude Oil Stocks
04/01/2024	1630/1130	*		US	US Bill 08 Week Treasury Auction Result
04/01/2024	1630/1130	**		US	US Bill 04 Week Treasury Auction Result