MNI ASIA MARKETS ANALYSIS: Tsys Weaker, Mid-Range Ahead CPI

Tsys Recede Post-NY Fed Williams Comments on Achieving 2% Target

• Tsys are mixed to mildly weaker after the bell, curves steeper with the short end outperforming (2s10s +2.123 at -33.179). Limited data today, MBA mortgage applications bounced a seasonally adjusted 9.9% in the week to Jan 5, having fallen -10.7% in the prior, holiday-distorted week. Wholesale inventories in line at -0.2%, Wholesale trade lower than expected at 0.0% vs. 0.4%.
• Rates and equities dipped late after New York Fed President John Williams said he expects the central bank to keep a restrictive stance for some time and to begin rate cuts only when confident inflation is moving toward 2% on a sustained basis, also noting a slowing of QT does not seem to be close.
• Markets awaiting CPI/PPI on Thursday/Friday. Realization of still relatively sticky core CPI inflation could help continue a trimming of Fed rate cut expectations compared to those extremes seen late last year, despite that move pausing in the past few sessions.
• Projected rate cuts for early 2024 gaining slightly: January 2024 cumulative -1.1bp at 5.318%, March 2024 chance of rate cut -64.0% vs. -62.0% late Tuesday w/ cumulative of -17.1bp at 5.158%, May 2024 chance of cut 90.9% vs. 86.8% late Tuesday, cumulative -39.8bp at 4.930%. Fed terminal at 5.3275% in Jan'24.
• Treasury futures show little initial reaction to final 10Y sale re-open, TYH4 see-saws around 111-29.5 (+.5) after the $37B 10Y note auction re-open (91282CJJ1) tailed: 4.024% high yield vs. 4.017% WI; 2.56x bid-to-cover vs. 2.53x prior.

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00134 to 5.33419 (-0.00505/wk)
• 3M +0.00302 to 5.32646 (-0.00280/wk)
• 6M +0.01157 to 5.18474 (-0.00810/wk)
• 12M +0.02258 to 4.84310 (-0.01140/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.693T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $677B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $664B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $91B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $251B

FED REVERSE REPO OPERATION

• RRP usage inches up to $679.961B vs. $676.050B Tuesday, compares to $664.899B on Thursday, January 4 -- the lowest level since mid-June 2021.
• Meanwhile, the number of counterparties bounces to 79 from 72 yesterday, the lowest since January 5, 2022.

SOFR/TREASURY OPTION SUMMARY

SOFR option volumes remained strong Wednesday, largely call structure/rate cut positioning even as underlying futures reversed early session gains. Market focus on tomorrow's CPI, PPI on Friday. Projected rate cuts for early 2024 gaining slightly: January 2024 cumulative -1.1bp at 5.318%, March 2024 chance of rate cut -64.0% vs. -62.0% late Tuesday w/ cumulative of -17.1bp at 5.158%, May 2024 chance of cut 90.9% vs. 86.8% late Tuesday, cumulative -39.8bp at 4.930%. Fed terminal at 5.3275% in Jan'24.

• SOFR Options: Reminder, January options expire Friday
  
  • Block, 10,000 SFRH4 95.06/95.12 call spds 0.75
  • Block, 20,000 SFRH4 95.18/95.31 call spds 1.0
  • Block, 5,830 SFRH4 94.93/95.06 call spds, 4.25
  • over 20,000 SFRM4 95.50/95.62/95.75/95.87 call condors
  • over 20,000 SFRH4 95.06/95.12 call spds. 0.75, adds to 5k Block
  • +5,000 SFRG4 95.06/95.18/95.31 call flys, 0.75
  • -20,000 SFRG4 99.50 calls, 5.0 vs. 94.935-.945/0.38%
  • Block, 5,000 SFRH4 95.06/95.12 call spds, .75 ref 94.935
  • Block, 5,000 0QF4 95.87/96.06 put spds, .5 ref 96.405
  • Block, 5,000 SFRM4 95.62/96.12 put spds, 8.5 vs. 95.38/0.18%
  • +10,000 SFRU4 96.00 calls, 30.5 vs. 95.785/0.10%
  • +2,500 SFRZ4 95.00/95.50/96.00 put flys, 9.5
  • +5,000 SFRF4 95.00 calls, 1.0
  • Block, 8,000 SFRG4 94.68/94.75 put spds, 0.75 ref 94.935
  • Block, 7,500 SFRK4 94.62/94.75 put spds, 1.0 vs. 95.29
  • Block, 2,500 SFRH4 94.68/94.81/94.87/94.93 put condors, .25 ref 94.915
  • 2,500 SFRH4 95.00/95.12/95.37 call trees
  • 4,650 SFRF4 94.93/95.00/95.06 call trees
  • 8,000 SFRU4 96.62/97.12/97.37 call flys ref 95.76
  • 8,000 SFRU4 95.87/96.00 call spds vs. SFRU4 95.06/95.18 put spds ref 95.76
    
  • 5,000 SFRU4 95.68/95.81 call spds vs. SFRU4 95.06/95.18 put spds ref 95.76
  • 6,000 SFRK4 95.50/95.75/95.87 broken call flys vs. SFRK4 94.87/95.00 put spds ref 95.36
    
  • Block/screen 7,000 0QH4 96.50/97.00/97.50 call flys ref 96.36 vs. 0QH4 95.75/96.00, 4.0 net/fly over
    
  • 4,000 SFRG4 95.06/95.25 call spds vs. 0QH4 96.56/96.68 call spds
    
  • 9,000 SFRJ4 95.50/95.87/96.00 broken call flys ref 95.355
• Treasury Options:
  • 20,000 TYG4/TYH4 109.5 put calendar sprds, 13 net/March over
  • 2,200 TYH4 107.5/108.5/109.5 put trees ref 112-02.5
  • 2,000 USG4 122/124 3x2 put spds ref 122-22
  • 2,000 TYG4 109.75/110.25/110.5/111 put condors
  • over 3,500 TYG4 114 calls, 8 last

EGBs-GILTS CASH CLOSE: Peripheries Outperform Amid Supply Deluge

Core EGB yields continued to rise Wednesday amid a deluge of supply, with UK yields also ticking higher.

• This week has seen a new record of E108bln in primary issuance in Europe (Bloomberg), including sovereigns as well as corporates/SSA, with more yet to come over the next two days (including an Ireland syndication Thursday). Today Spain sold E15bln of 10Y paper on orderbooks of E138bln, while Estonia sold E1bln in 10Y.
• Bund yields reversed higher in the afternoon after a constructive start, with 10Y German yields closing at their highest level since Dec 12.
• The high evident demand for Spanish debt, and Bund weakness, helped EGB periphery spreads tighten, with BTP/Bund narrowing to the lowest levels of the year.
• The German curve leaned bear flatter, with the UK's bear steepening slightly.
• There was only 2nd tier European data on the docket (Italian retail sales beat, French industrial production disappointed), and speakers including ECB's Schnabel (who noted that it was still too early to discuss rate cuts) and BoE's Bailey didn't have much of a market impact.
• Thursday's main event is US CPI.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.9bps at 2.649%, 5-Yr is up 3.4bps at 2.17%, 10-Yr is up 2.4bps at 2.212%, and 30-Yr is up 0.2bps at 2.418%.
• UK: The 2-Yr yield is up 2.4bps at 4.235%, 5-Yr is up 2.8bps at 3.755%, 10-Yr is up 3.7bps at 3.819%, and 30-Yr is up 2.4bps at 4.415%.
• Italian BTP spread down 3.1bps at 163.1bps / Spanish down 0.9bps at 96.3bps

EGB Options: Rate Upside Theme Continues Wednesday

Wednesday's Europe rates/bond options flow included:

• ERH4 96.37/96.50/96.62/96.75c condor, bought for 2.25 in 4k
• ERH4 96.37/96.50/96.62c fly, bought for 1.75, in 20k total
• ERU4 97.25/97.50 cs vs 96.50p, bough the cs for 0.75 and 1 in 4k
• ERU4 96.62/96.75cs vs ERH4 96.12/96.25cs, sold the Sep at 1.25 in 10k

FOREX JPY Weakness Persisting As US CPI Data Approaches

• With market participants likely focused on US inflation data on Thursday, the USD index has continued to trade in a narrow range this week, moderately dipping during today’s session. However, JPY volatility remains notable with another 150 -pip range for USDJPY, maintaining an upward bias that ahs been present since the turn of the year.
• The persistent JPY weakness through the Wednesday session, twinned with EUR/USD demand into the WMR fix has resulted in a substantial 1.15% rally for EUR/JPY, a move that's prompted new YTD highs and a crack above the 50-dma of 159.32 in the process. Retracement levels are next up, with 160.07 and 161.69 marking the 61.8% and 76.4% retracement of the Nov 16 - Dec 7 bear leg. Today's rally puts the cross well clear of Y156.00, which marks the surveyed analyst consensus for Q1 for EUR/JPY.
• Near-term vols for EUR/JPY remain supported, but have drifted through the turn of the year. 3m implied trades either side of 9.5 points, keeping implied just below the rolling 12m average. The slight fade in vols has worked in favour of EUR/JPY call vol, as 3m risk reversals inch to the best level since the mid-Dec pullback, at 1.4 points in favour of puts.
• Elsewhere, GBP also marginally outperforms, and continues to be the strongest G10 currency against the greenback in 2024. With the trend outlook remaining bullish, attention is on resistance at 1.2827, the Dec 28 high and bull trigger. Clearance of this level would confirm a resumption of the uptrend and open 1.2881, a Fibonacci retracement point. Initial firm support lies at 1.2611, Jan 2 low.
• All focus on tomorrow’s US CPI report where consensus puts core CPI inflation at 0.3% M/M in December, with risk seen to the downside.

FX Expiries for Jan11 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1000-20(E1.2bln), $1.1050(E1.5bln)
• USD/JPY: Y144.00($1.1bln), Y145.40-50($652mln)
• AUD/USD: $0.6675(A$730mln), $0.6690(A$517mln)
• NZD/USD: $0.6175-95(N$1.2bln)
• USD/CNY: Cny7.1685-00($1.1bln)

Late Equity Roundup: Comm Services, Consumer Discretionary Led Rally

Stocks continue to extend gains in late trade, S&P Emini's nearing January 2 highs, S&P E-Mini futures are currently up 28 points (0.58%) at 4820.5, Nasdaq up 117.4 points (0.8%) at 14974.78. DJIA is up 156.61 points (0.42%) at 37681.28. Levels dipped slightly following NY Fed Williams comments on achieving 2% inflation goal before cutting.
Leading gainers: Communication Services and Consumer Discretionary sectors continue to outperform: Interactive media/entertainment shares buoyed Communication Services for the second day running: Meta +4.13%, Google +1.27%, Fox Corp +0.92%. Broadline retailers buoyed the Consumer Discretionary sector: Home Depo +2.48% after Wedbush upgrade based on home improvement spending expectations, while Amazon gained +1.97%, Lowe's +1.18%.
Laggers: Energy and Materials sector stocks underperformed for the third day running, energy and equipment servicer shares weighing on the former: Baker Hughes -1.61%, Haliburton -1.51%, Schlumberger -0.78%. Metals/mining shares weighed on the Materials sector: Newmont -1.19%, Freeport-McMoRan -0.77%.
Reminder, banks lead the next quarterly earnings cycle that starts this week Friday with BlackRock, Bank of America, Wells Fargo, JPMorgan, Citigroup and Bank of NY Mellon.

E-MINI S&P TECHS: (H4) Trading Above Its Recent Lows

• RES 4: 4915.11 1.236 proj of Nov 10 - Dec 1 - 7 price swing
• RES 3: 4900.00 Round number resistance
• RES 2: 4854.75 1.00 proj of Nov 10 - Dec 1 - 7 price swing
• RES 1: 4841.50 High Dec 28 and the bull trigger
• PRICE: 4826.5 @ 14:24 GMT Jan 10
• SUP 1: 4702.00 Low Jan 05
• SUP 2: 4694.47 2.0% 10-dma Envelope
• SUP 3: 4661.92 50-day EMA
• SUP 4: 4594.00 Low Nov 30

S&P E-Minis have recovered from last Friday’s low. Support at the 20-day EMA of 4754.67 has recently been pierced. A clear break of this average would strengthen a short-term bearish threat and open 4694.47, the lower band of a MA envelope. A move through this support would expose the 50-day EMA, at 4661.92. Key resistance and the bull trigger is at 4841.50, the Dec 28 high. Clearance of this level would resume the uptrend.

COMMODITIES: Surprise Stock Build Sees Crude More Than Reverse Gains

• Crude oil futures have erased all earlier gains from Middle East supply worries after the large and unexpected build in US crude stocks
• EIA Weekly US Petroleum Summary - w/w change week ending Jan 05: Crude stocks +1,338 vs Exp -199, Crude production 0, SPR stocks +606, Cushing stocks -506
• The arbitrage window pulling cargoes from the US to Asia has closed due to surging freight rates caused by a jump in vessel bookings, according to Reuters.
• WTI is -1.2% at $71.40 but remains above yesterday’s low and doesn’t trouble technical levels. The trend signal remains bearish, with support at $69.28 (Jan 3 low).
• Brent is -1.0% at $76.81 and although doesn’t test yesteday’s low or support at $74.79 (Jan 3 low).
• Gold is -0.3% at $2024.00, initially supported on geopolitical risks before fading into the session despite a softer USD index. The yellow metal is approaching support at the 50-day EMA of $2012.8. Tomorrow's US CPI looms on the horizon.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
11/01/2024	0030/1130	**		AU	Trade Balance
11/01/2024	0800/0900	**		ES	Industrial Production
11/01/2024	0900/1000	*		IT	Industrial Production
11/01/2024	1330/0830	***		US	Jobless Claims
11/01/2024	1330/0830	**		US	WASDE Weekly Import/Export
11/01/2024	1330/0830	***		US	CPI
11/01/2024	1530/1030	**		US	Natural Gas Stocks
11/01/2024	1630/1130	**		US	US Bill 04 Week Treasury Auction Result
11/01/2024	1630/1130	*		US	US Bill 08 Week Treasury Auction Result
11/01/2024	1740/1240			US	Richmond Fed's Tom Barkin
11/01/2024	1800/1300	***		US	US Treasury Auction Result for 30 Year Bond
11/01/2024	1900/1400	**		US	Treasury Budget