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  • FOMC Minutes indicate possibility taper could accelerate in December
  • USD Index extends run of strength
  • WTI resilient as focus turns to next week's OPEC+ meeting

US TSYS SUMMARY: Daly Taper Comments Dominate, Not Minutes

Tysy saw minimal reaction to the Fed minutes, with moves instead coming earlier in the day after a hawkish surprise from one of the more dovish Fed members, Daly.

  • Tsys had very little reaction to the Fed minutes, as the fact that some members supported faster tapering was usurped by Daly earlier indicating her bar for accelerating taper is low.
  • This saw a twist flattening after the earlier sell-off into US data. 2Y yield is +2.6bps at 0.640%, 5Y is +0.2bps at 1.341%, 10Y is -2.1bps at 1.644% and the 30% is -5.1bps at 1.972%.
  • TYZ1 has picked up from earlier session/month lows and is back at 129-27 on low volumes. It steered clear of any test of nearby support at 129-03 (50% of the Oct'18 - Mar'20 bull cycle) but equally is some way from the key short-term resistance level of 131-08.
  • Demand for the Fed's o/n reverse repo facility fell by the most since Nov 1, to $1.453T from $1.572T yesterday, more than the $50B flagged beforehand by Wrightson ICAP from GSEs exiting the market.
  • It's Thanksgiving tomorrow with no US data/auctions for the rest of the week. Cash Tsys will close early on Friday at 1315ET/1815GMT.


Bund and Gilt yields came off early afternoon highs amid position squaring ahead of the US holiday and continued fears over European lockdowns. BTP spreads widened further; Greece underperformed.

  • Italy's cabinet approved Covid curbs for the unvaccinated, Slovakia imposed a 2 week lockdown.
  • Bunds spiked this morning on rumors that Germany would announce a full lockdown, but the move faded as various headlines proved unsubstantiated (for now). Germany parties agreed on a new gov't as expected, reports said SPD got the right to nominate the next Bundesbank president.
  • German IFO data came in a little weak.
  • ECB's Kazaks told MNI that PEPP should be limited in size and duration, but used flexibly.
  • Weidmann said though Germany's recovery is lagging, the ECB shouldn't commit to loose policy for too long. BOE's Tenreyro noted both "pros and cons" to whether the first hike is in Dec or Feb.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 1.4bps at -0.743%, 5-Yr is down 1bps at -0.555%, 10-Yr is down 0.8bps at -0.228%, and 30-Yr is up 1.1bps at 0.116%.
  • UK: The 2-Yr yield is down 0.9bps at 0.587%, 5-Yr is up 0.2bps at 0.747%, 10-Yr is down 0.1bps at 0.996%, and 30-Yr is down 0.6bps at 1.077%.
  • Italian BTP spread up 2.1bps at 130.2bps / Greek up 5.6bps at 159.1bps

OPTIONS: Decent Pre-Holiday ED Activity

Wednesday's Eurodollar / Tsy options flow included:

  • EDZ1 99.75c, traded 3.75 in 4.7k
  • EDZ1 99.75/99.62ps, traded 1 in 5k
  • EDH2 99.62/99.50ps 1x2, traded half in 4k for the 2
  • EDM2 99.37p x1 vs 0EU2 99.25c x2 traded half for the June in 2.7k
  • EDH2 99.37 put (v 9968.5), sold at 1.75 in 5k
  • EDZ2 96/97/98 call tree bought for 0.25 in 10k
  • EDZ3 65/80 strangle sold at 77.5 in 2k*
  • 0EZ1 99.31c, traded half in 5.5k
  • 2EZ1 98.18/98.00 put spread sold at 5.75 in 10k
  • 3EH2 97.75/97.50/97.25p fly, bought for 2.5 in 5k
  • 2EZ1 98.37/98.62cs with 3EZ1 98.25/98.37cs spread, traded 6.5 in 1k
  • 3EZ1 97.87/98.37 RR, blocked at flat in 5k
  • EDM2 99.75/99.62/99.43/99.31p condor sold at 4.25 in 6k
  • 3EZ1 98.375/98.625 call spread paper paid 1.5 on 8,0K
  • 3EZ1 98.50/99.00 call spread paper paid 1.0 on ~5K.
  • TYF2 127.50 puts ~3.3K given at 0-12, goes offered for the balance of a 4K order. Delta -18%.

FOREX: US Dollar Rally Extends, NZDUSD Sinks To 3-Month Low

  • Gradual and persistent dollar buying was the order of the day on Wednesday ahead of the FOMC minutes and the US Thanksgiving holiday tomorrow. The dollar index rose another 0.4%, extending the week's gains to just shy of 1%. The minutes from the November Fed meeting had little impact on currency markets following the release.
  • EURUSD continued its downward trajectory, falling below 1.12 for the first time since July 2020 and meeting a minor support at 1.1185. The move lower continues to cement the downtrend and price is trading below the base of the bear channel drawn from the Jun 1 high.
  • Conversely, USDJPY climbed to fresh highs above the March 2017 highs of 115.51. The next target would be 116.09, the 1.764 proj of Apr 23 - Jul 2 - Aug 4 price swing.
  • A 25bp rate hike and updated RBNZ guidance fell below market expectations, prompting a fourth consecutive day of losses for the New Zealand dollar. Kiwi was bottom of the G10 pile on Wednesday with greenback strength exacerbating the move lower. NZDUSD trades down 1.15%, briefly reaching a three-month low.
  • In emerging markets, the Turkish Lira came roaring back following Tuesday's collapse. There was another huge range for USDTRY (11.5871-13.1667) amid continued poor liquidity, however, Wednesday saw the Lira recover and settle around 7% in the green. MXN was the notable underperformer, losing nearly 2% amid a new central bank governor announcement. USDMXN came within touching distance of the years highs before settling around +1% for the session.
  • With the US out tomorrow for Thanksgiving, markets are expected to have a subdued tone. The focus should fall on the ECB Minutes and any commentary from scheduled speakers - ECB's LaGarde and BOE's Bailey.

FX OPTIONS: Expiries for Nov25 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1350(E545mln)
  • USD/JPY: Y114.15-25($1.0bln), Y114.95-00($1.0bln), Y115.50($745mln)

EQUITIES: Markets Mixed Ahead of Holiday Break

  • Equity markets traded mixed on Wednesday ahead of the Thanksgiving break, with cash stocks closed throughout the Thursday session. The S&P 500 generally traded lower, with markets adding further weight on the release of the FOMC minutes.
  • The Fed minutes suggested underlying support among the board for an acceleration of the taper process should economic conditions improve, with some also suggesting a need to bring forward the window within which to hike rates should the situation warrant. The Fed minutes put the e-mini S&P swiftly back below 4680, but the move was short-lived.
  • Materials and consumer staples were the poorest performing sectors, while real estate and energy names made up the top end of the table.
  • European trade was similarly mixed, with the UK's FTSE-100 adding 0.3%, in contrast with the DAX and Spain's IBEX-35, which slipped into negative territory.

COMMODITIES: Oil Resilient Amidst Conflicting OPEC+ Headlines

Oil prices have largely settled after yesterday's rally as the market takes on conflicting OPEC+ headlines.

  • The WSJ note that Saudi Arabia and Russia are both considering a pause in increasing oil production, more than offsetting the UAE pushing to continue with the agreed hikes next week.
  • On the flip side, Reuters more broadly has three sources saying that OPEC+ is not discussing for now the pausing of oil output increases.
  • Separately, US crude oil inventories unexpectedly rose 1.02mln bbls in the latest week. The SPR meanwhile fell by 1.6mln bbls, but wasn't linked to the reserve release discussed yesterday as that's due from December.
  • WTI has dipped -0.3% at $78.28, floating between the $80.68 (Nov 16 high) required for strengthen short-term conditions for bulls and the key short-term support of $74.76 (Nov 22 low).
  • Brent futures fare a little better, down -0.2% at $82.18 but closer to the resistance level of $83.14 (Nov 16 high). After this, the first major resistance level would be met at $85.77.
  • No US data tomorrow with Thanksgiving.