MNI ASIA MARKETS ANALYSIS: USD Slips As Equities Partly Reverse Rout

US TSYS: Bear Steeper After Reversing Dovish Reaction To GDP/Core PCE Miss

• Cash Tsys trade 2-5bp cheaper, led by the long-end for an extension of the post-data steepening seen after a well digested 5Y TIPS auction (on the screws after October's 2bp tail). 2s10s stands at -46bps (+2.5bps).
• It’s a sizeable pullback from highs seen shortly after notably softer than expected GDP/core PCE revisions for the third Q3 reading -- core PCE at 2.0% rather than 2.3% annualized in Q3 helps chime with Chair Powell seeing it at 3.1% Y/Y in Nov and the median FOMC dot looking for 3.2% in 4Q23.
• The data were however also released along with better-than-expected jobless claims data, offering at least some support for the paring of those gains.
• Against this backdrop, TYH4 trades at 112-21+ at the low end of the day’s range, having earlier pushed new recent highs of 113-04+ for another step closer to resistance at 113-12+ (Fibo projection of Oct-Nov price swing).
• Fed Funds imply a cumulative 23.5bp of cuts for the March FOMC, more than three 25bp cuts due with the June decision and 156bp of cuts through 2024 as a whole.
• Tomorrow sees the closely watched monthly PCE report for Nov, as well as durable goods for Nov, finalized U.Mich consumer confidence for December after its surprising drop in inflation expectations in the preliminary report and new home sales.

FOREX: Greenback Loses Altitude, USDJPY Reapproaches 142.00

• Losses for the greenback ahead of the NY crossover have been consolidated during US hours, with the USD index registering a 0.45% loss on Thursday, and likely posting its lowest close since July 31. The moderate recovery for equities has underpinned 1% gains for the Australian dollar, as well as the Japanese Yen extending its recovery from the post-BOJ lows.
• Yesterday we noted that the uptrend for AUDUSD remains firmly intact and Tuesday’s gains reinforced current conditions. This marked an extension of last week’s move higher and the break of resistance at 0.6691, the Dec 4 high and a bull trigger. Overall, scope was seen for a climb for a climb towards the 0.6800 handle, which has largely been achieved. Next levels on the topside are 0.6821, the Jul 27 high, and then 0.6900, the Jun 16 high and a key resistance.
• For USDJPY, following the post-BOJ bounce for USDJPY to a 144.96 high, the pair has since slipped an impressive 280 pips and now finds itself trading comfortably below the pre-central bank meeting levels. With this, spot is down just under 1% on the session, briefly printing a fresh low for the week at 142.05.
• From a technical standpoint, the aforementioned USDJPY recovery from 140.97, the Dec 14 low, appears to be a correction. The most recent weakness has reinforced current bearish conditions. On Dec 14, the pair breached support at 141.71, the Dec 7 low, to confirm a resumption of the downtrend that started on Nov 13. Sights are on 140.71, a Fibonacci retracement point.
• Japan National Core CPI for November is due overnight, as well as the BOJ minutes. Finishing off the week, US PCE deflator, personal spending, durable goods and UMich sentiment & expectations data are all scheduled.

FX OPTION EXPIRY

Expiries for Dec22 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0945-60(E2.2bln)
• USD/JPY: Y141.00($1.7bln), Y141.50($500mln), Y142.00($1.6bln), Y143.00($1.1bln), Y143.50-55($1.2bln), Y144.00($1.2bln), Y144.45-50($1.4bln), Y145.00($2.7bln)
• AUD/USD: $0.6625(A$768mln), $0.6650(A$1.7bln), $0.6775(A$1.5bln)
• USD/CAD: C$1.3500($1.3bln)
• USD/CNY: Cny7.00($1.1bln), Cny7.10($700mln)

US STOCKS: Holding A Partial Recovery Of Yesterday’s Late Rout

• The S&P e-mini sits in the middle of the day’s range at ~4772 (+0.5%), chipping away at yesterday’s late -1.5% slide attributed to a host of factors including profit taking in overbought conditions, 0DTE options and increasingly large sell programs.
• It’s off yesterday’s low of 4743.23 but also notably below the high of 4830.75 which now sets initial resistance before 4854.75 (Fibo projection). Yesterday’s slide is deemed a corrective pullback from technical trends.
• SPX gains are led by consumer discretionary (+1.0%, helped by Tesla +2.4%), health care (+0.8%) and materials (+0.7%), whilst utilities (-0.2%) and energy (-0.1%) lag in what’s been a volatile but weaker day for crude futures. A bear steepening in Treasuries through the session has done little to help banks, with the KBW index paring gains to +0.5%.
• The Russell 2000 (+1.2%) outperforms after sliding 2% yesterday, followed by Nasdaq 100 (+0.65%) and the Dow (+0.4%). On the Russell 2000, Cboe is adding Tue and Thu 0DTE options, filling out the rest of week with its current offering of Mon, Wed and Fri.

COMMODS: A Mixed But Weaker Day For Crude Whilst Gold Buoyed By Weaker USD

• Crude markets are holding net losses today as concerns over threats to Red Sea shipping have been superseded by record US oil output and Angola’s announcement it will leave the OPEC group. Falling US rig counts helped to moderate today’s losses in US hours.
• Angola will exit OPEC, stated-owned Jornal de Angola reported, citing Mineral Resources Minister Diamantino Azevedo.
• Tankers carrying crude oil and fuel entering the Bab al-Mandab strait fell to around 30 this week, down by over 40% from the daily average seen in the previous three weeks as more shipping companies pause routes in the Red Sea according to Bloomberg ship tracking.
• US total oil and gas rig counts fell by 3 to 620, according to Baker Hughes Dec. 21. Total US oil rigs fell by 3 on the week to 498.
• WTI is -0.5% at $73.84, pulling back from yesterday’s $75.37 but still off support at $70.99 (Dec 18 low).
• Brent is -0.5% at $79.33, pulling away from resistance at $80.56 (50-day EMA) but still off support at $75.76 (Dec 18 low).
• Gold is +0.6% at $2043.9, buoyed by a weaker USD index seen ever since surprisingly dovish GDP/core PCE revisions in the third reading for Q3. It’s off an earlier high of $2046.00 for moves closer to resistance at $2054.3 (50% retrace of Dec 4-13 bear leg).

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR FIX:
1M 5.35595 -0.00094
3M 5.36013 -0.01093
6M 5.21374 -0.02435
12M 4.84961 -0.05258

REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 5.31%, no change, $1678B
* Broad General Collateral Rate (BGCR): 5.30%, no change, $632B
* Tri-Party General Collateral Rate (TGCR): 5.30%, no change, $618B
SOFR volumes dropped back yesterday from $1757B as they flitter at the high end of the recent range.

New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 5.33%, no change, volume: $97B
* Daily Overnight Bank Funding Rate: 5.32%, no change, volume: $248B

FED: Almost Unchanged RRP Uptake

• RRP uptake dipped just $1B to $778B today, to continue holding very narrow ranges for most of this week having lifted off Friday’s fresh low of $683B (lowest since Jun 2021).
• The number of counterparties fell back from 95 to 85 after a swift rise on Wednesday.

MNI Global Macro Outlook-Dec 2023: What Could Go Wrong?

EXECUTIVE SUMMARY:

MNI's December 2023 Global Macro Outlook meeting surveyed the consensus outlook for the year ahead:

• Market pricing overwhelmingly expects a “soft landing” in 2024; analysts agree but less so
• Global growth is seen below potential in 2024, with the US and Eurozone at stall speed
• Inflation is set to remain above 2% in most developed countries by well down and closed to target by 2025
• Modest fiscal drag is seen on 2024 growth vs 2023; historically low unemployment rates are seen ticking higher
• Manufacturing appears to be bottoming out, but services will be the key to 2024 growth and inflation outcomes
• Amid large-scale central bank rate cuts in 2024, consensus is for US dollar weakness

For Full PDF Analysis:

December 2023 - Global Macro Outlook.pdf

US DATA: Soft GDP/Core PCE Revisions For Q3

• Picking through some initially very misleading headlines on Bloomberg, GDP revisions were notably softer than expected.
• Real GDP growth was revised down to 4.86% annualized in the third reading for Q3 (cons 5.2), fully unwinding its surprise upward revision to 5.15% in the second estimate.
• However, whilst it’s back to where it was first indicated in the advance release, another downward revision for personal consumption leaves it at 3.1% (from 3.6% in the 2nd and 4.0% in the advance). That still marks a strong bounce from the 0.8% in Q2, which in turn followed 3.8%, with that pause coming with a rise in the savings ratio.
• There was also a surprise drop in core PCE inflation, revised down further from 2.3% to 2.04% annualized (cons 2.3). Whilst only for Q3, with tomorrow’s monthly report showing how they were distributed in the quarter, it’s nevertheless a surprisingly large drop back to the 2% target.

US DATA: Jobless Claims Data Better Than Expected

• Overshadowed by surprisingly large, and dovish (clearly important at this stage of the cycle) GDP revisions for a third release, jobless claims came in better than expected.
• Initial jobless claims only increased 2k to a seasonally adjusted 205k (cons 215k) in the week to Dec 16 for a second week of surprising lower. Being a payrolls reference week, it left claims tentatively below the 211k in the November payrolls reference period.
• It also saw the four-week average ease 2k to 212k, its lowest since late October.
• Continuing claims also surprised lower with a seasonally adjusted 1865k (cons 1880k) in the week to Dec 9 after a downward revised 1866k (initial 1876k).
• Eyeballing the raw NSA data, both initial and continuing claims look more in keeping with typical seasonal patterns after recent noise around the Thanksgiving holiday.