MNI ASIA MARKETS ANALYSIS: Wkly Claims Up, IP & Housing Soft

US TSYS Higher Than Expected Weekly Claims Buoys Tsys Yet Again

• Treasury futures extended highs early and held the range through much of the day (TYZ3 +19 at 108-26 vs. 108-30 high) after higher than expected Initial Jobless Claims (231k vs. 220k est, 218k prior revised) the highest since September 8, poking back above the 218k averaged in 2019, and Continuing Claims (1.865M vs. 1.843M est, 1.833m prior/rev) marking a new ytd high and indeed the highest since Nov’21.
• Industrial production was softer than expected in October as it fell -0.6% M/M (cons -0.4) after a downward revised 0.1% (initial 0.3). The latest trends seen industrial production up 1.1% annualized on a 3M/3M basis and manufacturing -0.2% annualized. Capacity utilization meanwhile surprisingly fell to 78.9% (cons 79.4) from a downward revised 79.5 (initial 79.7%) for its lowest since June and before that Dec’22.
• Fed speakers appeared more balanced on the session compared to slightly more hawkish tone earlier in the week. Cleveland Fed’s Mester (’24 voter retiring in June) says she needs to see more evidence inflation is on the way to 2% and that she’d be concerned if inflation progress stalls.
• Mester hasn’t decided whether another rate hike is still needed (she said in opening remarks earlier today that it will depend on the data, having pre-payrolls and CPI thought we were within 1 hike of the peak for rates) with the debate now about how long to keep rates restrictive.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00148 to 5.33107 (+0.00871/wk)
• 3M -0.00227 to 5.36710 (-0.01054/wk)
• 6M -0.00576 to 5.37501 (-0.03976/wk)
• 12M +0.00753 to 5.23693 (-0.04952/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $96B
• Daily Overnight Bank Funding Rate: 5.32% volume: $248B

• Secured Overnight Financing Rate (SOFR): 5.32%, $1.543T
• Broad General Collateral Rate (BGCR): 5.30%, $598B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $585B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

The NY Fed Reverse Repo operation usage continues to fall to new lows not seen since early August 2021 w/ $912.010B w/93 counterparties today vs. $944,241B in the prior session. Usage fell below $1T for the first time since August 2021 last Thursday, November 9: $993.314B.

SOFR/TREASURY OPTION SUMMARY

SOFR and Treasury Option flow remained mixed Thursday after better upside call trade since Tuesday's CPI induced rally (yesterday's partial unwind in the underlying notwithstanding). Early pickup in put structure buying, particularly in Dec'23 SOFR midcurves and Tsy 10Y options had scaled back by the second half as underlying futures held near session highs. Projected rate cut chance in early 2024 is on the rise again after consolidating Wednesday: December at 0bp at 5.333%, January 2024 cumulative -1bp at 5.323%, March 2024 pricing in -33.9% chance of a .25 rate cut ( -28.1% this morning) with cumulative of -9bp at 5.243%, May 2024 pricing in -49.7% chance of a rate cut (-47.4% this morning) with cumulative of -21.4bp at 5.119%. Fed terminal at 5.33%-5.335% in Dec'23 to Feb'24.

• SOFR Options:
  • Block, 2,500 SFRJ4 95.00/95.50 2x3 call spds, 14.5 ref 95.02
  • +5,000 SFRH4 94.68/94.93/95.18/95.43 call condors, 4.75 vs. 94.765/0.15%
  • Block, 6,085 SFRM4 95.50/96.00 call spds 8.5 ref 95.08
  • Block, 6,000 0QJ4 96.25/96.50 call spds 2.0 over 2QJ4 96.62/96.87 call spd
  • 3,700 SFRU4 96.50/97.50 2x3 call spds ref 95.325
  • 3,000 SFRG4 93.75/93.87/94.00/94.12 broken put condors ref 94.76
  • 20,000 0QZ3 94.87/95.25/95.50 broken put flys - adds to 20k Block
  • 1,500 0QF4 96.25/96.75 1x2 call spds vs. 1,000 0QF4 95.25 puts ref 95.865
  • 7,000 2QZ3 97.00 calls, 0.5 ref 96.185
  • 2,500 SFRU4 96.50/98.00 call spds ref 95.315
  • Block, total 20,000 0QZ3 94.87/95.25/95.50 broken put flys ref 95.61
• Treasury Options:
  • 5,000 TYZ3 108.5/109.25 strangles 33-34
  • 12,000 FVZ3 106 puts, 19 ref 105-31
  • +10,000 Wed/wkly 107.5/108/108.5 put trees, 7 ref 108-20/0.07%
  • +10,000 TYZ3 107 puts, 3 ref 108-21.5
  • 4,000 TYZ 109/109.5 call spds vs. wk3 TY 108.75/109.25 call spds, 1 net/wk3 over
  • over 7,000 TYF4 107.5 puts vs. TYF4 109.5/111 call spds
  • 3,000 TYZ3 107/107.5 2x1 put spds, 1 ref
  • 13,000 TYZ3 109.5/110.5 call spds, 5-6 ref 108-17
  • 2,600 TYZ3 106/107 put spds, ref 108-15.5

EGBs-GILTS CASH CLOSE: Curve Bellies Rally On Soft US Jobs Data, Oil Drop

European yields pulled back Thursday, resuming the strong rally begun after the soft US CPI data Tuesday.

• Following a constructive morning session, which partly retraced Wednesday's weakness, Bunds and Gilts gained sharply in the afternoon on yet more market-friendly US data (higher-than-expected jobless claims). A further drop in oil prices helped the cause.
• While yields retraced higher from session lows by the cash close, both the German and UK curves leaning bull flatter as ECB/BoE cut pricing deepened, with curve bellies outperforming in both cases.
• ECB speakers had little impact, while BOE's Ramsden and Greene warned of the need for restrictive policy for an extended period but markets shrugged it off.
• Periphery spreads tightened, with 10Y BTPs/Bunds touching a fresh post-September low, eyeing the 170bp mark.
• That's ahead of Friday's Italy sovereign ratings review by Moody's, which closes out the week - also Friday we get UK retail sales, final October Eurozone inflation data, and another raft of ECB/BOE speakers (from Lagarde to Ramsden/Greene again).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.9bps at 2.951%, 5-Yr is down 6.6bps at 2.519%, 10-Yr is down 5.4bps at 2.59%, and 30-Yr is down 4.4bps at 2.829%.
• UK: The 2-Yr yield is down 7.8bps at 4.544%, 5-Yr is down 8.3bps at 4.15%, 10-Yr is down 7.6bps at 4.151%, and 30-Yr is down 6.3bps at 4.588%.
• Italian BTP spread down 3.4bps at 176.4bps / Spanish down 2.6bps at 100.1bps

EGB Options: Rolling And Exiting Bund / Euro Rate Positions Thursday

Thursday's Europe rates / bond options flow included:

• RXZ3 131.00/132.50/133.50/135.00 c condor sold out at 39 down to 38 in -5k
• -5k RXZ3 131.50/132.50 cs sold at 18 & 17.5 vs +10k WK1 RX 132.50/133.00 cs for 10 (rolling)
• ERU4 96.12/96.00/95.87 p fly Sold out at 1 in -15.5k vs 96.735 (2%d)

FOREX Mixed Performance Across G10, AUDJPY Reverses 1% From 2022 Highs

• Despite the move lower for US yields on the back of softer-than-expected data, the USD index trades in very moderate negative territory on the session amid mixed performance across G10 FX. The likes of AUD, NZD and CAD have all dropped around half a percent (with the decline in oil prices potentially weighing), whereas the Japanese yen outperforms amid the lower core yields.
• This has provided an interesting trading session for AUDJPY, posting a substantial 1% reversal after closely matching the 2022 highs in APAC trade. The move lower came in the face of some stronger-than-expected Australian employment data, with technical levels providing stiff resistance as we approach the weekend.
• Bolstering the turnaround was data from the Chinese National Bureau of Statistics showing China home prices fell the most in eight years in October. This comes despite the government ramping up efforts to revive demand, adding to the increasingly sour outlook of the Chinese property sector.
• Crude futures have fallen by around 5% on the day, as concerns of a tepid demand outlook amid higher US jobless claims, and rising stocks, piled pressure on prices during US trading hours. The price action has weighed on the likes of NOK and CAD, with the former registering the largest decline on the session. This saw EURNOK reverse the entirety of Wednesday’s move lower and should focus market participants back on the technically significant 12.00 level.
• Friday’s calendar will be headlined by UK retail sales data and potential revisions to Eurozone CPI data. In the US, housing starts and building permits data will be published.

FX Expiries for Nov17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800(E636mln), $1.0825(E513mln), $1.0850(E879mln), $1.0875(E740mln), $1.0900-10(E562mln)
• GBP/USD: $1.2300(Gbp530mln), $1.2380-00(Gbp736mln)
• EUR/GBP: Gbp0.8750(E1.1bln)
• USD/CAD: C$1.3680-00($1.4bln)
• USD/CNY: Cny7.2500($1.4bln), Cny7.2600($731mln), Cny7.3500($1.6bln)

Late Equity Roundup: Energy, Retail Distribution Shares Lagging

• Stocks have consolidated from this morning's highs after the expected jobless claims gains helped rekindle rate cut pricing in early 2024. That said, late index levels are inside the session range. DJIA shares still underperforming: down 158.76 points (-0.45%) at 34830.96, S&P E-Mini futures down 7 points (-0.15%) at 4512, Nasdaq down 19 points (-0.1%) at 14084.75.
• Laggers: Energy and Consumer Staples sector shares continue to underperform in late trade, the former weighed by Oil and gas/equipment service stocks as crude prices tumbled (WTI -3.8 to 72.86 in late trade): Baker Hughes -5.02%, Haliburton -4.58%, Schlumberger -4.15%. Retail distribution shares, meanwhile, weighed on the Consumer Staples sector: Walmart -8.06% despite upbeat sales - market focus on cautious forward guidance, Dollar Tree -4.87%, Kroger -4.09%.
• Leading gainers: Utilities and Communication Services sectors outperformed, electricity providers supporting the former: Southern Co +2.02%, PG&E +1.66%, PPL +1.33%. Meanwhile interactive media and entertainment shares buoyed the Communication Services sector: Google +1.65%, Netflix +0.75%.
• Corporate earnings expected after the close: Applied Materials, Ross Stores, and Gap Inc.

E-MINI S&P TECHS: (Z3) Trend Needle Points North

• RES 4: 4597.50 High Sep and a key resistance
• RES 3: 4566.00 High Sep 15
• RES 2: 4552.38 76.4% retracement of the Jul 27 - Oct 27 bear leg
• RES 1: 4541.25 High Nov 15
• PRICE: 4515.25 @ 1440 ET Nov 16
• SUP 1: 4420.25/4372.66 Low Nov 14 / 20-day EMA
• SUP 2: 4257.75 Low Nov 3
• SUP 3: 4122.25 Low Oct 27 and the bear trigger
• SUP 4: 4090.35 1.764 proj of the Jul 27 - Aug 18 - Sep 1 price swing

S&P e-minis maintain a firmer tone. The contract traded sharply higher Tuesday, and was firmer again yesterday, as the current bull cycle extends. Resistance at 4418.62, a trendline drawn from the Jul 27 high, has been cleared. This reinforces bullish conditions and signals scope for gains towards 4552.38, a Fibonacci retracement. On the downside, initial firm support is seen at 4372.66, the 20-day EMA.

COMMODITIES WTI Tumbles Through Multiple Support Levels To Settle At Lowest Since July

• Crude futures have tumbled 5% today as concerns of a tepid demand outlook amid higher US jobless claims, and rising stocks, piled pressure on prices during US trading hours and potentially triggered stop loss selling.
• The US Treasury Department is targeting three crude vessels in suspicion of breaching Russian oil related sanctions, it said in a statement.
• JP Morgan's head of energy strategy Christyan Malek has flagged deeper cuts as a potential avenue for the OPEC+ meeting – something he says the oil market is underestimating.
• WTI is -5% at $72.81 off a low of $72.20, tumbling through multiple support levels at $74.91 (Nov 8 low) and Fibo retrace of $74.26 and $73.12 (Jul 17 low). Next up lies $69.96 (76.4% retrace of the May 4 – Sep 28 bull run).
• Brent is -4.8% at $77.29 off a low of $76.62, although through multiple support levels the lowest being $77.21 (Jul 17 low) to open $75.51 (76.4% retracement of May 4 – Sep 28 bull run).
• Gold meanwhile has surged today for +1.2% at $1983.67 off an earlier high of $1988.00. It fulfils its bullish trend set-up, clearing $1978.4 (Nov 7 high) to next open a bull trigger at $2009.4 (Oct 27 high).

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
17/11/2023	0700/0700	***		UK	Retail Sales
17/11/2023	0700/0800	**		SE	Unemployment
17/11/2023	0830/0930			EU	ECB Lagarde Keynote Speech at Banking Conference
17/11/2023	0900/1000	**		EU	EZ Current Account
17/11/2023	1000/1100	***		EU	HICP (f)
17/11/2023	1310/1310			UK	BOE's Ramsden keynote speech at Conference
17/11/2023	1330/0830	*		CA	Industrial Product and Raw Material Price Index
17/11/2023	1330/0830	*		CA	International Canadian Transaction in Securities
17/11/2023	1330/0830	***		US	Housing Starts
17/11/2023	1345/0845			US	Fed Vice Chair Michael Barr
17/11/2023	1430/0930			US	San Francisco Fed's Mary Daly
17/11/2023	1445/0945			US	Chicago Fed's Austan Goolsbee
17/11/2023	1500/1000	*		US	Services Revenues
17/11/2023	1500/1600			EU	ECB's Cipollone participates in digital euro round table
17/11/2023	1800/1300	**		US	Baker Hughes Rig Count Overview - Weekly