MNI ASIA OPEN: Year-End Policy Focus on Fed, ECB, BoE

EXECUTIVE SUMMARY

• OMICRON CAUSED MILD ILLNESS IN FULLY VACCINATED IN U.S.: CDC, Bbg
• IRAN SAYS 'OPTIMISTIC' ABOUT RECENT MEETINGS IN NUCLEAR TALKS, Bbg

US TSYS: CPI Beat Est's, Final Policy Anncs of 2021 From Fed, ECB, BoE Next Wk

Rates holding marginal gains in 2s-10s after the bell, bonds steady while the ultra-bond trades weaker. Omicron-variant headlines more positive: CAUSED MILD ILLNESS IN FULLY VACCINATED IN U.S.; ONE VACCINATED PERSON HOSPITALIZED FOR TWO DAYS; NO DEATHS, Bbg.

• Tsy futures gapped higher after Nov CPI came out slightly higher than est (0.8% vs. 0.7%), algos duked it out as lvls quickly receded to pre-data levels, Equities surged higher (ESH2 +34.5) - see-sawed through the session to near highs late (+30.50 at 3690.25).
• Orderly trade late morning on with rates gradually paring gains amid two-way positioning ahead next week's FOMC, BOE and ECB policy announcements.
• No data on tap Monday, Tuesday focus on PPI Final Demand MoM (0.60% prior, 0.50% est); YoY (8.6% prior, 9.2% est) -- and of course the Final FOMC policy annc of 2021 on Wednesday.
• The 2-Yr yield is down 2.7bps at 0.6604%, 5-Yr is down 1.6bps at 1.2516%, 10-Yr is down 1.4bps at 1.4854%, and 30-Yr is up 0.5bps at 1.8811%.

OVERNIGHT DATA

• U.S. NOV. CONSUMER PRICES RISE 6.8% Y/Y; EST. 6.8%
• U.S. NOV. CONSUMER PRICES INCREASE 0.8% M/M; EST. 0.7%
• U.S. NOV. CORE CONSUMER PRICES RISE 4.9% Y/Y%; EST. 4.9%
• U.S. NOV. CORE CONSUMER PRICES RISE 0.5% M/M; EST. 0.5% -bbg
  • Unrounded % M/M figures: Headline 0.779%; Core: 0.535%
  • Unrounded % Y/Y figures: Headline 6.809%; Core: 4.929%

• UMICH DEC. PRELIM CONS SENTIMENT 70.4 (68.0 EXP., 67.4 NOV)
• UMICH DEC. PRELIM 1Y INFL EXPECTATIONS 4.9% (5.0% EXP; UNCH vs NOV)
• UMICH DEC. PRELIM 5-10Y INFL EXPECTAITONS 3.0% (UNCH vs NOV)

MARKET SNAPSHOT

Key late session market levels:

• DJIA up 124.15 points (0.35%) at 35847.03
• S&P E-Mini Future up 26.25 points (0.56%) at 4682
• Nasdaq up 38.7 points (0.2%) at 15545.6
• US 10-Yr yield is down 1.4 bps at 1.4854%
• US Mar 10Y are steady at at 130-12.5 at 130-12.5
• EURUSD up 0.002 (0.18%) at 1.1311
• USDJPY down 0.06 (-0.05%) at 113.43
• WTI Crude Oil (front-month) up $0.85 (1.2%) at $71.78
• Gold is up $6.84 (0.39%) at $1782.69

• EuroStoxx 50 down 9.14 points (-0.22%) at 4199.16
• FTSE 100 down 29.48 points (-0.4%) at 7291.78
• German DAX down 15.95 points (-0.1%) at 15623.31
• French CAC 40 down 16.55 points (-0.24%) at 6991.68

US TSY FUTURES CLOSE

• 3M10Y -0.852, 142.965 (L: 138.486 / H: 145.539)
• 2Y10Y +1.576, 82.304 (L: 77.641 / H: 82.847)
• 2Y30Y +3.614, 121.876 (L: 114.063 / H: 122.489)
• 5Y30Y +2.268, 62.791 (L: 56.406 / H: 63.474)
• Current futures levels:
• Mar 2Y up 1.875/32 at 109-3.125 (L: 108-30.375 / H: 109-05)
• Mar 5Y up 1.75/32 at 120-27.25 (L: 120-17.25 / H: 121-01)
• Mar 10Y up 0.5/32 at 130-13 (L: 130-02 / H: 130-23)
• Mar 30Y steady at at 161-9 (L: 160-25 / H: 162-01)

US EURODOLLAR FUTURES CLOSE

• Dec 21 +0.005 at 99.80
• Mar 22 steady at 99.685
• Jun 22 +0.010 at 99.495
• Sep 22 +0.025 at 99.275
• Red Pack (Dec 22-Sep 23) +0.035 to +0.045
• Green Pack (Dec 23-Sep 24) +0.005 to +0.030
• Blue Pack (Dec 24-Sep 25) -0.01 to +0.005
• Gold Pack (Dec 25-Sep 26) -0.03 to -0.015

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00463 at 0.07225% (-0.00425/wk)
• 1 Month +0.00400 to 0.10863% (+0.00450/wk)
• 3 Month -0.00263 to 0.19825% (+0.01062/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month -0.00050 to 0.28825% (+0.01712/wk)
• 1 Year +0.01113 to 0.50938% (+0.04788/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $76B
• Daily Overnight Bank Funding Rate: 0.07% volume: $266B

• Secured Overnight Financing Rate (SOFR): 0.05%, $973B
• Broad General Collateral Rate (BGCR): 0.05%, $351B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $339B
• (rate, volume levels reflect prior session)

• Tsy 7Y-10Y, $2.799B accepted vs. $5.541B submission
• Next scheduled purchase
• Mon 12/13 1010-1030ET: Tsy 22.5Y-30Y, appr $1.600B
• Mon 12/13 1500ET: Updated NY Fed Operational Purchase Schedule

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $1,507.147B from 77 counterparties vs. $1,500.027B on Thursday. Record high remains at 1,604.881B from Thursday, September 30.

PIPELINE: $62.2B for month of December

First full week of December see $39.9B high-grade debt issued, $62.2B for month of December

• Date $MM Issuer (Priced *, Launch #)
• 12/10 No new issuance Friday, $39.9B total on week
• $1.1B Priced Thursday
• 12/09 $600M *NextEra Energy Capital WNG 60NC5 3.8%
• 12/09 $500M *Qorvo WNG 3NC1 +85

EGBs-GILTS CASH CLOSE: BTPs Regain Ground

Periphery EGB spreads fell and Gilts outperformed Bunds Friday.

• The most anticipated event of the session was the November US CPI reading, which came in line w expectations - and the "sell the rumour, buy the fact" dynamic meant yields fell across the curve, and risk assets gained (including BTPs).
• 10Y Gilt/Bund spread tested the tightest levels seen since mid-September.
• Late in the session, Gilt yields came off the lows on a UK report showing that Covid boosters increased protection against Omicron to around 70-75%.
• Attention turns to key central bank meetings next week, including the Fed, ECB and BoE.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.8bps at -0.693%, 5-Yr is up 1.1bps at -0.583%, 10-Yr is up 0.6bps at -0.347%, and 30-Yr is up 1bps at -0.035%.
• UK: The 2-Yr yield is down 0.1bps at 0.429%, 5-Yr is down 0.2bps at 0.552%, 10-Yr is down 1.4bps at 0.741%, and 30-Yr is unchanged at 0.86%.
• Italian BTP spread down 3.8bps at 131.1bps / Spanish down 2.8bps at 70.3bps

FOREX: Dollar Edges Lower Post US CPI, DXY Unchanged For Week

• US inflation data was broadly in line with consensus which immediately weighed on the dollar.
• After president Biden’s cautious pre-release comments relating to the November number not fully reflecting the adjustment in oil prices, dollar bulls may have been underwhelmed by the figures.
• The dollar index retreated around 0.3% and despite a retracement over the preceding hour, the greenback traded with an offered tone throughout the remainder of Friday’s session.
• The White House provided further support following the release, suggesting price pressures will ease further in the coming months keeping an underlying bid in equities which supported AUD (+0.31%) and GBP (+0.27%).
• Overall, price action in G10 FX was subdued with narrow ranges to end the week where the DXY remains almost at identical levels to last Friday’s close.
• On Monday the BOE will release their Financial Stability Report. This kicks off a very busy week of central bank meetings, which include the Fed, ECB and the BoE.