MNI ASIA OPEN: Fed Chairman Powell Nomination Hearing Tuesday

EXECUTIVE SUMMARY

• MNI INTERVIEW: Cleveland Fed Econ. Sanguine on Wage Inflation
• MNI BRIEF: Inflation Expectations Growth Cools - NY Fed
• WH said to address filibuster issues Tuesday
• Fed Clarida Annc Resignation Earlier Than Exp: Jan 14 vs. 30th
• Fed Chairman Powell nomination hearing with Senate committee on Banking, Housing and Urban Affairs Tuesday at 1000ET

US TSYS: Stocks Stage Late Rebound From Steep First Half Losses

Overall volumes rather muted Monday, traders pre-occupied ahead midweek CPI and Friday's Jan Eurodollar option expiration. Surprise: Stocks higher late.

• Stock indexes managed late session rebound, Nasdaq topping 4681.0 late vs. 4575.0 low -- no obvious headline driver but higher Tsy yld headwinds eased around midday, trading desks reporting several large program buys near lows.
• Medium term focus on finding value in downside puts targeting first rate hike at the March 15/16 FOMC policy annc.
• Note -- various dealers bringing there liftoff expectation forward to March as well: GS, JPM, MS and NatWest for starters as well as more details over Balance Sheet normalization.
• Markets eager for details of timing on Quantitative Tightening as well. NatWest strategists say the June 14/15 FOMC a close call between second rate hike vs. QT, but not both. "This decision should be highly data dependent. We lean to the Fed announcing a second interest rate hike at the June Meeting, but we envision strong risk to an early start of QT."
• Tuesday -- Fed Chairman Powell nomination hearing with Senate committee on Banking, Housing and Urban Affairs Tuesday at 1000ET.
• The 2-Yr yield is up 4bps at 0.9024%, 5-Yr is up 3bps at 1.5285%, 10-Yr is up 0.7bps at 1.7692%, and 30-Yr is down 1.3bps at 2.1028%.

US

FED: Productivity gains and rising profits should help U.S. firms absorb the cost of higher wages, muffling the inflationary impact of a job market boom and increased worker bargaining power, Cleveland Fed economist Robert Rich told MNI.

• “There’s this narrative that there’s this very straightforward linkage between wages and prices, and the moment you see wage increases that’s going to immediately translate into price inflation,” said Rich, director of the Cleveland Fed’s Center for Inflation Research as well as a senior economic and policy advisor to the Bank's president, Loretta Mester.
• “It’s not a narrative we think of as being accurate. You could think of there being lots of slippages, at least in the near term, between wages and prices.”

OVERNIGHT DATA

• U.S. NOV. WHOLESALE INVENTORIES RISE 1.4 %
  
• U.S. NOV. WHOLESALE SALES UP 1.3 %

MARKETS SNAPSHOT

Key late session market levels:

• DJIA down 284.81 points (-0.79%) at 35939.55
• S&P E-Mini Future down 27 points (-0.58%) at 4639.5
• Nasdaq down 79.4 points (-0.5%) at 14851.39
• US 10-Yr yield is up 0.7 bps at 1.7692%
• US Mar 10Y are down 2.5/32 at 128-7
• EURUSD down 0.0031 (-0.27%) at 1.133
• USDJPY down 0.34 (-0.29%) at 115.22
• WTI Crude Oil (front-month) down $0.69 (-0.87%) at $78.19
• Gold is up $4.41 (0.25%) at $1800.64

• EuroStoxx 50 down 66.31 points (-1.54%) at 4239.52
• FTSE 100 down 40.03 points (-0.53%) at 7445.25
• German DAX down 179.47 points (-1.13%) at 15768.27
• French CAC 40 down 103.71 points (-1.44%) at 7115.77

US TSY FUTURES CLOSE

• 3M10Y +0.465, 166.775 (L: 166.244 / H: 170.755)
• 2Y10Y -3.113, 86.477 (L: 86.252 / H: 91.857)
• 2Y30Y -5.147, 119.84 (L: 118.983 / H: 126.837)
• 5Y30Y -4.297, 57.263 (L: 56.184 / H: 61.778)
• Current futures levels:
• Mar 2Y down 2.125/32 at 108-23.625 (L: 108-23.25 / H: 108-26.25)
• Mar 5Y down 4.25/32 at 119-19.25 (L: 119-15.5 / H: 119-23.75)
• Mar 10Y down 2.5/32 at 128-7 (L: 127-30 / H: 128-11)
• Mar 30Y up 12/32 at 155-16 (L: 154-19 / H: 155-18)
• Mar Ultra 30Y up 15/32 at 189-5 (L: 187-16 / H: 189-1)

‌‌US 10Y FUTURES: Tech (H2)‌‌ Bearish Despite Intraday Bounce

• RES 4: 131-19 High Dec 20 and key resistance
• RES 3: 130-18+/28+ High Dec 31 / High Dec 22
• RES 2: 129-31 Low Dec 8 and a recent breakout level
• RES 1: 129-00/19 High Jan 6 / High Jan 4
• PRICE: 128-04+ @ 16:59 GMT Jan 10
• SUP 1: 127-30 1.764 proj of the Dec 20 - 29 - 31 price swing
• SUP 2: 127-18+ 2.00 proj of the Dec 20 - 29 - 31 price swing
• SUP 3: 127-07 2.236 proj of the Dec 20 - 29 - 31 price swing
• SUP 4: 127-00 Round number support

Treasuries remain soft, despite a mid-session rebound from the 127-30 intraday low. A clear bearish price sequence of lower lows and lower highs on a daily basis reinforces the current sentiment, signalling scope for further weakness. Moving average conditions are in a bear mode and this also reinforces the current broader downtrend. Initial resistance is seen at 129-00, the Jan 6 high. Short-term gains would likely be corrective in nature.

US EURODOLLAR FUTURES CLOSE

• Mar 22 -0.015 at 99.590
• Jun 22 -0.025 at 99.30
• Sep 22 -0.035 at 99.050
• Dec 22 -0.040 at 98.780
• Red Pack (Mar 23-Dec 23) -0.05 to -0.045
• Green Pack (Mar 24-Dec 24) -0.05 to -0.045
• Blue Pack (Mar 25-Dec 25) -0.04 to -0.025
• Gold Pack (Mar 26-Dec 26) -0.02 to -0.005

SHORT TERM RATES

US DOLLAR LIBOR: Settlement resumes:

• O/N +0.00472 at 0.07743% (+0.00833 total last wk)
• 1 Month -0.00129 to 0.10400% (+0.00190 total last wk)
• 3 Month +0.00215 to 0.23829% (+0.02701 total last wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00657 to 0.38300% (+0.03768 total last wk)
• 1 Year +0.01515 to 0.67686% (+0.07858 total last wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $71B
• Daily Overnight Bank Funding Rate: 0.07% volume: $258B

• Secured Overnight Financing Rate (SOFR): 0.05%, $929B
• Broad General Collateral Rate (BGCR): 0.05%, $345B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $330B
• (rate, volume levels reflect prior session)

• Tsy 7Y-10Y, $2.401B accepted vs. $7.108B submission
• Next scheduled purchases:
• Tue 01/11 1010-1030ET: Tsy 4.5Y-7Y, appr $4.525B
• Tue 01/11 1100-1120ET: Tsy 10Y-22.5Y, appr $1.625B
• Wed 01/12 1100-1120ET: Tsy 22.5Y-30Y, appr $1.825B
• Thu 01/13 1010-1030ET: Tsy 2.25Y-4.5Y, appr $6.325B
• Thu 01/13 1500ET: Updated NY Fed Operational Purchase Schedule

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $1,560.421B (76 counterparties) vs. $1,530.096B on Friday.
All-time high of $1,904.582B on Friday, December 31.

PIPELINE: Toyota Launched Late, Leads w/$2.6B 4Pt

• Date $MM Issuer (Priced *, Launch #)
• 01/10 $2.6B #Toyota Motor Cr $1.15B 3Y +30, $300M 3Y SOFR+32, $750M 5Y +40, $400M 10Y +68
• 01/10 $2B #BP Capital 10Y +95
• 01/10 $1.2B #Southern California Edison $500M 10Y +98, $700M 30Y +135
• 01/10 $1.5B #Dick's Sporting $750M 10Y +140, $750M 30Y +200
• 01/10 $1.15B #Blackstone Private Cr Fund $500M 3Y +150, $650M 7Y +240
• 01/10 $2.05B #Groupe BPCE $850M 3Y +55, $400M 3Y SOFR+57, $800M 15NC10 +190
• 01/10 $Benchmark Korea National Oil 3.25Y +60, 5.25Y +70, 10.25Y +90
• 01/10 $500M #GCC WNG +10Y +185

FOREX: USD and JPY Bolstered By Equities Rout, Notable CHF Weakness

• FX markets were active on Monday despite the lack of significant data/event risk, however, G10 currencies largely played second fiddle to the large selloff seen across US equity indices.
• Despite the relatively contained price changes, both the US dollar and the Japanese Yen were beneficiaries as investors sought a flight to quality throughout the US session where e-mini S&P futures sunk roughly 2.3% from their intra-day highs at their worst point.
• The USD index gained 0.5% at its best levels, erasing the negative greenback sentiment in the aftermath of the US employment data on Friday. In general, the index continues to trade blows either side of the 96.00 level, a similar theme witnessed through much of December.
• USDJPY was understandably heavy and once breaking back below the old highs of 115.52, the Yen squeeze extended. Cross/JPY bore the brunt of the negative tone for risk with both CADJPY and NZDJPY losing over 0.6%.
• The most notable divergence was probably witnessed in the Swiss Franc, with USDCHF remaining very well supported throughout the entirety of the session. After a quiet Q4 last year, total sight deposits are pointing north again, potentially suggesting the SNB are uncomfortable with the pace of the recent CHF acceleration. Additionally, USDCHF breaking back above multiple recent highs around 0.9250 could be considered a bullish development.
• Aussie retail sales overnight before a very light European data calendar. Focus will be on potential comments from Fed’s Powell and other Fed speakers before the major data point of US inflation on Wednesday.