MNI ASIA OPEN: Powell Nomination Hearing Went Smoothly

EXECUTIVE SUMMARY

• MNI BRIEF: Fed's Powell Will Raise Rates More If Needed
• MNI BRIEF: Powell 'Watching Carefully' Wage-Price Dynamics
• MNI BRIEF: Fed Boards Say Rate Hikes Warranted Soon - Minutes
• MNI INTERVIEW: Workforce Should Return to Pre-Covid Levels
• MNI INTERVIEW: Omicron Underpins Canada Price Pressures- CFIB

US

FED: The Federal Reserve expects easing supply chain pressures to take some of the heat off high inflation, but a more aggressive monetary tightening might be needed if that doesn't happen, Fed Chair Jerome Powell told Congress during his nomination hearing Tuesday.

• "If we have to raise interest rates more over time we will," Powell said. "High inflation is a severe threat to the achievement of maximum employment.

US: U.S. labor force participation is likely to recover fairly quickly once the worst of the Covid pandemic lifts, former U.S. Labor Department chief economist Heidi Shierholz told MNI, pushing back against the notion that the crisis has inflicted permanent damage on the job market.

• “I fully expect that we’ll see a much greater bounceback of the labor force participation rate as we get the virus under control,” said Shierholz, now president of the Economic Policy Institute.
• “That’s what policymakers should be thinking of – not that we’re at 3.9% unemployment and so this is like the steady trajectory. This is so different and it’s really important that we plan for loosening as we get the virus under control and people come back to the labor force in droves.”
• Workforce participation fell sharply during the pandemic and has recovered more gradually than Federal Reserve policymakers might have hoped given the strength of the job market.

US TSYS

• Both Eurodollar and Treasury futures trade well off midmorning lows to near late overnight highs in late NY trade -- before Wed's Dec CPI.
• First half trade was more carry-over bear-bias trade in-line with Fed speakers (Bostic, Mester and George) and dealers calling for 3-4 rate hikes in 2022 (JPM and GS see 4), first hike in March, faster balance sheet drawdown, quantitative tightening later in second half of 2022.
• On/Off inversion: Eurodlr Greens (Mar'24-Dec'24) are current inflection point where current tighter policy opinions falter, differing opinions on if/when hikes stop, chances of easing or resumption of accommodation priced back in.
• Rates rebounded late morning with less aggressive tone from Fed Chair Powell at his Senate nomination hearing that ran through noon.
• Huge 2Y Block: +20,570 TUH2 108-23.75, buy through 108-23.37 post-time offer at 1313:37ET. Print comes on heels of debate over short end reaction to a "hot" CPI figure tomorrow, (0.4% est vs. 0.8% previous).
• Given heavy short end selling last week as market aggressively prices in first rate hike in March, another above consensus read for the inflation figure unlikely to induce further selling in the short end (re: .50bp hike in March).
• Treasury futures gain slightly but still holding inside range after $52B 3Y note auction (91282CDS7) small stop: 1.237% high yield vs. 1.239% WI; 2.47x bid-to-cover vs. 2.43x in Dec.
  • Indirect take-up climbed to 61.65% vs. last month's year high of 52.17%, while direct bidder take-up falls off 1+ year highs last couple auctions to 15.51% (18.01% Dec). Primary dealer take-up recedes to 22.84% vs. 29.81% in Dec, well under the 5M average of 28.06%

OVERNIGHT DATA

US NFIB DEC SMALL BUSINESS INDEX 98.9

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 150.11 points (0.42%) at 36219.84
• S&P E-Mini Future up 35.5 points (0.76%) at 4697.5
• Nasdaq up 189 points (1.3%) at 15133.2
• US 10-Yr yield is down 1.4 bps at 1.7463%
• US Mar 10Y are up 7.5/32 at 128-12
• EURUSD up 0.0041 (0.36%) at 1.1367
• USDJPY up 0.11 (0.1%) at 115.31
• WTI Crude Oil (front-month) up $3.19 (4.08%) at $81.44
• Gold is up $20.71 (1.15%) at $1822.39

• EuroStoxx 50 up 42.02 points (0.99%) at 4281.54
• FTSE 100 up 46.12 points (0.62%) at 7491.37
• German DAX up 173.54 points (1.1%) at 15941.81
• French CAC 40 up 67.61 points (0.95%) at 7183.38

US TSY FUTURES CLOSE

• 3M10Y -3.688, 162.202 (L: 160.833 / H: 165.743)
• 2Y10Y -1.225, 84.969 (L: 82.512 / H: 86.5)
• 2Y30Y -1.036, 118.023 (L: 114.199 / H: 119.312)
• 5Y30Y -0.04, 56.829 (L: 52.369 / H: 57.437)
• Current futures levels:
• Mar 2Y up 0.75/32 at 108-24.25 (L: 108-20.875 / H: 108-24.5)
• Mar 5Y up 4.25/32 at 119-22.25 (L: 119-13.25 / H: 119-23.5)
• Mar 10Y up 7.5/32 at 128-12 (L: 128-01 / H: 128-14)
• Mar 30Y up 16/32 at 155-27 (L: 155-09 / H: 156-01)
• Mar Ultra 30Y up 30/32 at 189-29 (L: 189-06 / H: 190-17)

US TSY FUTURES: TECH (H2)‌‌ Trend Needle Still Points South

• 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: 129-00/22 High Jan 6 / 20-day EMA
• PRICE: 128-08+ @ 16:25 GMT Jan 11
• 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 and futures are trading closer to recent lows. A clear bearish price sequence of lower lows and lower highs, on a daily basis, continues to reinforce the current sentiment and signals scope for further weakness. The moving average set-up is in bear mode and this also highlights current bearish conditions. Initial resistance is seen at 129-00, the Jan 6 high. The focus is on 127-18+ next, a Fibonacci projection.

US EURODOLLAR FUTURES CLOSE

• Mar 22 -0.005 at 99.585
• Jun 22 +0.005 at 99.305
• Sep 22 +0.010 at 99.065
• Dec 22 +0.010 at 98.790
• Red Pack (Mar 23-Dec 23) +0.020 to +0.035
• Green Pack (Mar 24-Dec 24) +0.040 to +0.065
• Blue Pack (Mar 25-Dec 25) +0.050 to +0.060
• Gold Pack (Mar 26-Dec 26) +0.040 to +0.045

SHORT TERM RATES

US DOLLAR LIBOR: Settlement resumes:

• O/N +0.00000 at 0.07743% (+0.00472/wk)
• 1 Month +0.00900 to 0.11300% (+0.00771/wk)
• 3 Month +0.00614 to 0.24443% (+0.00829/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00314 to 0.38614% (+0.00971/wk)
• 1 Year +0.01871 to 0.69557% (+0.03386/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $71B
• Daily Overnight Bank Funding Rate: 0.07% volume: $267B

• Secured Overnight Financing Rate (SOFR): 0.05%, $919B
• Broad General Collateral Rate (BGCR): 0.05%, $351B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $336B
• (rate, volume levels reflect prior session)

• Tsy 10Y-22.5Y, $1.601B accepted vs. $3.280B submission
• Tsy 4.5Y-7Y, $4.501B accepted vs. $14.155B submission
• Next scheduled purchases:
• 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 recedes to $1,527.020B (77 counterparties) vs. $1,560.421B on Monday.
All-time high of $1,904.582B on Friday, December 31.

PIPELINE: Issuance Surge, Near Twice Wk Opener at $22.75B

• Date $MM Issuer (Priced *, Launch #)
• 01/11 $5B #Societe Generale $1.25B 4NC3 +105, $750M 4NC3 SOFR+105, $1.25B 6NC5 +130, $1B 11NC10 +160, $750M 21NC20 +190
• 01/11 $5B #KFW 3Y SOFR+10
• 01/11 $3.5B *ADB 5Y SOFR+22
• 01/11 $2.5B #CIBC 5Y SOFR+48
• 01/11 $2.3B #MUFG 6NC5 +83, 11NC10 +110
• 01/11 $1.75B #American Honda $1.1B 3Y +35, $650M 7Y +60
• 01/11 $Benchmark Prosus $1B 5Y +180, 10Y +250, 30Y +295
• 01/11 $Benchmark Panama 11Y +185a, 40Y +270a
• 01/11 $1.2B #SONOCO $400M 3NC1 +62.5, $300M 5Y +75, $500M 10Y +112.5
• 01/11 $900M #NY Life $450M 3Y +30, $450M 3Y SOFR+33
• 01/11 $600M *Triton Container Int 10Y +155
• Expected Wednesday:
• 01/12 $Benchmark Kommunalbanken Norway 5Y SOFR+29
• 01/12 $500M JBIC WNG 5Y Green +39a

FOREX: Softer Greenback, CAD and NOK Outperform As Crude Prices Surge

• Both the Canadian dollar and the Norwegian Krona were the main G10 beneficiaries on Tuesday as buoyant commodity prices underpinned demand.
• Crude oil futures have risen well over 3% and both WTI and Brent are currently testing the October highs, providing some fresh impetus for CAD and NOK bulls.
• USDCAD has made headway below the 1.26 handle, marking the fourth consecutive session of lower lows for the pair. A clear break of both 1.2621 as well as 1.2608 (Dec8 low) strengthens the bearish case to initially target 1.2546 (61.8% retracement of the Oct - Dec rally).
• Overall, the US dollar has weakened amid the improving global risk sentiment. The dollar index (DXY) has fallen 0.4% and is within close proximity of the late November lows around 95.50 as we approach tomorrows CPI data.
• The greenback weakness comes in the face of growing sell-side adjustments to Fed rate hike expectations with several analysts now predicting four hikes in 2022.
• EURUSD, GBPUSD and NZDUSD have all moved in line with the weaker dollar and AUDUSD (+0.6%) has edged back above the 0.72 handle and traders will eye a potential close above the 50-day MA which intersects at 0.7216. Key short-term resistance is unchanged at 0.7278, the Dec 31 high.
• The weaker dollar and firmer equity/commodity markets provided a strong environment for emerging market FX. The South African Rand gained close to one percent, however, the major gains were seen in LatAm with both the BRL and COP surging around 1.5%.
• Chinese CPI/PPI is scheduled overnight before the week’s main event of US CPI will be released at 1330GMT/0830ET.