MNI ASIA OPEN - A Higher For Longer Push From The Fed

NEWS

FED (MNI): Waller- Fed Must Keep Fighting Inflation “Aggressively”
High and persistent inflation mean there's little reason for the Federal Reserve to ease up on its aggressive fight to bring price pressures under control and keep inflation expectations from becoming untethered, Federal Reserve Governor Christopher Waller said Friday.

FED (BBG): Fed’s George Says Case for More Rate Tightening Is ‘Clear-Cut’
Kansas City Federal Reserve Bank President Esther Georgesaid the US inflation rate remains far too high and policy makers have a “clear-cut” case for continuing to remove monetary support. Still, officials should prioritize steadiness over speed as they proceed, said the Fed official, who has recently expressed caution about the pace of the interest-rate increases.

FED (MNI): Bullard: Markets Under-Pricing ‘Higher For Longer’ Rates
Speaking on Bloomberg TV, Bullard ('22 voter) reiterated his desire to see rates at 3.75-4% by year-end but added that more front-loading sooner is better whilst leaning more strongly to a 75bp hike at the Sep 21 FOMC decision.

US (MNI): Fed’s QT Could Trigger Liquidity Crunch - Rajan
The Federal Reserve's plan to reduce its USD8.8 trillion balance sheet carries significant risks, including a possible liquidity crunch in financial markets that would have broad repercussions for corporate credit, former Reserve Bank of India Governor Raghuram Rajan told MNI.

US (MNI): Cleveland Fed Sees Higher Aug CPI Than Market
The Cleveland Fed's inflation Nowcast sees August CPI coming in two-tenths higher on the month than market expectations, associate research director Ed Knotek told MNI, using a model that's outperforming professional forecasters through the pandemic.

BOE (BOE): BOE Delays Rates Meeting Following Queen's Death
The Bank of England has delayed the Monetary Policy meeting scheduled for next week, pushing the meeting and announcement of the policy decision back by seven days. The decision, following the death of Queen Elizabeth II on Thursday, means the policy announcement will now be made on Sept 22. "In light of the period of national mourning now being observed in the United Kingdom, the September 2022 meeting of the Monetary Policy Committee has been postponed for a period of one week. The Committee's decision will be announced at 12 noon on 22 September," the BOE said in a statement

UK (MNI): UK Economic Inactivity Rise Likely To Persist
A rise in inactivity among the UK's working age population since the Covid pandemic looks likely to persist despite choppy recent data, Professor Donald Houston, whose research has attracted the attention of the Bank of England, told MNI.

ITALY (BBG): Italy’s Right Set for Crushing Win in Last Polls Before Vote
Italy’s right-wing coalition, led by Giorgia Meloni’s Brothers of Italy, is poised for a landslide win on Sept. 25, according to the last available polls before a blackout period. The bloc has an advantage of almost 20%pts on the center-left coalition led by Enrico Letta’s Democratic Party, according to Bloomberg’s latest polling average. Such an advantage, thanks to Italy’s complex electoral system, might grant it a two-thirds majority of seats in both houses of parliament, enough to change Italy’s constitution on its own.

OIL (BBG): US Oil Explorers Dial Back Drilling as Austerity Trumps Growth
Oil rigs in the US slid to the lowest since June, a sign that shale producers are sticking to capital discipline after crude prices dropped about 30% over the past three months.

DATA

CANADA (MNI): Canada Jobless Rate Jumps To 5.4% On Education Workers
Canada's jobless rate rose far more than economists predicted in August, to 5.4% from a record low 4.9%, as more people entered the labor force and there was a sharp decline in hard-to-measure contract education workers as the fall school season began.

Employment fell by 39,700 as gains in scientific and technical services were overwhelmed by a 49,500 drop in education. Statistics Canada said calculating education employment "can be partially affected by slight variations in the timing of when school-year based contracts for temporary employees end and begin." Past job reports around back-to-school have also been affected by big swings in education.

MNI INSIGHTS - 9th September 2022

SWEDEN: Preview Published Ahead Of 11 September Election

• In this election preview we will provide a short explainer of the electoral system, the main parties contesting the vote, an opinion polling chart-pack, a scenario analysis of potential election outcomes with probabilities, and an expected timeline of the contest.
• https://roar-assets-auto.rbl.ms/documents/18299/MN...

CANADA: Bearish Jobs Print As Unemployment Rate Jumps

• A net bearish jobs print sees USDCAD climb 30 pips and notable GoC outperformance to Tsys (2YY -8.5bps vs -2.5bps Tsys). A big miss for employment in August (-39.7k vs +15k consensus) and with no revisions to offset a cumulative -74k from the prior two months, was amplified by full-time jobs falling -77k for -90k in two months, almost 0.5% of the workforce.
• https://marketnews.com/bearish-jobs-print-as-unemp...

CHINA: Annual Liquidity Continues To Rise, But Not Enough To Levitate Domestic Risky Assets

• Even though a recovery in liquidity has historically had a positive impact on domestic risky assets and some China-sensitive commodities (i.e. copper) or currencies (i.e. AUD), the easing conditions (policy and liquidity) have been barely enough to limit the downside risk on the real economy.
• https://marketnews.com/aggregate-financing-signifi...

MNI ECB Review: ECB Front Loads

• It is clear that the ECB has fallen in line behind the hawks on the GC. Moreover, Lagarde indicated that support for a 75bp hike was unanimous, indicating that the dovish voices previously calling for a gradual approach, must now also be concerned by the scale of the recent inflationary surge.
• https://roar-assets-auto.rbl.ms/documents/18288/EC...

MNI UST Issuance Deep Dive: Sep 2022

• While August's refunding announcement was more or less in line with expectations, the underperformance of the 20Y Note on the curve immediately following the release (poor August's auction) stood out. Nominal coupon supply restarts next week with $41B of 3Y Note, $32B of 10YNote (re-open), and $18B of 30Y Bond (re-open) auctions.
• https://marketnews.com/mni-research/global-issuance/us/mni-ust-issuance-deep-dive-sep-2022

US TSYS: 2Y Yield Hits Fresh Post-2007 Highs After Fedspeak

• 2Y Tsy yields have pulled back from new cycle highs (and fresh post-2007 highs) of 3.5731% but still sit +6bps at 3.563%.
• ~5bps of that is since Waller and George spoke, with the takeaway being a continued push of higher rates for longer.
• 2s10s flatten 6bps to -24bps despite an unwinding of an earlier rally in the long-end (with 10Y real yields holding just off cycle highs), back to pre-payrolls levels.
• The intraday sell-off for TYZ2 to 115-24 sees it resume its downward trend after the midweek clearance of a bear trigger at 115-23 with a low of 115-13+, forming support, clearance of which would open 114-26 (Jun 16 low).
• Entering the media blackout at midnight tonight, focus is firmly on US CPI on Tuesday. Governor Waller made clear today he wants to see months and months of slowing inflation (rather than just a couple) after being caught out by last year's re-acceleration.

EGBs-GILTS CASH CLOSE: Mixed Curve Movements As Hike Pricing Firms

The German curve twist steepened with the UK's bull flattening Friday.

• Short end Eurozone rate hike expectations firmed, with ECB speakers in the morning mostly on the hawkish side (Knot, Kazimir).
• Oct ECB hike pricing closed at about 62bp; Dec 2022 implied rate rose 2.8bp to 1.81% on the day; terminal remained around 2.3%.
• An FT sources piece pointing to the ECB discussing QT starting in October with a potential start by year-end to put renewed pressure on BTPs.
• The BoE decision was postponed from next week to Sept 22nd due to the mourning period for the Queen, leading to some volatility in front rate futures, though settled a little higher on the day (67bp priced).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 0.7bps at 1.327%, 5-Yr is down 1.7bps at 1.538%, 10-Yr is down 1.9bps at 1.698%, and 30-Yr is up 2.9bps at 1.808%.
• UK: The 2-Yr yield is down 1.4bps at 3.054%, 5-Yr is down 2bps at 2.987%, 10-Yr is down 5.2bps at 3.095%, and 30-Yr is down 2.2bps at 3.476%.
• Italian BTP spread up 6.3bps at 232bps / Greek up 7bps at 258.2bps

FOREX: Greenback Weakness Consolidates Despite US Front-End Yield Surge

• Despite a partial greenback recovery in early NY trade on Friday, the US Dollar is holding onto broad based sizeable declines to finish the week. The USD weakness is largely stemming from the extended grind higher in major equity indices, significantly boosting the likes of AUD (+1.35%) and NZD (+0.86%).
• The Swiss Franc extended on yesterday’s gains, rising in tandem with the Japanese Yen, which continued to trade in a volatile manner.
• An early move lower for US yields heavily weighed on USDJPY which plummeted to a 1.4151 low from earlier highs of 144.12 during APAC trade. Despite US 2-year yields then rising around 12bps off the lows, USDJPY was only able to partially recover to current rate ~142.65 in early US trade where it consolidated for the majority of the US session.
• FX markets appeared to run out of steam approaching the close and although the USD index printed fresh cycle highs on Wednesday, the index looks set to post a 0.5% decline from last Friday’s close.
• Markets turn their focus to next week’s US CPI data, scheduled to be published on Tuesday.
• Monday’s highlight will be UK GDP data, which the ONS have confirmed will go ahead as planned, despite the BoE deferring its meeting by a week, due to the UK's mourning period. Worth noting Chinese banks will be closed on Monday in observance of the Mid-Autumn Festival.

EUROPE OPTIONS: Both Upside And Downside In Bund

Friday's Europe rates / bond options flow included:

• OEV2 123.50/123.00/122.50p fly, bought for 5.5 in 3k
• DUV2 107.50/107.20ps vs 108.20/108.50cs, sold at 3.5 in 1.75k
• DUX2 107.90/108.20 call spread vs 107.10 put bought for 2 in 3k
• RXX2 135.00/132.00ps, bought for 16.5 ibn 10k total
• RXX2 147c bought for 87 up to 90 in 15k
• RXX2 135/132ps, bought for 13 in 2k
• RXV2 139.50/138.50ps, bought for 10.5 in 5k

COMMODITIES: Crude Oil Ending Mixed Week Flat

• Crude oil is ending the week largely flat courtesy of an almost 4% gain today, likely buoyed by dollar weakness plus some expectations of a potential tightening from OPEC+ after on Monday saying it could take additional steps if needed. It comes despite the sizeable US inventories build and weak demand from growing China lockdowns.
• WTI is +3.6% at $86.57, reversing a bearish threat by clearing resistance at $85.37 (Aug 16 low) to open the 20-day EMA at $89.25.
• Brent is +3.9% at $92.65, clearing the recent breakout level of $90.95 (Aug 17 low) and moving closer to the 20-day EMA of $94.80.
• Gold is +0.4% at $1714.96 as dollar weakness clashes with rising front-end Tsy yields on hawkish Fedspeak. It briefly cleared resistance at $1728.3 (Sep 6 high), opening $1731.4 (20-day EMA) before slipping on a rebound in the DXY.
• Weekly moves: WTI -0.03%, Brent -0.34%, Gold +0.2%, US Nat Gas -13.3%, TTF Nat Gas -2.7%