MNI ASIA OPEN - PBOC Cuts RRR By 25bp

NEWS

OIL (BBG): Russia Drafts Decree Banning Oil Sales to Price-Cap Participants
The Kremlin is drafting a presidential decree that will prohibit Russian companies and any traders buying the nation’s oil from selling it to anyone that participates in a price cap, according to a person with knowledge of the matter. The decree will forbid dealings with both companies and countries that join the price-cap mechanism, the person said, without giving an exact definition of how participation in such a mechanism would be defined.

OIL (BBG): EU Postpones Talks on Oil Price Cap as Divisions Stick
European Union diplomats suspended talks on capping Russian oil prices, as Poland and the Baltic states objected to a proposal they consider too generous to Moscow. Diplomats had expected a deal to be done on Friday night but positions remained entrenched and the talks were postponed to Monday, according to people familiar with the matter.

TRADE (BBG): Shipping Giant CMA CGM Delivers Gloomy Outlook With Hefty Profit
French shipping giant CMA CGM SA, owned by the billionaire Rodolphe Saade and family, said weakening demand for freight transport and gloomier economic prospects are hurting profitability this quarter. The warning from the world’s third-largest container line is bleaker than nearly three months ago when the closely held company signaled the start of a slowdown. It’s in line with European rivals A.P. Moller-Maersk A/S and Hapag-Lloyd AG, which have given similar guidance in recent weeks.

CHINA (MNI): PBOC Cuts RRR By 25 Bp As Covid Clouds Recovery
The People's Bank of China (PBOC) cut the reserve ratio requirement for banks on Friday, releasing CNY500 billion long-term funds to boost confidence as fresh Covid outbreaks raise concerns about the economic outlook. The rate was cut by 25bp for most banks whose RRR is higher than 5%, with an aim of maintaining "ample liquidity and a reasonable growth in money supply and credit”, the PBOC said in a statement on its website.

US (BBG): US Avian Flu Outbreak Worst on Record With 50 Million Dead Birds
The American outbreak of avian influenza is officially the worst on record with 50.54 million dead birds, according to the US Department of Agriculture. The virus has mostly impacted turkey and egg operations, sending prices to all-time highs and contributing to soaring food inflation.

CANADA (MNI): Canada Apr-Sept Budget Surplus Again Beats Forecast
Canada's finance department on Friday reported a CAD1.7 billion budget surplus from the start of the fiscal year in April through September, as the economic rebound from the pandemic continues to defy the government's forecast of a big deficit.

EU (BBG): Credit Rebound Triggers Biggest Euro IG Inflow Since 2020
A strong bounce-back for battered euro investment-grade corporate bonds is luring investors back en masse, according to JPMorgan strategists led by Matthew Bailey. Benchmarked euro high-grade funds drew €1.7b of inflows in the week through Wednesday, or 0.8% of assets, the strategists wrote. This marks the largest weekly inflow since June 2020

UK/Regulation (BBG): Twitter Chaos Leaves UK Regulator With Nobody to Meet
As the UK regulator prepares to implement sweeping online safety rules in the UK, its directors spent last week in the US meeting executives from the world’s biggest web platforms, including Meta Platforms Inc., Alphabet Inc. and Bytedance Ltd’s TikTok. There was one conspicuous omission: Elon Musk’s Twitter Inc. A scheduled meeting fell through after all the representatives in touch with Ofcom left Twitter, according to two people familiar with the matter, who asked not to be named because the plans were private.

CLIMATE (BBG): Netherlands to Buy Out Farmers Amid Pushback Over Nitrogen Goals
The Netherlands laid out plans to buy out hundreds of farms near nature reserves, an attempt to quell the fury of Dutch farmers over its goal of halving nitrogen emissions by 2030. The government will acquire large nitrogen emitters as part of a voluntary and one-time offer, said Nitrogen Minister Christianne van der Wal-Zeggelink in a letter to the parliament in the Hague. The cabinet has set aside €24.3 billion to fund the transition.

DATA

MNI: GERMANY FINAL Q32022 GDP SA +0.4%r Q/Q (FLASH +0.3%)
GERMANY FINAL Q32022 GDP WDA +1.3%r Y/Y (FLASH +1.2%)

MNI: ITALY NOV BUSINESS CONFIDENCE 106.4
MNI: ITALY NOV CONSUMER CONFIDENCE 98.1

MNI: FRANCE NOV CONSUMER SENTIMENT 83

US TSYS: Treasuries See Late Rally To Keep Post FOMC Minutes Bid In Early Close

• Cash Tsys rallied sharply into the early close on likely positioning into the weekend, retracing a large part of the intraday cheapening from a strong open, with the net result being most of the curve sitting 1.5-3bps richer from Wednesday’s post FOMC minutes close except for the very long end.
• TYZ2 trades 113-02+ off a session low of 112-19+ but remains below initial resistance at yesterday’s high of 113-15, clearance of which is needed to see a resumption of the uptrend towards key resistance at $113-30 (Oct 4 high).
• Fedspeak highlights Monday with NY Fed’s Williams with text and full Q&A plus an interview with Bullard, before Powell on Wed and payrolls on Fri. Fed Funds pricing sits at 53bp for the Dec 14 decision whilst the terminal in May/Jun’23 has fluctuated between 4.97-5.09% this week, latest 5.00%.

EGBs-GILTS CASH CLOSE: Eyeing Next Week's Hawkish Risks

The key theme of the week - curve flattening, and in particular German inversion - abated in the closing session of the week, with the long end selling off.

• The broader impetus for the sell-off is thinner liquidity meeting profit-taking, particularly ahead of an extremely busy week that includes Eurozone inflation data and commentary by US Fed Chair Powell.
• That's a schedule rife with potential hawkish risks (Powell pushback on pivot speculation, high eurozone inflation print), the recent dovish rally.
• Today markets appeared to eye ECB Muller's warning against a premature end to tightening: terminal ECB rates picked up 4-5bp.
• This repricing led to BTPs underperformance, with 10Y yields rising more than 20bp (the biggest in nearly 2 months) and spreads reversing Thursday's tightening.
• BoE terminal pricing picked up a few basis points as well, with the short end underperforming.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 8.4bps at 2.197%, 5-Yr is up 11.3bps at 2.009%, 10-Yr is up 12.3bps at 1.973%, and 30-Yr is up 8.6bps at 1.879%.
• UK: The 2-Yr yield is up 8.3bps at 3.292%, 5-Yr is up 6.8bps at 3.288%, 10-Yr is up 8.3bps at 3.121%, and 30-Yr is up 5.9bps at 3.334%.
• Italian BTP spread up 5.6bps at 188bps / Spanish up 3.2bps at 98bps

EU OPTIONS: Big Upside And Downside Euribor Buying Continues

Friday's Europe rates / bond options flow included:

• RXZ2 142c, bought for 3 and 5 in 2.6k
• ERZ2 97.87/98.00/98.12c fly bought for 2.5 in 35k (has been bought in at least 46k prior to today; targeting upside covering events through to Dec 19)
• ERZ2 97.75/97.625 1x2 put spread bought for 1 in 5k. Note this was bought in 15k yesterday

FOREX: Greenback Close To Unchanged, Consolidates Week’s Decline

• A brief bout of greenback strength on Friday was met by firm supply and the USD index looks set to close the day near to unchanged, consolidating ~1% losses this week.
• Little news crossing the wires kept currency markets lacking momentum to end the week, as was broadly expected given the US Thanksgiving holiday.
• The greenback was led higher by some overnight strength in USDJPY, which recovered the entirety of Thursday decline, closely matching the previous day highs around 139.60 before moderating into the close. Having traded through support this week, the focus now turns to 137.68, Nov 15 low and a bear trigger.
• Elsewhere, CNH (-0.37%) marginally underperforms as the Chinese central bank signalled a cut to the RRR policy rate by 25bps. Given the move was largely as expected the Yuan’s price action remained largely contained.
• Potentially below average holiday liquidity accentuated some currency moves in emerging markets, with the HUF recovering around 1% against the Euro and the Brazilian Real (-1.80%) coming under renewed pressure amid ongoing fiscal concerns and as markets await the President-elect’s pick for finance minister.
• Another quiet start on the data front next week leaves central bank speakers in the spotlight. However, activity may pick up as we approach the latest US employment report scheduled for next Friday.

COMMODITIES: WTI Sees Lowest Close Since January

• Crude oil reversed gains from earlier in the day as European talks on a price cap for Russian oil continue into next week against a backdrop of China Covid-linked demand concerns. Russia drafting a decree to ban oil sales to price-cap participants helped stabilise the decline, but it still saw WTI close at its lowest level in eleven months.
• WTI closed -2.1% at $76.28, starting to eye the medium-term key support at $74.96 (Sep 28 low)
• Brent is -1.5% at $84.04, nearing support at $82.31 (Nov 21 low) but with its medium-term key support lower at $80.94 (Sep 26 low).
• Gold is -0.02% at $1754.90, remaining between resistance at the bull trigger at $1786.5 (Nov 15 high) and support at the 20-day EMA of $1726.4.
• Weekly moves: WTI -6.6%, Brent -4.1%, Gold +0.2%, US Nat Gas +10.3%, TTF Nat Gas +7.7%, with US gas gaining despite trimming weekly gains with milder weather expected.

STOCKS: Mixed Day For N.America With US Under Limited Pressure

• S&P e-minis continue to move lower, hindered intraday by net higher yields. The day’s decline unwinds yesterday’s holiday gains to leave ESA flat on Wednesday’s full close but still up 1.5% on the week.
• ESA at 4032 remains below the bull trigger of 4050.75 (Nov 15 high).
• Tech stocks weigh and indeed Nasdaq sits -0.5% lower.
• A rosier picture north of the border, with the TSX 60 up 0.4% on the day (2.25% on the week), with solid gains across sectors with only IT seeing a more notable decline.

MNI SARB Review - November 2022: Hike Pace to Slow in New Year

Executive Summary:

• SARB raised rates by 75bps, alongside expectations
• Vote split erred to the dovish side, 3-2 for 75bps vs 50bps, contrasting with Sept's 3-2 for 75bps vs 100bps
• Presser suggested pace of future hikes will slow as rates climb north of neutral

Full review including summary of sell-side views here: https://emedia.marketnews.com/marketnewsintl/MNISA...

The Bank tightened policy further in November, putting the benchmark rate at 7.00% and meeting their assumption of the neutral rate. The decision means the prime mortgage rate is now over 10% for the first time since 2019. This blunt and direct psychological level should filter swiftly into consumer spending patterns ahead of year-end, and could slow the pace of hikes going forward.

The vote split among the board was consistent with the argument that rate hikes will slow going forward, with 3 members opting for a 75bps move, while 2 voted for a 50bps increase. This contrasts with the September decision, at which the board were again split 3-2, but 2 members voted for 100bps. Should this pattern extend, the next decision in Q1 2023 could slow to a 50bps move, or even 25bps.