MNI ASIA OPEN: Risk-On as CPI Inflation Metrics Cool

US TSYS Disinflationary CPI Green Lights Another Fed Pause in Dec

• Treasury futures near late session highs after the bell, actually holding to a narrow range ever since marking midmorning highs following this morning's lower than expected CPI data: CPI MoM (0.0% vs. 0.1% est, 0.4% prior), YoY (3.2% vs. 3.3% est, 3.7% prior); CPI Ex Food/Energy MoM (0.2% vs. 0.3% est, 0.3% prior), YoY (4.0% vs. 4.1% est).
• Dec'23 10Y futures topped initial resistance (108-25, High Nov 3 and the next bull trigger) to 108-31 high, the contract currently trading 108-28.5 (+1-14.5), yield currently 4.4375% (-.2004) vs. 4.4298% low.
• Heavy overall volumes (TYZ3>2.4M) as markets react to this morning disinflationary CPI inflation measures for October. USD index greenback slowly been extending its decline throughout the session with the USD index down 1.5% as we approach the APAC crossover.
• Post-CPI: projected rate cut resurfaces in early 2024: December at 0bp at 5.338%, January 2024 cumulative -.5bp (7.1bp pre-CPI) at 5.332%, March 2024 pricing in -32.9% chance of a .25 rate cut (-16% pre-CPI) with cumulative of -8.7bp at 5.240%, May 2024 pricing in -52.8% chance of a rate cut with cumulative of -21.9bp at 5.108%. Fed terminal has fallen to 5.325% in Feb'24 vs. 5.405% pre-CPI.

US

FED: Inflation can slow even in today's strong economy because of progress boosting supply and productivity, and CPI figures released earlier today offer more evidence price gains are moving back to target, Chicago Federal Reserve President Austan Goolsbee said Tuesday

• "Growth and employment gains have been so strong that some argue the economy is overheating and inflation is about to roar back. But with the positive supply developments, you can have blockbuster numbers without adding to inflationary pressures," according to an outline of remarks Goolsbee is giving to the Detroit Economic Club.
• Inflation may fall by more than an almost unprecedented 4 percentage points this year even with the job market around full employment, Goolsbee said. Besides favorable developments on the supply side of the economy, long-run inflation expectations have remained stable, he said. (See: MNI INTERVIEW: Fed Likely Needs To Do More - Ex-Fed's Giannoni) For more see MNI Policy main wire at 1246ET.

UK

BOE: We look ahead to tomorrow's UK CPI print and review this morning's (partial) labour market report.

• The Bank of England’s MPR forecast headline CPI to fall to 4.76%Y/Y in October while the median from the previews that we have read looks for 4.7%Y/Y (from 6.65%Y/Y in September).
• We summarise the views of almost 20 sellside inflation previews and 10 sellside labour market reviews.
• The MNI Markets team still thinks that there are two-way risks to the market from the inflation print tomorrow. A higher-than-expected print could see the small probability of a near-term hike climb (but probably only if we saw services come in higher than the Bank of England forecast, not just higher than the sellside consensus).

OVERNIGHT DATA

US DATA: The miss for core CPI comes despite housing being as expected/on the high side

• OER: 0.41% M/M vs analyst expectations 0.43 (range 0.36-0.50) as it pulled back after a sharp acceleration to 0.56% M/M in Sep.
• Primary rents: 0.50% M/M vs analyst expectations 0.43 (range 0.34-0.50) after 0.49% M/M.

US DATA: Core services ex OER & primary rents: 0.22% M/M in Oct vs limited analyst expectations of 0.46% (range 0.4-0.54) after 0.61% M/M in Sep.

• It sees the three-month rate tick up just a tenth to 4.8% annualized, whilst the six-month increases two tenths to 3.2% annualized. Some typical drivers:
• Lodging away from home: heavy driver of the downward surprise here, -2.45% M/M vs analyst average +1.7% (range -0.4 to +3.0) after a strong 3.7%.
• Airfares: as expected -0.9% M/M vs analyst average -1.1% (range -3% to +0.6%) after 0.3%.
• Health insurance update looks about as expected: +1.1% M/M NSA vs some analyst estimates seen between 0.5-1.5% M/M. It follows an average -3.8% M/M through Oct’22-Sep’23 for an average drag of core CPI of -3bps and supercore CPI of -11bps as its relative important declined over the period. The 2bp contribution on the month (take with caution as NSA data) provided a relative swing of 13bps for supercore CPI vs the 11bps drag averaged over the past twelve months.

US REDBOOK: NOV STORE SALES +3.0% V YR AGO MO
US REDBOOK: STORE SALES +3.0% WK ENDED NOV 11 V YR AGO WK

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA up 566.94 points (1.65%) at 34905.23
• S&P E-Mini Future up 96.25 points (2.18%) at 4521.75
• Nasdaq up 349.6 points (2.5%) at 14116.2
• US 10-Yr yield is down 20.2 bps at 4.4375%
• US Dec 10-Yr futures are up 47.5/32 at 108-29.5
• EURUSD up 0.0188 (1.76%) at 1.0886
• USDJPY down 1.43 (-0.94%) at 150.29
• WTI Crude Oil (front-month) up $0.03 (0.04%) at $78.28
• Gold is up $17.2 (0.88%) at $1964.13
• European bourses closing levels:
• EuroStoxx 50 up 59.53 points (1.41%) at 4291.72
• FTSE 100 up 14.64 points (0.2%) at 7440.47
• German DAX up 269.43 points (1.76%) at 15614.43
• French CAC 40 up 98.62 points (1.39%) at 7185.68

US TREASURY FUTURES CLOSE

• 3M10Y -18.371, -97.776 (L: -98.892 / H: -78.475)
• 2Y10Y +2.174, -37.736 (L: -42.455 / H: -36.647)
• 2Y30Y +8.377, -19.935 (L: -31.51 / H: -17.691)
• 5Y30Y +10.47, 19.633 (L: 7.219 / H: 22.46)
• Current futures levels:
• Dec 2-Yr futures up 13.25/32 at 101-21.375 (L: 101-06.125 / H: 101-21.625)
• Dec 5-Yr futures up 1-01.25/32 at 106-01.25 (L: 104-28 / H: 106-01.25)
• Dec 10-Yr futures up 1-16.5/32 at 108-30.5 (L: 107-09.5 / H: 108-30)
• Dec 30-Yr futures up 2-06/32 at 115-15 (L: 112-30 / H: 115-23)
• Dec Ultra futures up 2-20/32 at 119-31 (L: 116-20 / H: 120-13)

(Z3) Short-Term Outlook Remains Bullish

• RES 4: 110-07+ High Sep 14
• RES 3: 110-00 Round number resistance
• RES 2: 109-20 High Sep 19
• RES 1: 108-25 High Nov 3 and the next bull trigger
• PRICE: 107-15+ @ 11:31 GMT Nov 14
• SUP 1: 107-00 Low Nov 13
• SUP 2: 105-27+/105-10+ Low Nov 1 / Low Oct 19 and bear trigger
• SUP 3: 105-12 2.0% 10-dma envelope
• SUP 4: 104-26 2.00 proj of the Jul 18 - Aug 4 - Aug 10 price swing

The short-term trend outlook in Treasuries is unchanged and the short-term condition remains bullish. The recent move above the 50-day EMA, at 107-31+, followed by the print above 108-16, Oct 12 high and a key resistance, reinforces a bullish theme. A clear break of 108-16 would signal scope for 109-20, the Sep 19 high. Initial support at 107-00, Monday’s low. A break would signal scope for a deeper retracement.

SOFR FUTURES CLOSE

• Current White pack (Dec 23-Sep 24):
• Dec 23 +0.058 at 94.638
• Mar 24 +0.150 at 94.80
• Jun 24 +0.215 at 95.090
• Sep 24 +0.255 at 95.405
• Red Pack (Dec 24-Sep 25) +0.275 to +0.295
• Green Pack (Dec 25-Sep 26) +0.250 to +0.285
• Blue Pack (Dec 26-Sep 27) +0.215 to +0.240
• Gold Pack (Dec 27-Sep 28) +0.190 to +0.210

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00662 to 5.32953 (+0.00723/wk)
• 3M +0.01049 to 5.39021 (+0.01257/wk)
• 6M +0.01554 to 5.43478 (+0.02001/wk)
• 12M +0.01415 to 5.34833 (+0.03188/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $102B
• Daily Overnight Bank Funding Rate: 5.32% volume: $248B

• Secured Overnight Financing Rate (SOFR): 5.32%, $1.494T
• Broad General Collateral Rate (BGCR): 5.30%, $596B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $576B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION: Back Below $1T

The NY Fed Reverse Repo operation usage falls to the lowest level since August 2021 w/ $988.298B w/97 counterparties today vs. $1,020,272B in the prior session. Usage fell below $1T for the first time since August 2021 last Thursday, November 9: $993.314B.

PIPELINE IQVIA 5Y Debt Issuance on Tap

• Date $MM Issuer (Priced *, Launch #)
• 11/14 $1.25B #IQVIA 5Y +185
• Expected later in week:
• 11/?? $1B TransDigm 8NC3
• 11/?? $600M Veritiv Corp 7NC3
• $3.55B Priced Monday
• 11/13 $2B *Brazil +7Y 6.5%
• 11/13 $800M *American Honda 5Y +125a
• 11/13 $750M *O'Reilly Automotive 3Y +95
• 11/13 $Benchmark Bayer investor calls

EGBs-GILTS CASH CLOSE: Bull Flattening Rally As US CPI Misses

European yields dropped sharply Tuesday after a softer-than-expected US inflation report triggered a global FI rally.

• Core instruments had a fairly constructive morning. But the early moves paled in comparison to the move after the US CPI print (core +0.2% M/M vs 0.3% expected) and its details all but cemented the perceived likelihood of the Federal Reserve being finished with its hiking cycle.
• The post-data reaction saw deeper ECB and BoE cut pricing and a bull flattening in both the German and - to a greater degree, UK - curves.
• 10Y German yields hit the lowest since mid-Sept, with 10Y Gilt the lowest since early June.
• Periphery EGB instruments rallied alongside, with Italian spreads narrowing most, but GGBs failing to match the Bund rally.
• European data had limited impact in comparison to the US: EZ flash Q3 GDP was in line, with the headline German ZEW expectations above-survey.
• UK labour data out this morning was mixed, with attention turning to the CPI reading out Wednesday. MNI's UK inflation preview (and review of the labour market data) available at this link.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 9.3bps at 2.988%, 5-Yr is down 11.1bps at 2.553%, 10-Yr is down 11.3bps at 2.6%, and 30-Yr is down 9.5bps at 2.816%.
• UK: The 2-Yr yield is down 7.7bps at 4.584%, 5-Yr is down 14.1bps at 4.182%, 10-Yr is down 16.2bps at 4.152%, and 30-Yr is down 15.9bps at 4.576%.
• Italian BTP spread down 4bps at 181bps / Spanish down 1.7bps at 103.7bps

FOREX USD Index Slumps 1.5% As US CPI Sparks Fed Easing Bets in 2024

• Softer-than-expected US CPI prompted a significant gap lower for the USD index in the aftermath of the data. As markets price in more, and faster, Fed rate cuts next year, the greenback has slowly been extending its decline throughout the session with the USD index down 1.5% as we approach the APAC crossover.
• It is worth noting that both AUD and NZD are now up over 2% on the day with the surge for major equity benchmarks providing additional tailwinds to risk-sensitive currencies. The antipodean FX strength is only behind the Swedish Krona as the best performer in G10.
• In similar vein, EUR and GBP are up just shy of 1.8%. For EURUSD, multiple resistance levels have been breached, and in most recent trade, 1.0882, the Sep 1 high has been pierced. Most notable topside level now comes in at 1.0945, the Aug 30 high and a key resistance.
• For cable, price is zoning in on the 1.25 handle ahead of tomorrow’s UK CPI data. We noted that resistance at 1.2428, Nov 6 high and the bull trigger, was cleared, triggering an impressive move towards the Sep 14 high of 1.2506.
• The lower core yields and favourable price action for stocks have underpinned a similarly impressive rally in merging market currencies, including 2.5% rallies for both the ZAR and PLN against the greenback, only trumped by the Chilean peso which has recovered 3.5% on Tuesday.
• Activity data from China takes focus overnight with industrial production and retail sales to be the latest barometers for the health of the Chinese economy. Australian wage price index will also cross. Afterwards, all eyes will be on the UK CPI data, before US retail sales, PPI and Empire State Manufacturing round off Wednesday’s docket.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
15/11/2023	0030/1130	***		AU	Quarterly wage price index
15/11/2023	0200/1000	***		CN	Fixed-Asset Investment
15/11/2023	0200/1000	***		CN	Retail Sales
15/11/2023	0200/1000	***		CN	Industrial Output
15/11/2023	0200/1000	**		CN	Surveyed Unemployment Rate M/M
15/11/2023	0700/0700	***		UK	Consumer inflation report
15/11/2023	0700/0700	***		UK	Producer Prices
15/11/2023	0745/0845	***		FR	HICP (f)
15/11/2023	0900/1000	**		IT	Italy Final HICP
15/11/2023	1000/1100	**		EU	Industrial Production
15/11/2023	1000/1100	*		EU	Trade Balance
15/11/2023	1000/1100			EU	European Commission Autumn Econ Forecasts
15/11/2023	1200/0700	**		US	MBA Weekly Applications Index
15/11/2023	1330/0830	**		CA	Monthly Survey of Manufacturing
15/11/2023	1330/0830	**		CA	Wholesale Trade
15/11/2023	1330/0830	***		US	Retail Sales
15/11/2023	1330/0830	***		US	PPI
15/11/2023	1330/0830	**		US	Empire State Manufacturing Survey
15/11/2023	1400/0900	*		CA	CREA Existing Home Sales
15/11/2023	1430/0930			US	Fed Vice Chair Michael Barr
15/11/2023	1500/1000	*		US	Business Inventories
15/11/2023	1530/1030	**		US	DOE Weekly Crude Oil Stocks
15/11/2023	1800/1800			UK	BOE's Haskel speech at the Resolution foundation
15/11/2023	2030/1530			US	Richmond Fed's Tom Barkin