MNI ASIA OPEN: Risk-On Post-Powell

EXECUTIVE SUMMARY

• MNI: Powell: Peak US Rate 'Somewhat Higher' Than Sept Forecast
• MNI BRIEF: US Economy, Inflation Slowed in Nov- Beige Book

US

FED: Peak U.S. interest rates next year are likely to be "somewhat higher" than the FOMC projected in September and stay restrictive "for some time" as the Federal Reserve seeks to cool demand and restore balance in the overheated labor market, Fed Chair Jerome Powell said Wednesday.

• The FOMC will likely slow the pace of its rate hikes at its meeting in two weeks, but that's less relevant than how long rates will need to stay at that level, he added.
• "It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting," Powell said in remarks prepared for a Brookings Institution appearance.

US DATA: ADP Employment Misses As Goods Employment Falls

• ADP employment growth was softer than expected in November at 127k, below the 200k expected and 190k consensus for private payrolls in Friday's release, led by a sizeable 86k decline in goods-producing industries. No revision to offset the miss.
• From the press release: "Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains .. In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing."

US TSYS: FI, Stocks Surge: Mkt Expected More Hawkish Chairman Powell

Initial delayed reaction to the Fed chairs speech on policy at Brookings Inst conf, Tsy bid across board as it became apparent gist of statements was less hawkish than markets had priced in/feared. Tsy 2s10s curve topped -67.252 high before scaling back to -72.001 late.

• Bonds pared gains ("Cutting Not Something We Want To Do Soon") while yield curves climbed steeper as short end support gained traction (slowing down pace of hikes a "good way to balance risks").
• Dec step-down expectations gains as Fed funds implied hike for Dec'22 holds at 51.8bp vs 53bp earlier, Feb'23 cumulative 88.5bp (92.2bp prior) to 4.724%, terminal at 4.95% in Jun'23 vs. brief climb to 5.07% as Chairman Powell headlines initially hit.
• Heavy first half data: ADP employment growth was softer than expected in November at 127k, below the 200k expected and 190k consensus for private payrolls in Friday's release, led by a sizeable 86k decline in goods-producing industries. No revision to offset the miss.
• Tsys reverse course, extend lows post GDP, Wholesale Inventories beat:
  • GDP Annualized QoQ (2.9% vs. 2.8% est. 2.6% prior)
  • GDP Price Index (4.3% vs. 4.1% est, 4.1% prior)
  • Personal Consumption (1.7% vs. 1.6% est, 1.4% prior)
  • Core PCE QoQ (4.6% vs. 4.5% est, 4.5% prior)
  • Retail Inventories MoM (-0.2% vs. 0.5% est, -0.1% rev)
  • Wholesale Inventories MoM (0.8% vs. 0.5% est, 0.6% prior)
  • Advance Goods Trade Balance (-$99.0B vs. -$90.6B est, -$91.9B rev)

OVERNIGHT DATA

• US NOV ADP PRIV PAYROLLS +127K VS +200K EXP., +239K OCT (NO REVISION)

• US Q3 GDP PRICE INDEX RISES AT A 4.3% ANNUAL RATE; EST. 4.1%
• US Q3 CORE PCE PRICE INDEX RISES AT A 4.6% ANNUAL RATE (est. 4.5%)
• US 3Q ECONOMY GROWS AT 2.9% ANNUAL RATE; EST. 2.8%

• US BLS: JOLTS OPENINGS RATE 10.334M IN SEP
• US BLS: JOLTS QUITS RATE 2.6% IN SEP

• US NAR OCT PENDING HOME SALES INDEX 77.1 V 80.8 IN SEP
• US NAR OCT PENDING HOME SALES -4.6% MOM; -37.0% YOY

• MNI NOV CHICAGO BUSINESS BAROMETER 37.2 VS 45.2 OCT
• MNI CHICAGO: NOV PRICES PAID 66.2 VS 74.8 OCT
• MNI CHICAGO: NOV EMPLOYMENT 47.1 VS 45.6 OCT
• MNI CHICAGO: NOV PRODUCTION 35.9 VS 45.1 OCT
• MNI CHICAGO SURVEY PERIOD NOV 1 TO 14

• US MBA: MARKET COMPOSITE -0.8% SA THRU NOV 25 WK
• US MBA: REFIS -13% SA; PURCH INDEX +4% SA THRU NOV 25 WK
• US MBA: UNADJ PURCHASE INDEX -41% VS YEAR-EARLIER LEVEL
• US MBA: 30-YR CONFORMING MORTGAGE RATE 6.49% VS 6.67% PREV

MARKETS SNAPSHOT

Key late session levels:

• DJIA up 737.24 points (2.18%) at 34589.77
• S&P E-Mini Future up 122 points (3.08%) at 4084.25
• Nasdaq up 484.2 points (4.4%) at 11468
• US 10-Yr yield is down 11.1 bps at 3.633%
• US Mar 10Y are up 27.5/32 at 113-27
• EURUSD up 0.0075 (0.73%) at 1.0405
• USDJPY down 0.58 (-0.42%) at 138.05
• WTI Crude Oil (front-month) up $2.39 (3.06%) at $80.59
• Gold is up $19.5 (1.11%) at $1769.43

• EuroStoxx 50 up 30.28 points (0.77%) at 3964.72
• FTSE 100 up 61.05 points (0.81%) at 7573.05
• German DAX up 41.59 points (0.29%) at 14397.04
• French CAC 40 up 69.58 points (1.04%) at 6738.55

US TSY FUTURES CLOSE

• 3M10Y -12.948, -73.394 (L: -74.982 / H: -59.327)
• 2Y10Y +3.313, -70.419 (L: -77.204 / H: -67.252)
• 2Y30Y +9.55, -58.447 (L: -73.056 / H: -55.37)
• 5Y30Y +9.951, -2.526 (L: -17.716 / H: -0.7)
• Current futures levels:
• Mar 2Y up 9.375/32 at 102-24.625 (L: 102-10.5 / H: 102-25.625)
• Mar 5Y up 22.25/32 at 108-26 (L: 107-24.5 / H: 108-27.5)
• Mar 10Y up 27.5/32 at 113-27 (L: 112-17.5 / H: 113-29.5)
• Mar 30Y up 1-07/32 at 127-28 (L: 126-00 / H: 128-01)
• Mar Ultra 30Y up 31/32 at 137-18 (L: 135-18 / H: 137-24)

US 10Y FUTURE TECHS: (H3)‌‌ Trend Needle Points North

• RES 4: 115-03 1.764 proj of the Oct 21 - 27 - Nov 3 price swing
• RES 3: 115-00 High Sep 19
• RES 2: 114-04 High Oct 4 and a key resistance
• RES 1: 113-27 High Nov 28
• PRICE: 113-25 @ 1525ET Nov 30
• SUP 1: 112-23+ 50-day EMA
• SUP 2: 112-11+ Low Nov 21 and a key short-term support
• SUP 3: 112-05+ Low Nov 14
• SUP 4: 110-22 Low Nov 10

Treasury futures trend conditions remain bullish and today’s gains reinforce this theme. The recent break of the 50-day EMA strengthens the case for bulls. The contract has pierced 113-19+, the Nov 16 high. A clear break of this hurdle would confirm a resumption of the current uptrend. Sights are on 114-04 next, the Oct 4 high and a key short-term resistance. Key support to watch is at 112-11+, the Nov 21 low.

US EURODOLLAR FUTURES CLOSE

• Dec 22 +0.030 at 95.115
• Mar 23 +0.060 at 94.865
• Jun 23 +0.110 at 94.865
• Sep 23 +0.150 at 95.035
• Red Pack (Dec 23-Sep 24) +0.185 to +0.215
• Green Pack (Dec 24-Sep 25) +0.160 to +0.210
• Blue Pack (Dec 25-Sep 26) +0.120 to +0.140
• Gold Pack (Dec 26-Sep 27) +0.085 to +0.115

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00571 to 3.82314%
• 1M +0.02186 to 4.14200%
• 3M +0.01800 to 4.77857%
• 6M -0.00543 to 5.20343%
• 12M +0.01814 to 5.57157%

• Daily Effective Fed Funds Rate: 3.83% volume: $95B
• Daily Overnight Bank Funding Rate: 3.82% volume: $269B

• Secured Overnight Financing Rate (SOFR): 3.81%, $1.026T
• Broad General Collateral Rate (BGCR): 3.77%, $409B
• Tri-Party General Collateral Rate (TGCR): 3.77%, $398B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $2,115.913B w/ 102 counterparties vs. $2,064.377B in the prior session. Prior record high stands at $2,425.910B on Friday, September 30.

PIPELINE: $1B Bank of Nova Scotia 2Y Launched

• Date $MM Issuer (Priced *, Launch #)
  
• 11/30 $1B #Bank of Nova Scotia 2Y +90
• 11/30 $750M *MassMutual 5Y +115
• Amazon's $8.25B 5pt jumbo just over half Tuesday's corporate bond issuance: $16.3B Priced Tuesday, $20.76B/wk
• 11/29 $8.25B *Amazon $1.25B 2Y +25, $1.25B 3Y +35, $2 5Y +62.5, $1.5B 7Y +80, $2.25B 10Y +95
• 11/29 $2.5B *ANZ $1.25B 3Y +85, $1.25B 10Y +300
• 11/29 $650M *Diamondback 30Y +240
• 11/29 $1.1B *PacifiCorp 31Y +153
• 11/29 $1B *Illumina $500M 3Y +155, $500M 5Y +185
• 11/29 $1.3B Alcon 10Y , 30Y
• 11/29 $1B *PNC Financial 6NC5 +143
• 11/29 $500M *Mass Mutual 30Y +183

EGBs-GILTS CASH CLOSE: Rare Downside Euro CPI Surprise, Hawkish Outcome

Core Europe FI continued to weaken Wednesday, despite the first below-expected Eurozone inflation print since March 2021 (10.0% vs 10.4% expected).

• While the headline data confirmed pricing for a 50bp vs 75bp ECB hike in Dec, EGB yields rose as terminal rate pricing jumped as the unchanged core Y/Y was seen indicating sticky price pressures.
  
• The Bund yield rise stalled by late morning, but Gilts continued to weaken, while BTP spreads widened, with a speech by Fed Chair Powell eyed with caution after the European cash close.
• A very weak MNI Chicago PMI reading pulled back global yields temporarily, but overall US data was positive and maintained pressure.
• Gilts underperformed Bunds; the UK curve bear steepened, with Germany's bear flattening on higher ECB rate expectations.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.6bps at 2.132%, 5-Yr is up 1.3bps at 1.938%, 10-Yr is up 0.9bps at 1.931%, and 30-Yr is up 0.2bps at 1.824%.
• UK: The 2-Yr yield is up 5.6bps at 3.309%, 5-Yr is up 5bps at 3.274%, 10-Yr is up 6.3bps at 3.163%, and 30-Yr is up 6.9bps at 3.427%.
• Italian BTP spread up 4.1bps at 194bps / Greek down 1.4bps at 222.6bps

FOREX: Month-End and Fed Chair Powell Prompt Volatile Currency Markets

• The USD index encountered multiple substantial swings on Wednesday as a mixture of month-end flows and central bank rhetoric frustrated short-term positioning as we approach Friday’s US employment report.
• The greenback spent the majority of early Wednesday trading on the backfoot as some renewed optimism surrounding China was underpinning equity markets. Additionally, some weaker data from the US (lowest MNI Chicago PMI print, of 37.2, since the 2008/09 crisis) prompted the USD index make new intra-day lows.
• However, potential growth concerns then started to weigh on risk/equity markets which not only supported the USD but ignited a complete reversal over the next hour. The price action also tied in with the month-end WMR fix with the USD printing a fresh high right around 1600GMT/1100ET.
• With markets then potentially gearing up for a hawkish Powell, disappointment rightly ensued as the Fed Chair alluded to everything being aligned for inflation to return to target, except for the labour market which showed initial signs of slowing in today’s ADP release.
• The initial reaction was very positive for equity markets and a substantial USD sell-off has followed. USDJPY has fallen from around 139.50 and is now breaching below the 138 mark. In similar vein, EURUSD is now pushing back above 1.04.
• Mixed performance in emerging market FX, however worth noting some particular underperformance for the South African Rand amid reports that President Ramaphosa may have violated the constitution, setting up a case for impeachment. USDZAR is up 0.85% at 17.15 as of writing, despite the USD weakness.
• The Chinese Yuan has extended yesterday’s rally with CNY up 1.20% and CNH 0.94% against the USD with the weaker greenback acting as an additional tailwind for the Yuan.
• The moves come amid reports that community covid testing can be dropped for those not needing to venture outside. This comes a day after officials in the city of Guangzhou, "announced late on Tuesday they would allow close contacts of COVID cases to quarantine at home rather than being forced to go to shelters", according to Reuters.
• Swiss CPI, US Core PCE Price index and ISM Manufacturing PMI headline the data docket on Thursday before Friday’s non-farm payrolls report.

Thursday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
01/12/2022	0030/0930	**		JP	IHS Markit Final Japan Manufacturing PMI
01/12/2022	0145/0945	**		CN	IHS Markit Final China Manufacturing PMI
01/12/2022	0700/0800	**		DE	Retail Sales
01/12/2022	0700/0700	*		UK	Nationwide House Price Index
01/12/2022	0730/0830	***		CH	CPI
01/12/2022	0730/0830	**		CH	retail sales
01/12/2022	0815/0915	**		ES	IHS Markit Manufacturing PMI (f)
01/12/2022	0845/0945	**		IT	IHS Markit Manufacturing PMI (f)
01/12/2022	0850/0950	**		FR	IHS Markit Manufacturing PMI (f)
01/12/2022	0855/0955	**		DE	IHS Markit Manufacturing PMI (f)
01/12/2022	0900/1000	**		EU	IHS Markit Manufacturing PMI (f)
01/12/2022	0930/0930	**		UK	IHS Markit/CIPS Manufacturing PMI (Final)
01/12/2022	1000/1000	**		UK	Gilt Outright Auction Result
01/12/2022	1000/1100	**		EU	Unemployment
01/12/2022	-	***		US	Domestic-Made Vehicle Sales
01/12/2022	1330/0830	**		US	Jobless Claims
01/12/2022	1330/0830	**		US	Personal Income and Consumption
01/12/2022	1330/0830	**		US	WASDE Weekly Import/Export
01/12/2022	1425/0925			US	Dallas Fed's Lorie Logan
01/12/2022	1430/0930			US	Fed Governor Michelle Bowman
01/12/2022	1445/0945	***		US	IHS Markit Manufacturing Index (final)
01/12/2022	1500/1000	***		US	ISM Manufacturing Index
01/12/2022	1500/1000	*		US	Construction Spending
01/12/2022	1530/1030	**		US	Natural Gas Stocks
01/12/2022	1600/1100			US	Minneapolis Fed's Neel Kashkari
01/12/2022	1630/1130	**		US	US Bill 04 Week Treasury Auction Result
01/12/2022	1630/1130	*		US	US Bill 08 Week Treasury Auction Result
01/12/2022	1645/1745			EU	ECB Lane at Banque de France / EUI conference
01/12/2022	1730/1830			EU	ECB Elderson Speech at Lustrum Symposium
01/12/2022	2000/1500			US	Fed Vice Chair for Supervision Michael Barr