MNI EUROPEAN MARKETS ANALYSIS: Markets Look For Clarity On Headline Risks

BOND SUMMARY: Mixed, Narrow Trade For Core FI In Asia

Cash Tsys sit marginally across the curve, but within 0.5bp of yesterday's closing levels. T-Notes are still holding to a tight 0-03 range as we head into London hours, last +0-02 at 137-15+, on volume of ~70K. A 10K lift of the low delta TYF1 139.50 calls provided the highlight on the flow side during Asia-Pac hours. On the news front, a deepening of COVID-19 restrictions in Los Angeles saw a very modest downtick in e-minis, with more recent news flow pointing to U.S. enforcing some visa restrictions against CCP members, the latest strain evident in Sino-U.S. ties. Overnight also saw a stronger than expected Chinese Caixin services PMI reading.

• The Tokyo morning saw JGB futures unwind their overnight losses, before a downtick in the cover ratio at the latest round of 30-Year JGB supply seemed to apply some light pressure during early afternoon trade. The contract settled -2, a touch off the overnight/late Tokyo lows, although cash JGBS were marginally mixed, with some light outperformance in the long end. BoJ board member Suzuki largely went over old ground and flagged the desire for a gradual steepening of the JGB yield curve. Local data provided little to go off for the space.
• We saw the RBA step in to enforce its 3-Year ACGB yield target, which added some support to the Aussie bond space, allowing YM and XM to print at unchanged levels at one point, fully unwinding the overnight steepening. Weakness then crept into the space as we moved towards the close, as YM closed -0.5 and XM finished 3.5 ticks lower. It may have been linked to the results surrounding the RBAs longer dated ACGB purchase ops, although there wasn't any glaring signs of weakness there. Local data saw a mix of firmer than expected exports and softer than expected imports provide a much wider than expected trade surplus for the month of October, while the latest round of housing finance data came in on the softer side of exp. Bills finished unchanged to -1 through the reds. IRH1/M1 saw some light flattener flow early on.

FOREX: USD Remains Heavy, Covid Concerns and Brexit in Focus

Another quiet Asia-Pac session, a familiar refrain this week. DXY initially bounced off recent lows hit near the end of the US session, before plumbing new depths as the session wore on. Last slightly lower at 90.992. The greenback shrugged off reports late in the session that Los Angeles implemented a city-wide lockdown stay at home order as Covid cases spiral.

• AUD and NZD US dollar crosses pulled back, AUD briefly caught a bid after reports that China would allow some coal deliveries. AUD/USD last at 0.7406 after touching 0.7419 earlier in the session – its highest level in 28-months. NZD last at 0.7061 after touching 0.7073 earlier in the session.
• Australian data was mixed, trade balance showed a higher than expected surplus as exports rose above expectations, and imports rose but fell short of expectations. Earlier in the session the final readings of the November Services PMI printed above the previous at 55.1 from 54.9, while the composite also eked out a slight rise at 54.9 from 54.7 previously. Building permits rose 8.8% in October against a previous increase of 3.6%, while the AiG Construction Index also rose to 55.3 from 52.7.
• The PBOC fixed USD/CNY at 6.5592, around 9 pips stronger than sell side estimates. This compares to a 39 pip difference yesterday that constituted was the third-largest miss since the PBOC announced that it was phasing out its counter-cyclical adjustment for the fixing in October. Data from China has been positive. Caixin services PMI rose to 57.5 from 55.7, the fourth consecutive monthly rise for the figure, and completes the set of positive surprises in PMI data.
• GBP was the worst performer within the G10 basket on Wednesday, GBP/USD declining -0.4% to 1.3370 at the end of US hours. The pair gained slightly in Asia after BBC reports that a Brexit trade deal may be reached by the end of the week, however optimism borne from the headline was tempered by reports soon after that France told Barnier of veto risks if he capitulates in Brexit talks. GBP/USD last up 0.16% at 1.3386.
• EUR/USD hit 1.2125 before pulling back. EUR seems resilient to reports that Italy will ban movement between regions from December 21 to January 6 due to coronavirus concerns.
• Yen pairs have been quiet, USD/JPY last at 104.47, EUR/JPY last at 126.60.

FOREX OPTIONS: Expiries for Dec3 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1795-1.1800(E1.1bln), $1.1870-85(E662mln),
  $1.1920-35(E884mln), $1.1945-50(E1.4bln),
  $1.1995-1.2000(E1.1bln)
• USD/JPY: Y102.00($812mln-USD puts), Y103.00($1.9bln-USD puts), Y104.00($3.5bln-$3.46bln USD puts), Y104.45-50($1.6bln),
  Y104.85-90($570mln), Y105.00-10($1.1bln), Y105.45-50($900mln)
• GBP/USD: $1.3200(Gbp423mln)
• USD/CHF: $0.9035($500mln-USD puts)
• AUD/USD: $0.7350(A$722mln). $0.7385-0.7400(A$1.3bln, A$1.1bln AUD puts), $0.7435(A$673mln-AUD puts)
• AUD/NZD: N$1.0700(A$680mln)
• USD/CAD: C$1.3000($618mln-USD puts)
• USD/CNY: Cny6.60($1.2bln)

EQUITIES: Mixed In Asia

Wednesday represented another pretty non-committal session for Asia-Pac equity markets, with macro headline flow headlined by a stronger than expected Caixin Services PMI reading out of China, in addition to a BBG report which suggested that Australian thermal coal products were being let ashore in mainland China. Local COVID matters in the U.S. & Sino-U.S. tensions came to the fore as we moved through overnight trade.

• Participants are perhaps keeping one eye on the recent uptick in longer dated U.S. Tsy yields and the evolving fiscal dynamic in DC, after the latter allowed the major U.S. indices to close in the green on Wednesday.
• The Australian materials sector was the outperformer on the ASX 200, aided by the latest leg higher in iron ore and the aforementioned story re: thermal coal cargo being let ashore in China.
• Nikkei 225 unch%, Hang Seng +0.7%, CSI 300 unch.%, ASX 200 +0.4%.
• S&P 500 futures -2, DJIA futures -26, NASDAQ 100 futures +26.

GOLD: Bounce Continues

Bullion has continued its bounce from technical support, with spot supported by a downtick in U.S. real yields and the USD over the last 24 hours. These factors outweighed the continued drop in ETF holdings of gold. Spot last deals little changed at $1,831/oz, with bulls now targeting the Sep 28 low at $1,849.2/oz.

OIL: OPEC+ Crunch Time

The major crude benchmarks have recovered from worst levels of the session to trade -$0.20 on the day.

• The latest BBG source report (released Wednesday) has built upon the general idea that OPEC+ will come to some form of production deal by the time the latest round discussions wrap up later today. The piece noted that "OPEC+ is making headway in its negotiations on oil-output cuts, raising the odds that Thursday's meeting can salvage a deal after failed talks earlier in the week. After days of direct negotiations between the group's heavyweights -- Russia, Saudi Arabia and the United Arab Emirates -- discussions are now focusing on proposals for gradual easing of output cuts over several months, said a delegate. It's unclear whether the tapering would start in January, or would be delayed to later in the first quarter."
• This general sense of optimism, alongside a slight drawdown in headline crude stocks in the latest weekly DoE inventory report (which contrasted with the surprise, sizeable build in the API equivalent) allowed the benchmarks to add ~$0.80 apiece come settlement time on Wednesday.

JAPAN: Weekly International Security Flow Data

Source: MNI - Market News/Japanese Ministry Of Finance

• The latest round of weekly international security flow data saw a change of direction for net weekly foreign flows surrounding Japanese bonds and equities. The trajectory of the 4-week rolling sums of Japanese investor flows surrounding foreign bonds and equities extended further, although the net weekly flows moderated (a reminder that the previous week saw the second largest ever round of net weekly sales of foreign equities on behalf of Japanese investors).