MNI EUROPEAN MARKETS ANALYSIS: Brexit Angst Weighs On GBP

BOND SUMMARY: Core FI Rangebound, But Better Bid Overnight

The lack of positive developments surrounding Brexit and the fiscal situation in DC provided some support for core FI markets during Asia-Pac trade. This promoted some light bull flattening in the U.S. Tsy space, with 30s sitting 1.6bp richer on the day into European hours. T-Notes last print +0-04 at 137-24, sticking to a 0-03+ range on light volume of just over 45K.

• Local news flow in Japan was light, but the longer end of the cash curve continued to benefit from the recently outlined local fiscal dynamic, although firm JGB issuance details surrounding the package are still lacking. There was little in the way of observable concession ahead of this afternoon's 20-Year JGB supply, perhaps aided by the U.S. fiscal backdrop, Brexit dynamics and local fiscal matters. This allowed futures to unwind their overnight losses and more, hitting the lunchbreak 4 ticks above yesterday's settlement levels. JGB futures then ticked lower after the lack of concession resulted in a sloppy 20-Year auction, which saw the low price come in below broader dealer expectations of 100.55 (as proxied by the BBG dealer poll), while the cover ratio slid to the lowest level seen at a 20-Year auction since '15 and the tail widened vs. prev. auction. The bid then worked its way back in as we moved through the Tokyo afternoon, with futures closing +3 and super-long end outperformance holding in cash trade. Local data saw firmer numbers within the latest BSI survey of large companies, while PPI data met expectations.
• Aussie bonds traded better bid on the tweaked round of RBA 3-Year yield target enforcement that accompanied its scheduled round of ACGB purchases. The tweak saw the Bank offer to buy both ACGB Apr '23 & ACGB Apr '24, as opposed to the recent norm of just ACGB Apr' 24 (with its purchases ultimately heavily skewed to the Apr '23, by a factor of 3-to-1, there or thereabouts, owing to the bond being much more plentiful). YM finished +1.2, while XM was +4.3 come the bell, with Brexit & U.S. fiscal issues also providing some background support. YM & XM roll activity was pretty evenly split in terms of operating on the bid or offer, although both spreads have nudged higher since yesterday's settlement. On the semi issuance front SAFA issued $A500mn worth of Jul '26 paper. Also worth noting that the latest round of note supply saw the AOFM issue some of the notes on offer at a negative yield, a first for Australia.

JAPAN: Japanese Buying Of Foreign Bonds Dominates Weekly Data, Again

Source: MNI - Market News/Japanese Ministry Of Finance

Japanese investment into foreign bonds provided the most notable round of net flows observed in the latest round of weekly Japanese international security flow data, with net purchases of foreign bonds topping Y1.0tn for the 4^th week in 5.

• The remaining net flows in the dataset were much more muted but maintained the same directions when compared to the previous week.

FOREX: Sterling Feels Brexit Angst

Sterling went offered across the board as the Johnson/von der Leyen dinner failed to bring a breakthrough. Odds of striking a Brexit deal on time have faltered as both sides suggested that they remain far apart on key outstanding issues, while picking Sunday as the new cliff-edge date for reaching accord. Cable recovered from early session lows, but GBP remained comfortably the worst performer in G10 FX space.

• EUR traded mixed ahead of some noteworthy events on the Old Continent. EU leaders will convene for the European Council summit today, but Brexit's not on the agenda. Leaders will focus on coordination on COVID-19, climate change, security and external relations. Meanwhile, the ECB will announce its monetary policy decision, with a presser from Pres Lagarde due in its wake.
• Other than that, the risk switch flicked to on, with commodity- tied FX catching a bid. AUD topped the G10 pile owing to a surge in iron ore futures in Singapore. AUD/NZD rose to a four-week high but failed to make much headway beyond former resistance zone at NZ$1.0628-31 and trimmed gains.
• Safe haven currencies declined, despite lingering concerns over deadlocked U.S. fiscal talks. USD/JPY printed a fresh weekly high, with Gotobi Day flows potentially adding a modicum of pressure to the yen.
• The PBOC set the USD/CNY central parity at 6.5476 this morning, 165 pips weaker for the redback than yesterday's fix and bringing parity off its lowest levels for 29 months. USD/CNH has reclaimed the 6.50 handle but ground lower during the session. USD/CNH last down 13 pips at 6.5271.
• Thailand starts its long weekend today and won't be back until Monday.
• Apart from what was already mentioned, U.S. initial jobless claims & CPI, UK economic activity indicators, Swedish & Norwegian CPIs and comments from BoC's Beaudry take focus today.

FOREX OPTIONS: Expiries for Dec10 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1800-10(E1.4bln), $1.1900-05(E1.0bln), $1.2000(E572mln), $1.2045-60(E1.1bln)
• USD/JPY: Y103.50-60($1.3bln), Y104.00($836mln),
  Y104.25-35($898mln), Y104.90-105.00($1.2bln), Y105.35-40($661mln), Y105.50-55($838mln), Y105.75-85($1.4bln)
• EUR/GBP Gbp0.8890-00(E532mln), Gbp0.8970(E847mln), Gbp0.9075(E579mln)
• AUD/USD: $0.7270-80(A$1.2bln), $0.7400-05(A$1.1bln), $0.7430(A$533mln), $0.7495-00(A$771mln)
• AUD/NZD: N$1.0660(A$590mln)
• USD/CNY: Cny6.50($904mln-USD puts), Cny6.60($1.4bln-USD puts), Cny6.70($726mln)

EQUITIES: Awaiting Developments

Equity trade lacked any real sense of clear direction during Thursday's Asia-Pac session, with the U.S. fiscal impasse and troubles surrounding Brexit continuing to dominate headline flow. That left the major regional benchmarks operating a little lower on the day, with e-minis marginally mixed.

• Nikkei 225 -0.2%, Hang Seng -0.5%, CSI 300 -0.2%, ASX 200 -0.7%
• S&P 500 futures -2, DJIA futures +14, NASDAQ 100 futures -46.

GOLD: Tight After Yesterday's Dip

A lack of fiscal movement in DC and Brexit worry has provided light support for the U.S. Tsy space during Asia-Pac hours, applying modest pressure to real yields in the process, with the latter metrics now unwinding the entirety of the gains that were lodged in early NY trade on Wednesday. Spot bullion has held to a tight range after yesterday's weakness, last dealing little changed around the $1,840/oz mark. Yesterday's weakness in the yellow metal was likely linked to an uptick in the broader DXY, although that index remains within touching distance of the recent cycle lows. The technical backdrop remains unchanged.

OIL: Marginally Higher In Asia

WTI and Brent sit ~$0.20 above their respective settlement levels, even with the continued U.S. fiscal impasse and Brexit tension remaining evident.

• This comes after the metrics settled at essentially unchanged levels on Wednesday, with recent crude-specific news flow headlined by a multi-month high in terms of the latest headline DoE weekly crude inventory build, which was accompanied by larger than expected builds in both gasoline and distillate stocks. The ensuing price action was choppy, before the contracts settled at near enough unchanged levels, as mentioned above.
• Elsewhere, comments from Russian Energy Minister Novak, further comments out of Iran pointing to increased crude supply and an attack on an oilfield in Iraq's Kirkuk region did little in the grand scheme of things.