MNI EUROPEAN MARKETS ANALYSIS: USD Holds Lower As Asia Reacts To U.S. Data

US TSYS: Narrow Ranges As Cash Closed; CPI, Powell Headline Week

TYH3 deals at 114-07+, +0-00+, in the middle of its 0-05+ range on volume of ~76k.

• Cash tsys are closed until the London session today due to a Japanese holiday.
• Tsys were pressured in early dealing as U.S. Equity futures started the week firmer and the USD weaker as local participants digested Friday's U.S. data, headlined by a weaker than expected US ISM services survey and wages data, although the unemployment rate did tick lower.
• Early session lows were marginally extended on as optimism from China's re-opening saw an uptick in Hong Kong and mainland Chinese equities.
• With limited macro headline flow and general liquidity impacted by the aforementioned Japanese holiday Tsys have remained in a tight range.
• On the flow side, a 5.3K lift of the FVH3 110/112 call spread (delta hedged at 109-02, 23% delta) headlined.
• In Europe today we have Eurozone unemployment. In the week ahead, Thursday's December CPI print provides the domestic data highlight.
• Atlanta Fed President Bostic and SF Fed President Daly are on the wires today, although participants are looking ahead to Chair Powell's Tuesday remarks when it comes to Fedspeak.

AUSSIE BONDS: Bull Steepening Holds In Wake Of U.S. Data, Finish Off Best Levels

ACGBs held on to a relatively large chunk of the gains that were inspired by Friday’s U.S. data release, but still finished comfortably shy of best levels come the end of the first Sydney session of the week. This came alongside regional focus on the continued reopening drive in China and perhaps longs trimming exposure after a swift round of profit in early ’23 allowed the space to pullback from best levels. Major bond futures contracts failed to force a meaningful break through their respective overnight peaks.

• There was also a lack of meaningful, fresh cues from the wider core global FI space, with Japan out on holiday, leaving cash Tsys closed until London hours.
• That left YM +14.0 at the bell, while XM was +10.0. The major cash ACGB benchmarks were 5-14bp richer, with 3s outperforming all day against a bull steepening backdrop.
• RBA dated OIS came in a little, with 19bp of tightening priced for Feb’ 23, alongside a terminal cash rate of a little over 3.90%.
• When it came to local headline flow there was little to note, with the APRA confirming the as planned A$0 balance of the CLF as of the turn of the year, while Australia Treasurer Chalmers noted that he would aim to “put the budget on a more sustainable footing.”
• Much softer than expected domestic building approvals data failed to impact the space.
• Tomorrow’s local docket is empty.

NZGBS: Off Best Levels As China Reopening Hope Takes Edge Off Soft U.S. Data

NZGBs unwound some of the early richening on Monday, with Antipodean rates seemingly looking to Chinese reopening hopes (in the form of an uptick in HK & Chinese equities), given the lack of fresh core global FI cures owing to a Tokyo holiday and related closure for U.S. cash Tsys until London hours.

• Local news flow remains subdued to start ’23, with Synlait marking down its dairy price forecast for the current year providing the only point of note today.
• There may have also been a degree of rates moving too far, too fast in the early rounds of ’23 trade, facilitating a move away from intraday richest levels which came as NZ market participants adjusted to Friday’s soft U.S. wage data & ISM services survey.
• That left the major benchmarks 7.0-8.5bp richer at the close, with light bull steepening in play.
• Swap rates also pulled back from session highs, leaving the major benchmarks on that curve running 6.0-7.5bp lower on the day, as swap spreads ran flat to a touch wider.
• RBNZ dated OIS generally operated close to late Friday levels, with a slight softening bias, leaving 67bp of tightening priced for next month’s meeting, alongside a terminal OCR of just under 5.00%.
• Looking ahead, REINZ house price data, the monthly ANZ commodity price index and building permits data headline this week’s limited domestic docket.

FOREX: USD Weakness Persists, AUD & NZD Outperform

USD weakness has continued through today's Asia Pac session, a carryover from sharp weakness through Friday's session. The BBDXY is down a further 0.40%, with the index now sub 1240, its lowest level since early June last year. AUD and NZD have led the gains amid positive risk on signals from the equity space, as US eminis moved through Friday's peak.

• AUD/USD is through 0.6930, now targeting a move back to the 0.7000 handle. Markets have shrugged off weaker iron ore prices (with the authorities warning against speculative behavior), while Nov building approvals were much weaker than expected (-9.0%m/m, versus a flat forecast), but this didn't impact sentiment either.
• NZD/USD has followed closely behind, last near 0.6400, +0.80% higher for the session. A sustained move above this level has been hard to come by in recent months, so will be watched from a technical standpoint.
• USD/JPY is lower, has underperformed broader USD moves. The pair was last at 131.75/80, -0.25% lower for the session. Japan markets were closed today, so this may have impacted liquidity, although yen weakness on crosses is in line with the better equity market tone.
• Looking ahead, upcoming data releases are mostly second tier, so may not shift sentiment much. The Fed's Bostic is due to speak, along with Daly in the US session.

NZD: Consolidating, Bulls Look to Re-Test $0.64

NZD/USD has been consolidating in recent trade, however after Friday's rally bulls look to test the $0.64 handle and break out from the recent $0.6200/0.6400 range.

• This has emerged as a key level since we break down through the 0.6400 handle in June 2022, with the pair unable to sustain any subsequent moves back above this point.
• A break above $0.64, opens the Dec 2022 high at $0.6515 and the 123.6% Fibonacci projection of Oct-Dec rally at $0.6752.
• Bears have struggled to extend any recent pressure on the NZD/USD with $0.62 providing support, key daily EMAs are converging above or just below the handle further complicating the picture. If bears can break through 100-day EMA at $0.6172 this opens up $0.60 as a target.
• The 2 year NZ US Govt bond yield spread is a touch off levels seen on Friday as the spread continues to moderate after breaching +60bps in mid December.
• The relative rates outlook remains mixed for both NZD and USD. OIS markets showing NZ OCR peaking at ~5.5% in mid 2023, with ~30 bps of cuts priced in for H2 2023. Fed Funds Target Rate is priced to peak at 5% in OIS markets with ~60bps of cuts priced in for H2 2023.

Source: MNI - Market News/Bloomberg

ASIA FX: Broad Based Rally, Although Baht Outperformance Continues

USD/Asia pairs are lower amid continued broad USD weakness. USD/CNH has broken back sub 6.8000, as China re-opening optimism continues. The won and the baht have also rallied strongly, while INR and IDR remain laggards. The regional data calendar is light in the first part of this week, with just South Korea BoP figures and Philippines trade data out tomorrow. China aggregate credit figures for Dec are also due this week.

• USD/CNH has tracked lower for most of the session. We had a brief blip higher, as the CNY fixing printed weaker than expected, but the pair found selling interest above 6.8200. We got to a low of 6.7850, but now sit slightly higher. Onshore CNY spot has arguably led moves today, with USD/CNY threatening to break sub 6.7800 at the time of writing.
• 1 month USD/KRW is down to 1244 after touching a low close to 1242. The firmer equity tone (+2.53% for the Kospi) and spill over from the China re-opening theme continue to benefit the won. Late May 2022 lows around 1235 are now in sight.
• USD/INR is lower, last around 82.35. Note the simple 50-day MA comes in at 82.23. The pair broke this support point on a number of occasions in the second half of last year but couldn't sustain it. This Thursday CPI and IP figures print, with inflation to help frame the RBI outlook in the first part of this year.
• USD/IDR is also lagging broader USD weakness. The pair is back to 15581 but has found support ahead of the 15550 level in recent weeks so be mindful of this level.
• USD/THB has played catch up with USD weakness post Friday's onshore spot close. We have fallen back close to 33.50, nearly 1.6% firmer in baht terms for the session. There is some caution around how quickly China arrivals will recover, but the market doesn't want to miss what is expected to be a positive trend through 2023. Better equity market sentiment and continued offshore inflows are also aiding baht moves. The baht remains comfortably the best performer within Asian FX YTD 2023.

EQUITIES: Regional Markets On Positive Footing, As Eminis Through Friday's Peak

All major equity indices are firmer today. This follows the strong positive lead from offshore markets through Friday's session, while US equity futures have firmed further today.

• Encouragingly, S&P 500 e-minis are through Friday’s peak. The contract printed a high of 3,931, before selling interest emerged. The next meaningful technical resistance zone located at the Dec 15/13 highs (4,043.00/4,180.00), with the latter representing the bull trigger. Carry over from Friday's session (buoyed by lower US yields/softer US data outcomes) has continued in Asia Pac trading.
• China headlines have remained positive in terms of PBoC officials talking up the growth outlook, while a number of cities set 2023 GDP growth targets at least of 5.5%. Elsewhere health officials have also talked down the likelihood of fresh covid waves during the LNY period.
• The FT reported though the authorities will stop allowing companies in certain sectors to list as the authorities target strategic industries.
• The HSI is tracking 1.65% firmer, the CSI around 0.65% at this stage.
• The Kospi is the best performer +2.60%, while the Taiex is +2.2%. This followed tech outperformance on Friday. Offshore investors have added further to Korean shares today (+$311.6mn).

EQUITIES: MNI US EARNINGS SCHEDULE - Banks, Financials Kick Off Quarterly Cycle

EXECUTIVE SUMMARY

• Quarterly earnings season begins next week, with 4.5% of the S&P 500 by market cap set to report
• Banks and financials start the cycle, with JPMorgan, Bank of America, Citigroup and Wells Fargo due among others
• Earnings reach critical mass later in the quarter, with 50% of the index set to have reported by Feb 1st
• Full calendar including timings and expectations here: MNIUSEARNINGS060123.pdf

GOLD: Bullish Run Continues

The bullish run for gold continues. The precious metal has added a further 0.64% so far today, which comes after last week's 2.28% gain. We were last close to $1878, fresh highs going back to mid last year. The $1900 level, last seen in May of 2022 seems like the next logical upside target. The 20-day EMA is back at $1818.9 in terms of downside support levels.

• Gold continues to benefit from USD weakness, while the related sharp pull back in US yields through Friday's NY session, was also a clear positive.
• The metal has outperformed US real yields by a decent margin in recent months, but underlying demand still appears firm. China's FX reserves for December showed a further accumulation of gold (30 tons in Dec, versus 32 in November). Q3 saw record gold purchases from central banks according to the World Gold Council.

OIL: Firmer, But Lagging Other Commodities

Brent has firmed through the first part of the session, last tracking near $79.50/bbl. This is 1.10% for the session but follows a lackluster end to last week, where Brent finished down slightly despite a broad based USD sell-off/risk on move in other major asset classes. Support appears firm sub the $78/bbl level for now, while a move above the 50-day EMA at $84.71 might be required to generate a more positive medium term outlook. WTI was last at $74.70.

• Optimism around the demand outlook, particularly from China, with general positive news flow over the weekend, should keep oil dips supported, even as forward curves suggest few near term supply constraints.
• Elsewhere, the US delayed purchases to restock reserves, as price/sale conditions were reportedly unsatisfactory. Colonial also restarted a NY fuel pipe after a leak from last week was repaired.