MNI EUROPEAN MARKETS ANALYSIS: USD Bid, U.S. Tsy Yields Higher, Equities Struggle

BOND SUMMARY: More Weakness For Core FI In Asia

Broader flows were at the fore overnight, with little in the way of meaningful headline flow observed. Core fixed income markets initially showed lower on spill over from the weakness in U.S. Tsys during Tuesday's session, before stabilising as the Nikkei 225 and e-mini moved into negative territory, reversing early gains. The space then moved lower again as U.S. 10-Year yields registered a fresh multi-month high.

• That leaves T-Notes -0-09 at 131-14+, with the cash Tsy curve bear steepening as 30s cheapen by the best part of 5bp on the day. A 5K block buyer of USX1 157.50 puts headlined during Asia-Pac hours. Wednesday's U.S. docket is dominated by the latest ADP employment report.
• JGB futures followed the broader gyrations, with the contract last -16 on the day. 20s provided the weakest point on the cash JGB curve, softening by a little over 1bp on the day as of typing. 5+-Year swap spreads have seen some widening, pointed to pay-side flows as one of the drivers as the move. Recent comments from BoJ Governor Kuroda haven't offered anything new, as he pointed to well-documented headwinds for inflation
• ACGBs marched to the beat of the broader drum, leaving YM -4.0 and XM -8.0 at typing. A$1.0bn of ACGB Nov '32 supply was easily digested, with the weighted average yield printing 0.43bp through prevailing mids at the time of the auction (per Yieldbroker pricing). The cover ratio was closer to 6.00x than it was 5.00x, with the well-trodden supportive factors and recent cheapening supporting demand (amongst other factors, which were outlined in our preview). Elsewhere, the APRA introduced slightly tighter mortgage lending restrictions, with deeper macroprudential measures expected further down the track.

FED: Odds Of A Second Term For Powell Bounce After White House Comments

PredictIt pricing when it comes to odds surrounding a second term for Fed Chair Powell ticked further away from lows on Tuesday.

• The move came after a White House spokesman noted that U.S. President Biden "does have confidence in Powell at this time." While the support is there at present, the use of the phrase "at this time" is interesting, and suggests that the consideration of an alternative may be underway.
• Elsewhere, well-known Powell critic, Senator Elizabeth Warren, resumed her critique of the Fed Chair on Tuesday, suggesting that he had "failed as a leader" when it came to the recent, well-documented trading activity on the part of senior Fed officials.

Fig. 1: Odds Re: Whom Will The Senate Next Confirm As Chair Of The Federal Reserve?

Source: PredictIt

FOREX: Antipodeans Grind Lower, RBNZ Stoke Some NZD Volatility

The RBNZ triggered some NZD volatility as policymakers raised the OCR by 25bp (in line with expectations), pointed to elevated capacity pressures and reaffirmed their view that further withdrawal of stimulus is in sight. The kiwi blipped higher in the initial reaction but promptly shed gains and retreated towards fresh session lows.

• NZD/USD topped out at $0.6979 before staging a pullback, but the $0.6928/27 area, which limited losses earlier this week, proved resilient. Looking ahead, as much as NZ$2.2bn worth of NZD/USD options with strikes at $0.7000 will roll off at today's NY cut.
• Post-RBNZ volatility briefly interrupted the Antipodeans' general depreciation driven by broader risk-off feel. Equity benchmarks across the Asia-Pac region reversed early gains and retreated alongside U.S. e-mini futures.
• The greenback firmed against G10 currencies and the DXY crossed above yesterday's highs amid an uptick in U.S. Tsy yields.
• Onshore Chinese markets remained closed in observance of a week-long national holiday.
• Today's data highlights include German factory orders, EZ retail sales & U.S. ADP employment change. Speeches are due from ECB's Centeno & Riksbank's Skingsley.

FOREX OPTIONS: Expiries for Oct06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1615-25(E622mln)
• GBP/USD: $1.3835-55(Gbp663mln)
• AUD/USD: $0.7300(A$671mln)
• NZD/USD: $0.7000(N$2.2bln)
• USD/CAD: C$1.2550-60(C$1.6bln), C$1.2600($868mln), C$1.2720-30($1.2bln)

ASIA FX: THB Worst Performer While IDR Gains

• CNH: Offshore yuan hugged a narrow range amid a lack of catalysts with Chinese markets still on holiday.
• SGD: Singapore dollar is weaker but sticking to Tuesday's range. US officials are said to be pushing Singapore to include the US in its travel lane scheme.
• KRW: Won is weaker, shaking off gains post CPI beat amid negative sentiment in the region.
• TWD: Taiwan dollar is weaker, brushing up against yesterday's lows. Geopolitical tensions continue to simmer in Taiwan, US President Biden has confirmed that he talked with Chinese President Xi about Taiwan and that the two leaders agreed to abide by the Taiwan agreement.
• MYR: Ringgit is flat, Melaka state legislature was dissolved Tuesday, setting the stage for a snap election to be held within two months.
• IDR: Rupiah is stronger.
• PHP: Peso is weaker, Certificates of Candidacy (COCs) for the 2022 elections keep coming. Ferdinand "Bongbong" Marcos Jr., the son of the late Philippine dictator, threw his hat in the ring as the race to succeed incumbent Pres Duterte becomes increasingly crowded.
• THB: Baht is lower, the ruling PPRP handed incumbent PM Prayuth a nomination for their prime ministerial candidate in the next general election. Yesterday the Commerce Ministry revised their 2021 inflation forecast range to +0.8%-1.2% Y/Y from +0.7%-1.7%. while 2022 GDP target is 5%.

ASIA RATES: South Korea Bonds Drop As CPI Exceeds BoK Target

• INDIA: Yields higher across the curve, some steepening seen. Bonds fell yesterday as crude oil rallied, extending gains from a 7-year high which stoked inflationary concerns, the decline was tempered by the RBI's 7-day reverse repo operations which saw a cut-off lower than expected. The operation was conducted at 3.61%, compared to 3.99% at the previous operation which was just 1bp below the RBI policy rate of 4.00%. Crude futures have softened slightly in the Asia-Pac session but remain elevated, while markets will also assess Moody's decision to raise India's outlook to stable from negative. The ratings agency said "The downside risks from negative feedback between the real economy and financial system are receding". Markets look ahead to the RBI rate announcement on Friday while closer on the horizon is the RBI's INR 200bn bond sale.
• SOUTH KOREA: Futures in South Korea are lower, tracking in a move in US Tsys where the 30-Year yield hit the highest since June 29. The move was exacerbated by inflation figures. Data earlier showed CPI rose 2.5% Y/Y in September, slightly higher than consensus 2.4%, while core CPI rose 1.9% also 0.1ppts above estimates. Prices rose 0.5% M/M. The annual reading has now been above the BoK's 2% target for six straight months. As a reminder the BoK raised its 2021 inflation outlook to 2.1% from its earlier estimate of 1.8%. The rise was attributed to high prices of farm and oil products. Elsewhere the BoK sold KRW 2.5tn of 2-Year MSB's, the sale drew a yield of 1.56% and was covered 1.08x.
• CHINA: Market closed for National Day holiday.
• INDONESIA: Yields higher, moves mixed across the curve. Yesterday's Shariah-compliant bonds and T-bills raised IDR 5tn, with total bids of IDR 46.1tn. Coordinating Econ Affairs Min Hartarto and Investment Min Lahadalia will take part in a webinar on 2022 economic outlook hosted by Sinar Mas today. Looking ahead a couple of consumer confidence reports headline the local data docket this week.

EQUITIES: Early Gains Reversed

After an initially positive start equity markets in Asia reversed early gains and languish in negative territory, the ongoing Chinese market holiday kept liquidity thin. Japanese bourses led the way lower again, the Nikkei 225 down for the eighth straight session. The initial round of approval ratings for the Kishida Cabinet proved disappointing for LDP officials. In New Zealand the RBNZ raised interest rates for the first time in seven years, the NZX 50 gave back early gains and sits ~0.3% lower on the day. Similar price action in the US, early gains for e-minis reversed as yields continued to rise, markets look ahead to the ADP employment report ahead of NFP figures later this week.

GOLD: A Touch Softer, Eyes On ADP

An uptick in U.S. Tsy yields and the DXY applied some pressure to bullion in overnight trade, with spot last dealing a little over $5/oz softer on the session, just above $1,750/oz. This comes after the breakeven-led dip in our weighted U.S. real yield monitor, alongside a downtick in the DXY, supported bullion in the latter rounds of NY dealing on Tuesday. The technical picture remains little changed for gold. Today's U.S. ADP employment report will set the scene ahead of Friday's NFP release, although we should expect the former to generate the usual conversations/debate surrounding the short-term correlation between the two releases.

OIL: Rally Paused As Stocks Build

After rallying again on Tuesday WTI and Brent crude futures are little changed in Asia amid broadly negative risk sentiment in the region. US stockpile data from API after market yesterday also weighed on oil, headline inventories rose 951k bbls while downstream stocks also rose, if US DoE numbers confirm the build it will be the second straight weekly gain. Despite the move off highs crude futures are up 4.5% for the week so far. The moves follow OPEC+'s decision to keep output policy unchanged on Monday, signalling to markets that the group will tolerate restricted output in return for higher prices. The break higher this week confirms an extension of the current bullish price sequence of higher highs and higher lows and attention turns to $79.53 for WTI, a Fibonacci projection and the $80.00 psychological hurdle.

UP TODAY (Times GMT/Local)