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MNI EUROPEAN MARKETS ANALYSIS: E-Minis & Crude Regain Poise In Asia

  • Equity and crude oil markets regained some poise during Asia-Pac hours, with both starting to chew away at Tuesday's losses.
  • That left the commodity-tied dollar bloc at the top of the G10 FX leaderboard.
  • Final Eurozone m’fing PMI readings are set to headline in European hours, while the latest ADP employment and ISM m’fing releases will cross during the NY session.

BONDS: Core FI Off Worst Levels, But Post-Powell Pressure Dominates In Asia

The early selling impetus witnessed in Asia, based on regional reaction to Fed Chair Powell’s hawkish round of Tuesday rhetoric and soothing tones from the Chinese policymaking sphere when it comes to economic growth in ’21, has faded a little, although TYH2 is still -0-08 on the day, printing 130-18 (0-07 off session lows). Cash Tsy trade sees the major benchmarks print 2.0-2.5bp cheaper across the curve, with the belly leading the weakness, as you would expect in the wake of Powell tipping his hat to the potential for a swifter tapering process. A 2.5K block sale of TY futures headlined on the flow side during Asia-Pac hours. Eurodollar futures are flat to 7.0bp cheaper through the reds, but operate off lows, tracking Tsys. The latest ADP employment print and ISM m’fing survey reading will cross during the NY session.

  • JGB futures were 6 ticks lower at the close, following the broader impulse of core global FI markets. Meanwhile, the major cash JGB benchmarks ran flat to 1bp cheaper across the curve, with 10s leading the weakness. Japanese Q3 capex data was a touch softer than expected, but that had no notable impact on the market. Elsewhere, BoJ board member Adachi flagged personal opinion re: economic benefits of a weaker JPY, in the context of the recent moves in the currency, while noting that the central bank does not target specific FX levels. Adachi also suggested that the BoJ would only conduct deeper monetary easing if it needed to address tail risks.
  • Aussie bond futures failed to push lower in the wake of Q3 GDP data, which wasn’t as bad as broader exp., and ground away from lows thereafter. That left YM -6.0 and XM -4.0 come the bell. There was little else of note in the local space on Wednesday, outside of a A$1.0bn round of ACGB Apr-33 supply, which passed smoothly, but wasn’t as firm as we have become accustomed to in recent times (in line with the recent trend when it comes the granular demand metrics witnessed at ACGB auctions).

FOREX: Commodity-Tied Dollar Block Tops G10 As Oil & Equities Nudge Higher

The commodity-tied dollar block topped the G10 FX leader board in Asia, benefitting from an uptick in e-minis & crude oil futures, as well as reassuring policymaker rhetoric surrounding Chinese economic growth & macro policy settings. This of course comes after Tuesday’s frenetic session, which saw Omicron worry and hawkish communique from Fed Chair Powell in the driving seat.

  • Broader headline flow was relatively limited, with firmer than expected Australian GDP and a slightly softer than expected Caixin manufacturing PMI print out of China doing little for price action.
  • That left the previously outlined themes at the fore, which resulted in pressure for the JPY, CHF, EUR & USD.
  • USD/CNH stuck to a tight range, with bears becoming a little more fixated on the YtD low.
  • Final Eurozone m’fing PMI readings are set to headline in European hours, while the latest ADP employment and ISM m’fing releases will cross during the NY session.

FOREX OPTIONS: Expiries for Dec01 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1400(E1.0bln)
  • EUR/GBP: Gbp0.8400(E1.7bln)
  • AUD/USD: $0.7165(A$782mln)

EQUITIES: Flat To Higher In Asia

The combination of a signal that Chinese economic growth would top the official target in ’21 (accompanied by continued focus on supporting SMES via steady and stable macro policy, courtesy of Vice Premier Liu He) and the previously flagged bid in oil prices supported the major regional equity indices during the Asia-Pac session. Still, it wasn’t all rosy when it came to China, with the latest Caixin manufacturing PMI survey revealing a softer than expected reading (which represented marginal contraction).

  • The previously flagged supportive factors helped markets regain some poise after Omicron worry and the prospect of swifter Fed tapering applied pressure to the broader equity space on Tuesday. The ASX 200 was the exception to the broader rule, registering marginal losses, with the consumer staples, real estate and utilities sectors providing the major drags there. E-minis nudged higher, with the S&P 500 contract adding ~1%.

GOLD: Pops Higher

Spot gold trades as high as $1,795/oz, with no obvious headline flow to trigger the pop higher. U.S. Tsy yields are back from earlier peaks, while the USD remains on the defensive vs. the riskier currencies in the G10 space. Bullion last +$15/oz at $1,790/oz.

  • A reminder that Tuesday’s losses (which have now been partially reversed) came in the wake of Fed Chair Powell’s hawkish commentary. Powell pointed to considerations re: a faster tapering process and the retirement of the word transitory when it comes to describing inflation. This allowed bullion to unwind the early Omicron-inspired bid.
  • Our weighted U.S. real yield monitor pushed higher post-Powell, while the DXY saw an initial spike higher, before giving back most of those gains.
  • Spot last deals little changed, just shy of the $1,780/oz marker, after showing below the Nov 24 low post-Powell. Key support at the Nov 3 low ($1,759.0/oz) remains intact.

OIL: Firmer Since Settlement

Broader risk assets have recovered some poise since Tuesday’s settlement, which has allowed WTI & Brent crude futures to add a little over $2.00 vs. their respective settlement levels. There hasn’t been much in the way of overt headline flow to facilitate such a move after yesterday’s notable downtick in prices.

  • The major benchmarks still sit the best part of $20 shy of their cycle highs.
  • Goldman Sachs reiterated their view that the recent fall in prices is “excessive,” yet understandable “in the context of low year-end liquidity and risk appetite.”
  • The weekly API crude inventory estimates revealed a slightly shallower than expected drawdown in headline crude stocks, coupled with an uptick in gasoline & distillate inventories, as well as a build in stocks at the Cushing hub. On net, that report appeared a little bearish, but had no lasting impact on prices.
  • Weekly DoE inventory data and the heavily awaited OPEC meeting (ahead of Thursday’s OPEC+ gathering) headline on Wednesday. Re: the latter, focus will be on any language pointing to a deviation from the previously outlined plan i.e. a cumulative 400K bpd lift in production from OPEC+ pact participants in January, which would be deemed a response to the recent coordinated stockpile release from some of the major oil consuming nations. Note that questions remain re: the ability of some of the participating producers when it comes to enacting the outlined lift in production.

UP TODAY (Times GMT/Local)

MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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