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MNI EUROPEAN OPEN: Chinese COVID Jitters Dominate

EXECUTIVE SUMMARY

Fig. 1: U.S. 2- & 10-Year Treasury Yields


Source: MNI - Market News/Bloomberg

UK

FISCAL: Jeremy Hunt has said he regrets the turbulence caused by Liz Truss's mini-budget but he does not believe it inflicted long-term economic damage. (Sky)

FISCAL: Middle-income households will receive grants worth up to £15,000 to make their homes more energy efficient. Grant Shapps, the business secretary, will announce plans next week to fund loft insulation, cavity wall insulation and smart heating controls. (The Times)

POLITICS: Boris Johnson and Liz Truss have launched a challenge to Rishi Sunak’s authority by joining a Tory rebellion backing wind farms to tackle the energy crisis. (Telegraph)

EUROPE

ITALY: Senior Italian officials are worried that the grandstanding of Giorgia Meloni’s most dangerous ally could upset the delicate balance in the governing coalition, jeopardizing her commitment to spending restraint and the stability of the administration. (BBG)

SPAIN: A windfall tax on Spanish banks and large energy companies cleared its first hurdle in parliament on Thursday with the backing of the minority leftist ruling coalition and several regional parties. (RTRS)

BANKS: Credit Suisse has made 889 million new shares available to existing investors at 2.52 Swiss francs ($2.67) per share, the bank said on Thursday, confirming the final terms of its 4 billion franc capital hike. (RTRS)

RATINGS: Potential sovereign rating reviews of note scheduled for after hours on Friday include:

  • Moody’s on Switzerland (current rating: AAA; Outlook Stable)
  • DBRS Morningstar on Poland (current rating: A, Stable Trend)

OTHER

GLOBAL TRADE: More than 20,000 employees, most of them were new hires not yet working on the production line, have left Apple supplier Foxconn's Zhengzhou plant in China, a Foxconn source familiar with the matter told Reuters on Friday. The person said the departure was set to complicate the company's previous target to resume full production by the end of November, following worker unrest that rocked production of the world's largest iPhone factory. (RTRS)

GLOBAL TRADE: EU antitrust regulators are seeking more information on Microsoft's practices from rivals and other companies in a case triggered by Salesforce.com's workspace messaging app Slack, people familiar with the matter said on Thursday. (RTRS)

GLOBAL TRADE: Chinese and South Korean officials reached broad consensus on safeguarding supply chain stability and expanding trade and investment cooperation during a meeting, China's commerce ministry said in a statement on Friday. China's assistant commerce minister Li Fei and south Korean economic affairs official Yun Seong-deok participated in Thursday's video meet. (RTRS)

BOJ: The next Bank of Japan governor should implement a policy framework that maintains current easy policy but provides greater medium to longer-term flexibility ahead of an eventual exit from easy policy, former officials told MNI. (MNI)

JAPAN: Japanese Finance Minister Shunichi Suzuki said on Friday that the government will strive to reduce issuance of short-term bonds, currently at high levels due to heavy debt-funded economic stimulus aimed at reviving COVID-hit growth. Suzuki told a lower house budget committee session that average government debt redemption has been shortened. He also said there was no guarantee for favourable conditions for debt issuance, such as low interest rates, to last indefinitely. (RTRS)

AUSTRALIA: Australian housing prices that are on a steep decline will likely fall further next year, according to a Reuters poll of analysts who forecast a peak-to-trough slump of 16%, more than double the correction during the 2008 financial crisis. (RTRS)

BOK: The Bank of Korea needs to see “strong” signs that inflation is under control before discussing any prospect of a pivot away from policy tightening, Governor Rhee Chang-yong said Friday. (BBG)

NORTH KOREA: North Korea has held a five-day national conference of the country's officers in charge of security and counterintelligence affairs, Pyongyang's state media reported Friday, in an apparent move to rally internal loyalty. (Yonhap)

MEXICO: Mexico central bank Deputy Governor Gerardo Esquivel will return to academic life and the media if President Andres Manuel Lopez Obrador doesn’t renominate him to his post, he said in an interview with Radio Formula on Thursday. (BBG)

BRAZIL: Brazilian Senator Marcelo Castro, the upcoming author of a constitutional amendment for a spending cap waiver, told Reuters on Thursday that the bill must be approved by Dec. 10 so lawmakers can focus on the country's budget for next year. (RTRS)

TURKEY/RATINGS: Potential sovereign rating reviews of note scheduled for after hours on Friday include:

  • Moody’s on Turkey (current rating: B3; Outlook Stable)

COLOMBIA: Colombia’s Finance Ministry will present its financial plan before the end of 2023, Finance Minister Jose Antonio Ocampo told reporters in Cartagena. (BBG)

COLOMBIA: Colombia's highest administrative court said on Thursday it had annulled the appointment of central bank co-director Alberto Carrasquilla on the grounds that his appointment violated an existing gender quota law. (RTRS)

ARGENTINA: Argentine government officials will travel to Washington next week to hold talks with staff from the International Monetary Fund over the third review of the country’s $44 billion program, according to an Economy Ministry official. (BBG)

METALS: Workers at Chile's Escondida mine, the largest copper deposit in the world, turned down an offer by BHP and could stop work on Nov. 28 and 30 if the company does not meet their demands, a union source told Reuters on Thursday. (RTRS)

METALS: Australia will be more assertive in scrutinizing foreign investments in key commodities tied to electric cars and clean energy, a potential warning to China which currently dominates the market. (BBG)

OIL: Iraqi and Saudi Arabia oil ministers reviewed the developments in the global oil markets, stressed the importance to continue collective action within the framework of the OPEC+ pact and the adherence of both countries to the recent decision made by OPEC+ that extends to end 2023, according to a joint statement. (BBG)

OIL: Japan will exempt oil produced from the Sakhalin-2 project from a price cap on Russian cargoes that’s scheduled to take effect from Dec. 5, Japanese trade minister Yasutoshi Nishimura said on Friday at a press conference. (BBG)

OIL: Flows of oil to Slovakia via the Druzhba pipeline through Ukraine were restored late on Thursday following a suspension earlier in the day, the Slovak Economy Ministry said in a statement. (RTRS)

FOREX: Sterling looks “vulnerable” to further falls and the looming recession could have “serious” effects on British society, according to the hedge fund firm of billionaire trader Chris Rokos. (FT)

CHINA

CORONAVIRUS: China’s daily Covid infections broke through 30,000 for the first time ever as officials struggle to contain outbreaks that have triggered a growing number of restrictions across the country’s most important cities. (BBG)

CORONAVIRUS: Beijing’s streets are emptying and grocery delivery services are running out of capacity as rising Covid cases trigger lockdown-like restrictions across swathes of the Chinese capital. (BBG)

PBOC: The urgent need to cut banks’ reserve requirement ratio is rising as China should move to stabilise growth in Q4, which is the biggest contributor to yearly growth, China Securities Journal reported on its front page. (MNI)

YUAN: The yuan remains stable despite expectations the People’s Bank of China will cut banks’ reserve requirement ratio in coming days, The 21st Century Business Herald reported, citing CITIC Securities chief economist Ming Ming. (MNI)

FISCAL: Signs are growing in China that local government debt burdens are becoming unsustainable. China’s 31 provincial governments have a stockpile of outstanding bonds that’s close to the Ministry of Finance’s risk threshold of 120% of income. (BBG)

PROPERTY: Large state-owned banks reached cooperation agreements with property developers to provide credit, following this week's joint pledge by top regulators to increase financial support for the sector, reported financial news agency Cls.cn. (MNI)

PROPERTY: China’s local governments must “strictly supervise” real-estate developers‘ use of pre-sale funds, according to a commentary in Economic Daily. (BBG)

CHINA MARKETS

PBOC NET DRAINS CNY13 BILLION VIA OMOS FRIDAY

The People's Bank of China (PBOC) on Friday injected CNY8 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation has led to a net drain of CNY13 billion after offsetting the maturity of CNY21 billion reverse repos today, according to Wind Information.

  • The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
  • The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.9013% at 9:25 am local time from the close of 1.7394% on Thursday.
  • The CFETS-NEX money-market sentiment index closed at 48 on Thursday vs 50 on Wednesday.

CHINA SETS YUAN CENTRAL PARITY AT 7.1339 FRI VS 7.1201 THURS

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1339 on Friday, compared with 7.1201 set on Thursday.

OVERNIGHT DATA

JAPAN NOV TOKYO CPI +3.8% Y/Y; MEDIAN +3.6%; OCT +3.5%
JAPAN NOV TOKYO CPI EXCL. FRESH FOOD +3.6% Y/Y; MEDIAN +3.5%; OCT +3.4%
JAPAN NOV TOKYO CPI EXCL. FRESH FOOD & ENERGY +2.5% Y/Y; MEDIAN +2.3%; OCT +2.2%

JAPAN OCT SERVICES PPI +1.8% Y/Y; MEDIAN +2.1%; SEP +2.1%

NEW ZEALAND Q3 RETAIL SALES EX-INFLATION +0.4% Q/Q; MEDIAN +0.5%; Q2 -2.2%

NEW ZEALAND NOV ANZ CONSUMER CONFIDENCE INDEX 80.7; OCT 85.4

The ANZ-Roy Morgan Consumer Confidence Index fell 5 points in November to 80.7, its lowest level since June. Sharp increases in the cost of living and interest rates (not to mention falling house prices) are clearly hurting confidence, but excellent job security and strong wage growth have so far seen spending hold up far better than this level of confidence would normally imply. This dynamic is likely to be on borrowed time. (ANZ)

MARKETS

SNAPSHOT: Chinese COVID Jitters Dominate

Below gives key levels of markets in the second half of the Asia-Pac session:

  • Nikkei 225 down 1.03 points at 27900.33
  • ASX 200 down 12.531 points at 7139.3
  • Shanghai Comp. down 30.072 points at 3067.584
  • JGB 10-Yr future up 2 ticks at 149.40, yield up 0.1bp at 0.25%
  • Aussie 10-Yr future up 2.5 ticks at 96.410. yield down 2.8bp at 3.582%
  • U.S. 10-Yr future up 0-06+ at 112-16, yield down 4.1bp at 3.7878%
  • WTI crude down $0.87 at $79.21, Gold down $4.58 at $1746.10
  • USD/JPY up 13 pips at Y140.50
  • FED'S COLLINS DECLINES TO SAY HOW FAR FED WILL HIKE RATES (RTRS)
  • FED'S BOSTIC SEES HIGHER 'LANDING' RATE, SMALLER DEC HIKE (MNI)
  • RISHI SUNAK WON’T SEEK SWISS-STYLE RELATIONSHIP WITH BRUSSELS
  • TORIES WANT TO CUT TAXES BEFORE NEXT ELECTION, SAYS NADHIM ZAHAWI (TELEGRAPH)
  • BEIJING REPORTS COVID DEATHS, STOKING FEARS OF CURBS (BBG)
  • COVID ZERO RETURNS TO CHINESE CITY RUMORED TO BE REOPENING (BBG)

US TSYS: Underpinned In Asia

The impact from the minutes covering the most recent FOMC meeting continued to be felt after the Thanksgiving holiday, with Tsys underpinned during Tokyo dealing.

  • That leaves the major cash Tsy benchmarks running 3-6bp richer into London hours, with bull steepening apparent. TYZ2 deals just shy of the peak of its 0-06 range, last +0-11+ (vs. Wednesday’s settlement) at 113-10.
  • The impulse from a softer JGB complex in lieu of firmer than expected Tokyo CPI data provided a modest downtick for Tsys at one point, although the pressure was limited.
  • Elsewhere, continued focus falls on the COVID situation in China, with localised restrictions in some of the country’s major cities tightening this week, while the new daily COVID case count metric hit a fresh record high today. Speculation/expectation surrounding a potential RRR cut from the PBoC is elevated after Wednesday's State Council meeting guided towards such a move. Many expect the PBoC to act after local market hours on Friday.
  • ECB and Riksbank speak provides the highlights of the wider macro docket on Friday.
  • A quick reminder that cash Tsys and Tsy futures will be subjected to holiday-shortened trading hours ahead of the weekend.

JGBS: Off Lows But Comfortably Cheaper after Firm Tokyo CPI Data

The JGB space operates off of worst levels into the bell, but is still comfortably cheaper on the day.

  • Cash JGBs run little changed to ~4bp cheaper across the curve, with the early steepening giving way to 7s leading the weakness as futures remain heavy and the long end recovers from session lows, with life insurers and pension funds perhaps deploying capital after the passage of 40-Year JGB supply. Futures print ~40 ticks lower on the day ahead of the bell, operating a little off worst levels.
  • Firmer than expected Tokyo CPI data provided the initial catalyst for the move lower, while the soft cover ratio observed at the latest round of 40-Year JGB supply promoted an extension of the early steepening momentum during the early rounds of afternoon dealing.
  • There was also the potential for some delayed reaction to comments from Japanese Finance Minister Suzuki re: a desire to move away from short-term financing to factor into the steepening.
  • Weekly Japanese international security flow data from the MoF revealed that foreign investors deployed the second largest ever round of net weekly purchases of Japanese bonds last week. This was probably a mix of short covering and perhaps some deployment of capital owing to advantageous FX-hedged yield pickups on offer.
  • Note that the weekend will see BoJ Deputy Governor Amamiya appear at a meeting on monetary economics, while Monday’s domestic docket will be headlined by the latest round of BoJ Rinban operations.

JGBS AUCTION: 40-Year Auction Results

The Japanese Ministry of Finance (MOF) sells Y699.7bn 40-Year JGBs:

  • High Yield: 1.580% (prev. 1.520%)
  • Low Price: 83.06 (prev. 84.61)
  • % Allotted At High Yield: 1.7341% (prev. 85.7142%)
  • Bid/Cover: 2.355x (prev. 2.363x)

AUSSIE BONDS: Supply Dynamics & RBA Speak Eyed

ACGBs corrected from worst levels in the latter rounds of Sydney trade, with spill over from a bid in U.S. Tsys helping after the impulse from a heavier impending weekly AOFM issuance slate (which includes ACGB Mar-47 supply) and weakness in JGBs applied pressure during the first half of the Sydney session. That left YM -2.0 & XM -3.0 at the bell with cash ACGBS running 2.5-3.5bp cheaper across the curve.

  • Bills were flat to -3 through the reds, with light bear steepening in play. RBA dated OIS continue to price just over 20bp of tightening for next month’s RBA decision, with terminal cash rate pricing hovering around the 3.90% mark, as both measures operate within their recent ranges.
  • Looking ahead, RBA Governor Lowe’s latest appearance in Canberra headlines Monday’s domestic docket, with retail sales data and the aforementioned round of ACGGB Mar-47 supply also slated.
  • Next week’s domestic docket also includes monthly CPI data, building approvals, private sector credit, CoreLogic house price readings, housing finance data and the first round of Q3 GDP partials, which comes in the from of the capex print. Note that we will also hear from RBA’s Kearns, Head of the Bank’s domestic markets division, during the course of the week, via an appearance in front of the Australian Securitisation Conference.

AUSSIE BONDS: ACGB Apr-25 Auction Results

The Australian Office of Financial Management (AOFM) sells A$700mn of the 3.25% 21 April 2025 Bond, issue #TB139:

  • Average Yield: 3.1749% (prev. 3.6070%)
  • High Yield: 3.1775% (prev. 3.6100%)
  • Bid/Cover: 4.7386x (prev. 3.8500x)
  • Amount allotted at highest accepted yield as percentage of amount bid at that yield 46.5% (prev. 40.7%)
  • Bidders 45 (prev. 46), successful 17 (prev. 13), allocated in full 12 (prev. 8)

NZGBS: Twisting Flatter Into The Weekend

The cheapening witnessed in the wider core global FI space saw NZGBs soften as Friday’s session wore on, although the early twist flattening impulse held, with the major benchmarks running 6bp cheaper to 4bp richer, with a pivot observed around 7s.

  • Meanwhile, the swap curve saw rates run lower to unchanged, with a light steepening impulse seen. That left swap spreads a little tighter in the front end, but marginally wider further out.
  • RBNZ dated OIS continues to price just over 70bp of tightening for the RBNZ’s Feb ’23 meeting, with a terminal rate of just under 5.50% eyed. The recent repricing probably helped bias front end NZGBs lower, alongside the wider weakness in bonds.
  • Local data saw the ANZ consumer confidence reading hit the lowest level observed since June. The survey collator noted that “sharp increases in the cost of living and interest rates (not to mention falling house prices) are clearly hurting confidence, but excellent job security and strong wage growth have so far seen spending hold up far better than this level of confidence would normally imply. This dynamic is likely to be on borrowed time.”
  • Elsewhere, Q3 retail sales volume data was virtually in line with exp., rising by 0.4% Q/Q (the BBG survey median looked for a reading of +0.5%).
  • Next week’s domestic docket includes the ANZ business survey, building permits, terms of trade and CoreLogic house price data.

EQUITIES: Marginally Mixed In Asia

The major Asia-Pac equity indices recorded mixed performance on Friday, with Chinese property names continuing to benefit from sector-specific support and heightened expectations of imminent easing from the PBoC. That allowed the CSI 300 to register modest gains.

  • Elsewhere, HK tech names struggled in the wake of the recent impressive rally, with worry surrounding production for key Apple supplier Foxconn applying pressure. That left the Hang Seng in the red.
  • Still the major regional indices are set to finish somewhere between -/+1.0% on the day.
  • Elsewhere, e-minis looked to softer Tsy yields and a downtick in the USD for support, holding onto Thursday’s modest gains.

GOLD: Fed Minutes Fallout Continues To Support

A tick lower in the broader USD and some richening in the U.S. Tsy space has supported gold in the final Asia-Pac session of the week, putting bullion on track for a modest weekly gain. The yellow metal last prints a handful of dollars higher, just shy of $1,760/oz.

  • The post-FOMC minutes fallout continued to feed its way into price action after the U.S. Thanksgiving holiday.
  • Technically, short-term trend conditions in Gold remain bullish, however for now, the yellow metal remains in a corrective cycle. Recent gains resulted in the break of $1,729.5/oz, the Oct 4 high. This has strengthened a bullish theme and signals scope for a test of $1,800.0/oz, which protects key resistance at $1,807.9/oz, the Aug 10 high. Ahead of that zone, the bull trigger is located at $1,786.5/oz, the Nov 15 high. Initial firm support is seen at $1,702.3/oz, the Nov 9 low.

OIL: Drawing Support From USD Downtick, Still On Track For Third Weekly Loss

A softer USD has provided some support for crude oil in the final session of the week, although continued demand worry leaves the major oil benchmarks on track for a third consecutive weekly decline.

  • WTI and Brent futures sit $0.50 & $0.30 higher on the session, respectively.
  • Heightened worry re: the COVID situation has been a major headwind for crude bulls during the current week.
  • In the background, European officials remain locked in discussion re: the technicalities surrounding the proposed Russian oil price cap, with the relevant parties not appearing close to forming a consensus agreement.
  • Note that late on Thursday we saw the Iraqi and Saudi Arabian oil ministers stress commitment to continued collective action within the OPEC+ framework via a joint statement. The statement highlighted the potential for the group to take further action re: crude output levels, if required.

FOREX: DXY Remains On The Defensive

The post-Fed minutes downtick in the USD continued during Asia-Pac hours, with U.S. Tsys underpinned and continued focus on the seemingly impending slowing of Fed tightening evident. That left the greenback and the CHF at the bottom of the G10 FX pile in limited Asia-Pac dealing.

  • USD/JPY operates near unchanged levels after some potential gotobi demand and the bid in U.S. Tsys introduced two-way price action.
  • The NZD was an early underperformer, with soft NZD data applying some modest pressure to the kiwi, although that has faded.
  • USD/CNH briefly ticked higher, with another uptick in the new daily COVID case count in China supporting the pair, before a slightly firmer than expected CNY mid-point fixing and the downtick in the broader USD allowed the cross to move away from best levels.
  • USD/KRW more than reversed an early uptick that was a result of increased focus on the BoK nearing the end of its tightening cycle.
  • ECB & Riksbank speak headline the broader macro docket on Friday, with wider market liquidity set to be thinned as many U.S. participants opt to take an elongated weekend in lieu of Thursday’s Thanksgiving holiday (note that U.S. markets will be subjected to shortened operating hours ahead of the weekend).
  • A reminder that speculation/expectation surrounding a potential RRR cut from the PBoC is elevated after Wednesday's State Council meeting guided towards such a move. Many expect the PBoC to act after local market hours on Friday.

FX OPTIONS: Expiries for Nov25 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0190-00(E527mln), $1.0250(E740mln), $1.0380-00(E774mln)
  • USD/JPY: Y137.10($960mln) Y143.50-70($1.0bln)
  • GBP/USD: $1.1858(Gbp624mln)
  • EUR/GBP: Gbp0.8655(E878mln)
  • AUD/USD: $0.6700(A$655mln)
  • USD/CAD: C$1.3605-20($595mln)
  • USD/CNY: Cny7.1500($661mln)

UP TODAY (Times GMT/Local)


DateGMT/LocalImpactFlagCountryEvent
25/11/20220700/0800*DEGFK Consumer Climate
25/11/20220700/0800***DEGDP (f)
25/11/20220700/0800**SEPPI
25/11/20220745/0845**FRConsumer Sentiment
25/11/20220800/0900
ESPPI
25/11/20220900/1000**ITISTAT Consumer Confidence
25/11/20220900/1000**ITISTAT Business Confidence
25/11/20221330/0830**USWASDE Weekly Import/Export
25/11/20221600/1100
CAFinance Dept monthly Fiscal Monitor (expected)
27/11/2022-
AUVictoria State Election
3385 words

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EXECUTIVE SUMMARY

Fig. 1: U.S. 2- & 10-Year Treasury Yields


Source: MNI - Market News/Bloomberg

UK

FISCAL: Jeremy Hunt has said he regrets the turbulence caused by Liz Truss's mini-budget but he does not believe it inflicted long-term economic damage. (Sky)

FISCAL: Middle-income households will receive grants worth up to £15,000 to make their homes more energy efficient. Grant Shapps, the business secretary, will announce plans next week to fund loft insulation, cavity wall insulation and smart heating controls. (The Times)

POLITICS: Boris Johnson and Liz Truss have launched a challenge to Rishi Sunak’s authority by joining a Tory rebellion backing wind farms to tackle the energy crisis. (Telegraph)

EUROPE

ITALY: Senior Italian officials are worried that the grandstanding of Giorgia Meloni’s most dangerous ally could upset the delicate balance in the governing coalition, jeopardizing her commitment to spending restraint and the stability of the administration. (BBG)

SPAIN: A windfall tax on Spanish banks and large energy companies cleared its first hurdle in parliament on Thursday with the backing of the minority leftist ruling coalition and several regional parties. (RTRS)

BANKS: Credit Suisse has made 889 million new shares available to existing investors at 2.52 Swiss francs ($2.67) per share, the bank said on Thursday, confirming the final terms of its 4 billion franc capital hike. (RTRS)

RATINGS: Potential sovereign rating reviews of note scheduled for after hours on Friday include:

  • Moody’s on Switzerland (current rating: AAA; Outlook Stable)
  • DBRS Morningstar on Poland (current rating: A, Stable Trend)

OTHER

GLOBAL TRADE: More than 20,000 employees, most of them were new hires not yet working on the production line, have left Apple supplier Foxconn's Zhengzhou plant in China, a Foxconn source familiar with the matter told Reuters on Friday. The person said the departure was set to complicate the company's previous target to resume full production by the end of November, following worker unrest that rocked production of the world's largest iPhone factory. (RTRS)

GLOBAL TRADE: EU antitrust regulators are seeking more information on Microsoft's practices from rivals and other companies in a case triggered by Salesforce.com's workspace messaging app Slack, people familiar with the matter said on Thursday. (RTRS)

GLOBAL TRADE: Chinese and South Korean officials reached broad consensus on safeguarding supply chain stability and expanding trade and investment cooperation during a meeting, China's commerce ministry said in a statement on Friday. China's assistant commerce minister Li Fei and south Korean economic affairs official Yun Seong-deok participated in Thursday's video meet. (RTRS)

BOJ: The next Bank of Japan governor should implement a policy framework that maintains current easy policy but provides greater medium to longer-term flexibility ahead of an eventual exit from easy policy, former officials told MNI. (MNI)

JAPAN: Japanese Finance Minister Shunichi Suzuki said on Friday that the government will strive to reduce issuance of short-term bonds, currently at high levels due to heavy debt-funded economic stimulus aimed at reviving COVID-hit growth. Suzuki told a lower house budget committee session that average government debt redemption has been shortened. He also said there was no guarantee for favourable conditions for debt issuance, such as low interest rates, to last indefinitely. (RTRS)

AUSTRALIA: Australian housing prices that are on a steep decline will likely fall further next year, according to a Reuters poll of analysts who forecast a peak-to-trough slump of 16%, more than double the correction during the 2008 financial crisis. (RTRS)

BOK: The Bank of Korea needs to see “strong” signs that inflation is under control before discussing any prospect of a pivot away from policy tightening, Governor Rhee Chang-yong said Friday. (BBG)

NORTH KOREA: North Korea has held a five-day national conference of the country's officers in charge of security and counterintelligence affairs, Pyongyang's state media reported Friday, in an apparent move to rally internal loyalty. (Yonhap)

MEXICO: Mexico central bank Deputy Governor Gerardo Esquivel will return to academic life and the media if President Andres Manuel Lopez Obrador doesn’t renominate him to his post, he said in an interview with Radio Formula on Thursday. (BBG)

BRAZIL: Brazilian Senator Marcelo Castro, the upcoming author of a constitutional amendment for a spending cap waiver, told Reuters on Thursday that the bill must be approved by Dec. 10 so lawmakers can focus on the country's budget for next year. (RTRS)

TURKEY/RATINGS: Potential sovereign rating reviews of note scheduled for after hours on Friday include:

  • Moody’s on Turkey (current rating: B3; Outlook Stable)

COLOMBIA: Colombia’s Finance Ministry will present its financial plan before the end of 2023, Finance Minister Jose Antonio Ocampo told reporters in Cartagena. (BBG)

COLOMBIA: Colombia's highest administrative court said on Thursday it had annulled the appointment of central bank co-director Alberto Carrasquilla on the grounds that his appointment violated an existing gender quota law. (RTRS)

ARGENTINA: Argentine government officials will travel to Washington next week to hold talks with staff from the International Monetary Fund over the third review of the country’s $44 billion program, according to an Economy Ministry official. (BBG)

METALS: Workers at Chile's Escondida mine, the largest copper deposit in the world, turned down an offer by BHP and could stop work on Nov. 28 and 30 if the company does not meet their demands, a union source told Reuters on Thursday. (RTRS)

METALS: Australia will be more assertive in scrutinizing foreign investments in key commodities tied to electric cars and clean energy, a potential warning to China which currently dominates the market. (BBG)

OIL: Iraqi and Saudi Arabia oil ministers reviewed the developments in the global oil markets, stressed the importance to continue collective action within the framework of the OPEC+ pact and the adherence of both countries to the recent decision made by OPEC+ that extends to end 2023, according to a joint statement. (BBG)

OIL: Japan will exempt oil produced from the Sakhalin-2 project from a price cap on Russian cargoes that’s scheduled to take effect from Dec. 5, Japanese trade minister Yasutoshi Nishimura said on Friday at a press conference. (BBG)

OIL: Flows of oil to Slovakia via the Druzhba pipeline through Ukraine were restored late on Thursday following a suspension earlier in the day, the Slovak Economy Ministry said in a statement. (RTRS)

FOREX: Sterling looks “vulnerable” to further falls and the looming recession could have “serious” effects on British society, according to the hedge fund firm of billionaire trader Chris Rokos. (FT)

CHINA

CORONAVIRUS: China’s daily Covid infections broke through 30,000 for the first time ever as officials struggle to contain outbreaks that have triggered a growing number of restrictions across the country’s most important cities. (BBG)

CORONAVIRUS: Beijing’s streets are emptying and grocery delivery services are running out of capacity as rising Covid cases trigger lockdown-like restrictions across swathes of the Chinese capital. (BBG)

PBOC: The urgent need to cut banks’ reserve requirement ratio is rising as China should move to stabilise growth in Q4, which is the biggest contributor to yearly growth, China Securities Journal reported on its front page. (MNI)

YUAN: The yuan remains stable despite expectations the People’s Bank of China will cut banks’ reserve requirement ratio in coming days, The 21st Century Business Herald reported, citing CITIC Securities chief economist Ming Ming. (MNI)

FISCAL: Signs are growing in China that local government debt burdens are becoming unsustainable. China’s 31 provincial governments have a stockpile of outstanding bonds that’s close to the Ministry of Finance’s risk threshold of 120% of income. (BBG)

PROPERTY: Large state-owned banks reached cooperation agreements with property developers to provide credit, following this week's joint pledge by top regulators to increase financial support for the sector, reported financial news agency Cls.cn. (MNI)

PROPERTY: China’s local governments must “strictly supervise” real-estate developers‘ use of pre-sale funds, according to a commentary in Economic Daily. (BBG)

CHINA MARKETS

PBOC NET DRAINS CNY13 BILLION VIA OMOS FRIDAY

The People's Bank of China (PBOC) on Friday injected CNY8 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation has led to a net drain of CNY13 billion after offsetting the maturity of CNY21 billion reverse repos today, according to Wind Information.

  • The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
  • The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.9013% at 9:25 am local time from the close of 1.7394% on Thursday.
  • The CFETS-NEX money-market sentiment index closed at 48 on Thursday vs 50 on Wednesday.

CHINA SETS YUAN CENTRAL PARITY AT 7.1339 FRI VS 7.1201 THURS

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1339 on Friday, compared with 7.1201 set on Thursday.

OVERNIGHT DATA

JAPAN NOV TOKYO CPI +3.8% Y/Y; MEDIAN +3.6%; OCT +3.5%
JAPAN NOV TOKYO CPI EXCL. FRESH FOOD +3.6% Y/Y; MEDIAN +3.5%; OCT +3.4%
JAPAN NOV TOKYO CPI EXCL. FRESH FOOD & ENERGY +2.5% Y/Y; MEDIAN +2.3%; OCT +2.2%

JAPAN OCT SERVICES PPI +1.8% Y/Y; MEDIAN +2.1%; SEP +2.1%

NEW ZEALAND Q3 RETAIL SALES EX-INFLATION +0.4% Q/Q; MEDIAN +0.5%; Q2 -2.2%

NEW ZEALAND NOV ANZ CONSUMER CONFIDENCE INDEX 80.7; OCT 85.4

The ANZ-Roy Morgan Consumer Confidence Index fell 5 points in November to 80.7, its lowest level since June. Sharp increases in the cost of living and interest rates (not to mention falling house prices) are clearly hurting confidence, but excellent job security and strong wage growth have so far seen spending hold up far better than this level of confidence would normally imply. This dynamic is likely to be on borrowed time. (ANZ)

MARKETS

SNAPSHOT: Chinese COVID Jitters Dominate

Below gives key levels of markets in the second half of the Asia-Pac session:

  • Nikkei 225 down 1.03 points at 27900.33
  • ASX 200 down 12.531 points at 7139.3
  • Shanghai Comp. down 30.072 points at 3067.584
  • JGB 10-Yr future up 2 ticks at 149.40, yield up 0.1bp at 0.25%
  • Aussie 10-Yr future up 2.5 ticks at 96.410. yield down 2.8bp at 3.582%
  • U.S. 10-Yr future up 0-06+ at 112-16, yield down 4.1bp at 3.7878%
  • WTI crude down $0.87 at $79.21, Gold down $4.58 at $1746.10
  • USD/JPY up 13 pips at Y140.50
  • FED'S COLLINS DECLINES TO SAY HOW FAR FED WILL HIKE RATES (RTRS)
  • FED'S BOSTIC SEES HIGHER 'LANDING' RATE, SMALLER DEC HIKE (MNI)
  • RISHI SUNAK WON’T SEEK SWISS-STYLE RELATIONSHIP WITH BRUSSELS
  • TORIES WANT TO CUT TAXES BEFORE NEXT ELECTION, SAYS NADHIM ZAHAWI (TELEGRAPH)
  • BEIJING REPORTS COVID DEATHS, STOKING FEARS OF CURBS (BBG)
  • COVID ZERO RETURNS TO CHINESE CITY RUMORED TO BE REOPENING (BBG)

US TSYS: Underpinned In Asia

The impact from the minutes covering the most recent FOMC meeting continued to be felt after the Thanksgiving holiday, with Tsys underpinned during Tokyo dealing.

  • That leaves the major cash Tsy benchmarks running 3-6bp richer into London hours, with bull steepening apparent. TYZ2 deals just shy of the peak of its 0-06 range, last +0-11+ (vs. Wednesday’s settlement) at 113-10.
  • The impulse from a softer JGB complex in lieu of firmer than expected Tokyo CPI data provided a modest downtick for Tsys at one point, although the pressure was limited.
  • Elsewhere, continued focus falls on the COVID situation in China, with localised restrictions in some of the country’s major cities tightening this week, while the new daily COVID case count metric hit a fresh record high today. Speculation/expectation surrounding a potential RRR cut from the PBoC is elevated after Wednesday's State Council meeting guided towards such a move. Many expect the PBoC to act after local market hours on Friday.
  • ECB and Riksbank speak provides the highlights of the wider macro docket on Friday.
  • A quick reminder that cash Tsys and Tsy futures will be subjected to holiday-shortened trading hours ahead of the weekend.

JGBS: Off Lows But Comfortably Cheaper after Firm Tokyo CPI Data

The JGB space operates off of worst levels into the bell, but is still comfortably cheaper on the day.

  • Cash JGBs run little changed to ~4bp cheaper across the curve, with the early steepening giving way to 7s leading the weakness as futures remain heavy and the long end recovers from session lows, with life insurers and pension funds perhaps deploying capital after the passage of 40-Year JGB supply. Futures print ~40 ticks lower on the day ahead of the bell, operating a little off worst levels.
  • Firmer than expected Tokyo CPI data provided the initial catalyst for the move lower, while the soft cover ratio observed at the latest round of 40-Year JGB supply promoted an extension of the early steepening momentum during the early rounds of afternoon dealing.
  • There was also the potential for some delayed reaction to comments from Japanese Finance Minister Suzuki re: a desire to move away from short-term financing to factor into the steepening.
  • Weekly Japanese international security flow data from the MoF revealed that foreign investors deployed the second largest ever round of net weekly purchases of Japanese bonds last week. This was probably a mix of short covering and perhaps some deployment of capital owing to advantageous FX-hedged yield pickups on offer.
  • Note that the weekend will see BoJ Deputy Governor Amamiya appear at a meeting on monetary economics, while Monday’s domestic docket will be headlined by the latest round of BoJ Rinban operations.

JGBS AUCTION: 40-Year Auction Results

The Japanese Ministry of Finance (MOF) sells Y699.7bn 40-Year JGBs:

  • High Yield: 1.580% (prev. 1.520%)
  • Low Price: 83.06 (prev. 84.61)
  • % Allotted At High Yield: 1.7341% (prev. 85.7142%)
  • Bid/Cover: 2.355x (prev. 2.363x)

AUSSIE BONDS: Supply Dynamics & RBA Speak Eyed

ACGBs corrected from worst levels in the latter rounds of Sydney trade, with spill over from a bid in U.S. Tsys helping after the impulse from a heavier impending weekly AOFM issuance slate (which includes ACGB Mar-47 supply) and weakness in JGBs applied pressure during the first half of the Sydney session. That left YM -2.0 & XM -3.0 at the bell with cash ACGBS running 2.5-3.5bp cheaper across the curve.

  • Bills were flat to -3 through the reds, with light bear steepening in play. RBA dated OIS continue to price just over 20bp of tightening for next month’s RBA decision, with terminal cash rate pricing hovering around the 3.90% mark, as both measures operate within their recent ranges.
  • Looking ahead, RBA Governor Lowe’s latest appearance in Canberra headlines Monday’s domestic docket, with retail sales data and the aforementioned round of ACGGB Mar-47 supply also slated.
  • Next week’s domestic docket also includes monthly CPI data, building approvals, private sector credit, CoreLogic house price readings, housing finance data and the first round of Q3 GDP partials, which comes in the from of the capex print. Note that we will also hear from RBA’s Kearns, Head of the Bank’s domestic markets division, during the course of the week, via an appearance in front of the Australian Securitisation Conference.

AUSSIE BONDS: ACGB Apr-25 Auction Results

The Australian Office of Financial Management (AOFM) sells A$700mn of the 3.25% 21 April 2025 Bond, issue #TB139:

  • Average Yield: 3.1749% (prev. 3.6070%)
  • High Yield: 3.1775% (prev. 3.6100%)
  • Bid/Cover: 4.7386x (prev. 3.8500x)
  • Amount allotted at highest accepted yield as percentage of amount bid at that yield 46.5% (prev. 40.7%)
  • Bidders 45 (prev. 46), successful 17 (prev. 13), allocated in full 12 (prev. 8)

NZGBS: Twisting Flatter Into The Weekend

The cheapening witnessed in the wider core global FI space saw NZGBs soften as Friday’s session wore on, although the early twist flattening impulse held, with the major benchmarks running 6bp cheaper to 4bp richer, with a pivot observed around 7s.

  • Meanwhile, the swap curve saw rates run lower to unchanged, with a light steepening impulse seen. That left swap spreads a little tighter in the front end, but marginally wider further out.
  • RBNZ dated OIS continues to price just over 70bp of tightening for the RBNZ’s Feb ’23 meeting, with a terminal rate of just under 5.50% eyed. The recent repricing probably helped bias front end NZGBs lower, alongside the wider weakness in bonds.
  • Local data saw the ANZ consumer confidence reading hit the lowest level observed since June. The survey collator noted that “sharp increases in the cost of living and interest rates (not to mention falling house prices) are clearly hurting confidence, but excellent job security and strong wage growth have so far seen spending hold up far better than this level of confidence would normally imply. This dynamic is likely to be on borrowed time.”
  • Elsewhere, Q3 retail sales volume data was virtually in line with exp., rising by 0.4% Q/Q (the BBG survey median looked for a reading of +0.5%).
  • Next week’s domestic docket includes the ANZ business survey, building permits, terms of trade and CoreLogic house price data.

EQUITIES: Marginally Mixed In Asia

The major Asia-Pac equity indices recorded mixed performance on Friday, with Chinese property names continuing to benefit from sector-specific support and heightened expectations of imminent easing from the PBoC. That allowed the CSI 300 to register modest gains.

  • Elsewhere, HK tech names struggled in the wake of the recent impressive rally, with worry surrounding production for key Apple supplier Foxconn applying pressure. That left the Hang Seng in the red.
  • Still the major regional indices are set to finish somewhere between -/+1.0% on the day.
  • Elsewhere, e-minis looked to softer Tsy yields and a downtick in the USD for support, holding onto Thursday’s modest gains.

GOLD: Fed Minutes Fallout Continues To Support

A tick lower in the broader USD and some richening in the U.S. Tsy space has supported gold in the final Asia-Pac session of the week, putting bullion on track for a modest weekly gain. The yellow metal last prints a handful of dollars higher, just shy of $1,760/oz.

  • The post-FOMC minutes fallout continued to feed its way into price action after the U.S. Thanksgiving holiday.
  • Technically, short-term trend conditions in Gold remain bullish, however for now, the yellow metal remains in a corrective cycle. Recent gains resulted in the break of $1,729.5/oz, the Oct 4 high. This has strengthened a bullish theme and signals scope for a test of $1,800.0/oz, which protects key resistance at $1,807.9/oz, the Aug 10 high. Ahead of that zone, the bull trigger is located at $1,786.5/oz, the Nov 15 high. Initial firm support is seen at $1,702.3/oz, the Nov 9 low.

OIL: Drawing Support From USD Downtick, Still On Track For Third Weekly Loss

A softer USD has provided some support for crude oil in the final session of the week, although continued demand worry leaves the major oil benchmarks on track for a third consecutive weekly decline.

  • WTI and Brent futures sit $0.50 & $0.30 higher on the session, respectively.
  • Heightened worry re: the COVID situation has been a major headwind for crude bulls during the current week.
  • In the background, European officials remain locked in discussion re: the technicalities surrounding the proposed Russian oil price cap, with the relevant parties not appearing close to forming a consensus agreement.
  • Note that late on Thursday we saw the Iraqi and Saudi Arabian oil ministers stress commitment to continued collective action within the OPEC+ framework via a joint statement. The statement highlighted the potential for the group to take further action re: crude output levels, if required.

FOREX: DXY Remains On The Defensive

The post-Fed minutes downtick in the USD continued during Asia-Pac hours, with U.S. Tsys underpinned and continued focus on the seemingly impending slowing of Fed tightening evident. That left the greenback and the CHF at the bottom of the G10 FX pile in limited Asia-Pac dealing.

  • USD/JPY operates near unchanged levels after some potential gotobi demand and the bid in U.S. Tsys introduced two-way price action.
  • The NZD was an early underperformer, with soft NZD data applying some modest pressure to the kiwi, although that has faded.
  • USD/CNH briefly ticked higher, with another uptick in the new daily COVID case count in China supporting the pair, before a slightly firmer than expected CNY mid-point fixing and the downtick in the broader USD allowed the cross to move away from best levels.
  • USD/KRW more than reversed an early uptick that was a result of increased focus on the BoK nearing the end of its tightening cycle.
  • ECB & Riksbank speak headline the broader macro docket on Friday, with wider market liquidity set to be thinned as many U.S. participants opt to take an elongated weekend in lieu of Thursday’s Thanksgiving holiday (note that U.S. markets will be subjected to shortened operating hours ahead of the weekend).
  • A reminder that speculation/expectation surrounding a potential RRR cut from the PBoC is elevated after Wednesday's State Council meeting guided towards such a move. Many expect the PBoC to act after local market hours on Friday.

FX OPTIONS: Expiries for Nov25 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0190-00(E527mln), $1.0250(E740mln), $1.0380-00(E774mln)
  • USD/JPY: Y137.10($960mln) Y143.50-70($1.0bln)
  • GBP/USD: $1.1858(Gbp624mln)
  • EUR/GBP: Gbp0.8655(E878mln)
  • AUD/USD: $0.6700(A$655mln)
  • USD/CAD: C$1.3605-20($595mln)
  • USD/CNY: Cny7.1500($661mln)

UP TODAY (Times GMT/Local)


DateGMT/LocalImpactFlagCountryEvent
25/11/20220700/0800*DEGFK Consumer Climate
25/11/20220700/0800***DEGDP (f)
25/11/20220700/0800**SEPPI
25/11/20220745/0845**FRConsumer Sentiment
25/11/20220800/0900
ESPPI
25/11/20220900/1000**ITISTAT Consumer Confidence
25/11/20220900/1000**ITISTAT Business Confidence
25/11/20221330/0830**USWASDE Weekly Import/Export
25/11/20221600/1100
CAFinance Dept monthly Fiscal Monitor (expected)
27/11/2022-
AUVictoria State Election