MNI EUROPEAN OPEN: Continued Talk Of Step Down To 25bp Hikes At The Fed

US TSYS: Richer In Asia, TYH3 Deals Through 200-DMA

TYH3 deals at 116-06, +0-09, marginally off the top of its 0-13+ range on elevated volume of 133K.

• Cash Tsys are 4-5bps richer across the major benchmarks, the belly is marginally outperforming.
• Spillover from bids in ACGBs, in lieu of softer than expected Australian labor market data, and JGBs, as post-BOJ positioning dominated in Tokyo, supported Tsys in early trade.
• Tsys firmed further as technical flows came into play, TYH3 dealt through overnight highs and its 200-DMA, as 10K of screen lifts helped the extension. 5-, 7- and 20-Year yields also showed below their own 200-DMAs.
• A smoothly digested 20-Year JGB auction aided the bid at the margins.
• ECBs Lagarde's speech at the WEF headlines the European session, while the Norges Bank monetary policy decision is also on the wires. Further out we have U.S. housing starts, weekly jobless claims and the latest Philly Fed survey. There is Fedspeak from Boston Fed President Collins and Fed VC Brainard, as well as the latest 10-Year TIPS supply.

JGBS: Firmer, Led By Futures

The super-long end of the JGB curve pared its morning losses and now sits flat to richer on the day in the wake of a well-received round of 20-Year JGB supply (see our earlier bullet for more colour on that matter). That leaves the major JGB benchmarks running flat to 5bp richer across the curve, with intermediates and futures operating a little off their Tokyo morning peak, and the super-long end lagging the bid which has been driven by futures.

• Futures failed to test yesterday’s post-BoJ spike high.
• Swap rates are lower across the curve, shedding 2-7bp, with 10s leading the move as swap spreads tighten.
• On the wage front the latest RTRS survey revealed that “more than half of Japanese companies are planning to raise wages this year” with ”24% of the companies polled said they planned on across-the-board bumps in base salary along with regularly scheduled wage increases. Another 29% said they would carry out regular pay increases only, while 38% were undecided.”
• Local headline flow saw reports of China partially resuming work visa issuance for Japan.
• Looking ahead, CPI data and the latest round of BoJ Rinban operations headline Friday’s domestic docket.

JGBS AUCTION: 20-Year JGB Auction Results

The Japanese Ministry of Finance (MOF) sells Y969.1bn 20-Year JGBs:

• Average Yield: 1.341% (prev. 1.088%)
• Average Price: 100.92 (prev. 100.18)
• High Yield: 1.342% (prev. 1.103%)
• Low Price: 100.90 (prev. 99.95)
• % Allotted At High Yield: 92.3846% (prev. 81.4814%)
• Bid/Cover: 3.365x (prev. 2.903x)

JGBS AUCTION: 12-Month Bill Auction Results

The Japanese Ministry of Finance (MOF) sells Y2.84296tn 12-Month Bills:

• Average Yield: -0.0616% (prev. -0.0649%)
• Average Price: 100.062 (prev. 100.065)
• High Yield: -0.0318% (prev. -0.0449%)
• Low Price: 100.032 (prev. 100.045)
• % Allotted At High Yield: 50.5907% (prev. 32.1904%)
• Bid/Cover: 4.396x (prev. 2.706x)

AUSSIE BONDS: Firmer On Global & Domestic Matters, RBA Hike Pricing Moderates

Softer than expected domestic labour market data allowed ACGBs to build on their overnight bid that was derived from soft U.S. data and post-BoJ spill over, with a subsequent round of richening providing further legs to the rally as the Sydney day wore on.

• That left YM +21.0 & XM +23.0 at the close, a little shy of their respective session highs, with the impressive run of early year richening gathering further steam. YM broke above its December peak, allowing bulls to look to the August peak, while XM failed to better its own Dec peak, which presents the immediate point of technical resistance. Cash ACGBs were 17-23bp richer across the curve, with the belly leading the bid.
• Bills finished 11-24bp richer through the reds, as the strip flattened. RBA dated OIS came in on the above mix of factors, with 16bp of tightening now showing for the Feb ’23 meeting, alongside terminal OCR pricing of 3.54%.
• The labour market data saw an unexpected fall in headline employment, while the unemployment rate was actually steady after November’s reading was marked 0.1ppt higher. Note that the fall in unemployment was a product of a move in part-time employment, with illness having a notable impact on hours worked. We don’t think that the release is a game changer for the RBA in isolation, given still elevated vacancy levels and the continued depiction of a very tight labour market.
• Friday’s local docket is empty.

NZGBS: Firmer On The day On Global Cues, Belly Leads The Bid

The wider global core FI dynamics supported NZGBs, allowing them to build on their early richening (which was linked to post-BoJ moves and soft U.S. data).

• That left the major cash NZGB benchmarks 13-18bp richer at the close, with the belly of the curve outperforming and the wings lagging.
• Swap rates were 11-16bp lower as that curve flattened, leaving swap spreads wider in the main.
• RBNZ dated OIS came in at the margins on the global forces, showing just over 60bp of tightening for next month’s meeting, alongside a terminal OCR of 5.40%.
• New Zealand Prime Minister Ardern announced that she will be stepping down as leader of the Labour Party by 7 February, tendering her resignation as Prime Minister. Labour will vote on party leadership on 22 January. She also noted that the next election will be held on 14 October.
• The latest M/M food price print revealed a 1.1% move higher in December, with domestic inflationary pressures already well documented.
• Today’s NZGB supply went smoothly to well, with cover ratios of 1.7-3.5x observed.
• Non-resident NZGB holdings moved to the highest proportion observed since ’17 in December.
• Friday’s domestic docket is headlined by the latest manufacturing PMI print.

EQUITIES: Japan Markets Weaken, China/HK Dips Supported

Asia Pac equities are a mixed bag. Japan bourses are noticeably weaker, unwinding some of the recent gains. China/HK equities started weaker, but are back in positive territory now. US futures remain in the red back are away from lows for the session, with more focus on the continued pull back in US yields.

• The Nikkei 225 is tracking around 1.5% lower at this stage. This is in line with a firmer JPY, which has rallied beyond pre-BoJ levels. We were 3.75% higher over the last two sessions, so this is only giving back some of those gains.
• The HSI was down 1.5% in early trade, as tech sold off 2.5%, but is now back in positive territory. A health briefing will be held later. HK will end quarantine for covid cases from Jan 30.
• The CSI 300 is +0.20% currently, around highs for the session. The index looks to be consolidating ahead of the LNY holiday period after breaking higher late last week/earlier this week.
• Elsewhere the Kospi is modestly firmer, +0.25%, despite negative tech leads from the US session on Wednesday. Offshore investors have added +$197.9mn to local equities today.
• The ASX 200 is up 0.50%, despite softer employment data locally. Bank stocks are higher, with some optimism we are getting closer to the end of the hiking cycle.

GOLD: Bullion Higher Today, Dips Holding Above $1900/oz

Gold prices are up 0.3% during the APAC session to around $1909.30/oz, close to the intraday high but below Wednesday’s high of $1925.895. Bullion fell after hawkish Fed comments offset the impact of soft data on the USD but has recovered somewhat today on a slightly weaker dollar.

• Gold is holding above $1900 and remains in a bullish trend with higher highs and higher lows after it traded at a new trend high earlier this week. Today’s low was $1901.04 after Wednesday’s $1908.69.

OIL: Crude Down Further On US Recession Fears, Increased Stocks

The oil market has returned to being concerned about global growth after Wednesday’s US data was weaker than expected and Fed speakers came out hawkish. WTI is down a further 1.5% during the APAC session to around $78.25/bbl, close to the intraday low and the lowest since Friday.

• Brent is also trading close to its intraday low at around $83.88/bbl and down 1.3% from the NY close. It broke through the bull trigger at $87.00 on Wednesday affirming the bullish theme and opening up $89.18, the December 1 high. WTI also cleared its bull trigger and opened up $83.27.
• The IEA noted that in Q1 2023 supply is expected to exceed demand by about 1mbd but as China drives a pickup in demand over the rest of the year the outlook should improve. But a tightening of the market could drive prices sharply higher if there any supply issues. Russian output remains a significant uncertainty.
• API reported a 7.6mn crude inventory build in the US after +14.865mn the previous week. Rising stocks have also been weighing on prices. The EIA reports it inventory data later.

FOREX: USD Slips On Lower Yields, JPY Outperforming

The USD has lost some momentum, with lower US cash Tsy yields hurting sentiment. Yields are off 4-5bps across the curve. This continues trends from the US session, with the 10yr yield off 22bps since Tuesday’s NY close. Gains against the USD haven't been uniform though, with the AUD still struggling for upside traction.

• Yen has been the main beneficiary of lower US yields, with USD/JPY currently close to session lows at 129.20/25 (we touched 128.16 earlier). Focus remains on yesterday's NY low close to 127.60, while the bear trigger in the low 127.20 region waits beyond that.
• Equity sentiment has improved somewhat, although US futures are still in the red. HK/China chares have recovered from earlier lows, now sitting back in positive territory.
• These moves haven't aided the AUD, which is down over 0.5% to the low 0.6900 region following disappointing jobs data. A large (>$2bn) option expiry tomorrow at 0.6900 may also be influencing spot. Despite the move lower in US yields, AU-US yield differentials are generally moving against the AUD.
• NZD/USD has been dragged lower, but remains above 0.6400 (last 0.6425). EUR/USD is a touch higher, tracking above 1.0800 currently.
• Looking ahead, US building permits and housing starts plus jobless claims and the Philly manufacturing survey are published. ECB’s Lagarde is also scheduled to speak.

FX OPTIONS: Expiries for Jan19 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0550(E548mln), $1.0635-55(E1.7bln), $1.0800-20(E1.3bln), $1.0980(E519mln)
• USD/JPY: Y127.95-14($3.0bln), Y128.50($1.4bln), Y130.00($1.3bln), Y131.00-10($1.1bln), Y132.00($2.6bln)
• EUR/JPY: Y140.00(E1.6bln)
• GBP/USD: $1.2100-20(Gbp741mln)
• USD/CNY: Cny6.5900($1.3bln), Cny6.7000($1.5bln), Cny6.7500($931mln)