MNI EUROPEAN OPEN: European CBs Point To Need For Continued Tightening

SNAPSHOT: European CBs Point To Need For Continued Tightening

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

• Nikkei 225 up 51.04 points at 28013.71
• ASX 200 down 4.743 points at 7139.4
• Shanghai Comp. up 47.622 points at 3122.576
• JGB 10-Yr future up 12 ticks at 149.37, yield up 0.4bp at 0.247%
• Aussie 10-Yr future up 1.5 ticks at 96.235, yield down 1.3bp at 3.756%
• U.S. 10-Yr future down 0-02+ at 112-01+, yield up 1.69bp at 3.8724%
• WTI crude down $0.47 at $85.36, Gold up $1.76 at $1770.76
• USD/JPY up 36 pips at Y140.42
• FED MAY SLOW PACE OF RATE HIKES SOON: BRAINARD
• ECB WILL WARN OF MARKET CORRECTION RISK THIS WEEK, GUINDOS SAYS (BBG)
• ECB WILL PROBABLY KEEP RAISING RATES BEYOND 2% LEVEL – VILLEROY (RTRS)
• ‘LEAVE IT TO MARKET:’ RBA BACKFLIPS ON GUIDANCE AFTER CRITICISM (BBG)
• SWISS NATIONAL BANK CHAIRMAN FLAGS HIGH PROBABILITY OF RATE RISE (RTRS)
• CHINESE ECONOMIC ACTIVITY DATA DISAPPOINTS
• PBOC TWEAKS LIQUIDITY APPROACH
• G-20 DIPLOMATS AGREE ON DRAFT STATEMENT DESPITE RIFTS ON RUSSIA (BBG)

US TSYS: Block Flow Applies Light Pressure Overnight

Cash Tsys run 0.5-2.0bp cheaper across the curve into London hours. Meanwhile, TYZ2 sits -0-02 at 112-02, 0-01+ off the base of a narrow 0-06+ range.

• Ranges were contained, with a modest bid linked to a slight tweak in liquidity focus from the PBoC unwound. The light cheapening was aided by block sales in TY futures (-5K & -~3.8K).
• G20-related communique, including comments from Chinese President Xi & source reports pointing to continued differences re: the Russia-Ukraine war, albeit with a draft statement seemingly in the offing, failed to provide any meaningful impetus from the space.
• The same held true for softer than expected monthly economic activity data out of China.
• Finally, there were no headlines released surrounding the latest appearance from NY Fed President Williams, who moderated a panel at the Economic Club.
• PPI data, the Empire m’fing survey and Fedspeak from Cook, Barr & Harker will cross in NY hours on Tuesday.

JGBS: Long End Supported By Soft GDP Data

Cash JGBs run ~1bp cheaper to 3.5bp richer as the curve twist flattens.

• JGB futures added to their modest overnight bid, which was linked to the post-Tokyo move in U.S. Tsys and some Monday richening in the likes of the German FI market, with softer than expected domestic GDP data providing further support.
• That left the contract +17 into the bell, just shy of early session highs.
• The bid in the long end was relatively sticky, also linked to the previously outlined moves in the wider core global space in post-Tokyo Monday trade and the soft domestic data.
• Headlines covering comments from Japanese Economy Minister Nishimura & BoJ Governor Kuroda were not market movers.
• 5-Year JGB supply was fairly non-descript, with average internal metrics observed.
• Looking ahead, Wednesday will see the release of core machine orders data.

JGBS AUCTION: 5-Year JGB Auction Results

The Japanese Ministry of Finance (MOF) sells Y2.0308tn 5-Year JGBs:

• Average Yield: 0.060% (prev. 0.081%)
• Average Price: 100.19 (prev. 100.09)
• High Yield: 0.064% (prev. 0.083%)
• Low Price: 100.17 (prev. 100.08)
• % Allotted At High Yield: 80.1910% (prev. 21.5292%)
• Bid/Cover: 3.306x (prev. 3.993x)

AUSSIE BONDS: Curve Twist Flattens, After Downtick From Early Highs

YM finished -2.0, with XM +0.5 at the bell, as the wider ACGB curve twist flattened, with a pivot around 10s.

• It seemed that the ACGB space struggled on the back of spill over from (limited) weakness in different bond markets during Wednesday’s Sydney session, which manifested into some ACGB underperformance on the day.
• Some trans-Tasman weakness, linked to NZGB supply, provided weakness in the early rounds of Sydney dealing, with a subsequent post-syndication rally in NZGBs doing little for the space.
• This saw ACGBs pull away from early session highs linked to overnight session moves in futures/Monday’s light post-Sydney bid in U.S. Tsys.
• Some modest cheapening in U.S. Tsys then applied some light pressure.
• In local news, RBA communique included the minutes from the latest monetary policy meeting, which failed to provide anything fresh and meaningful owing to post-meeting appearances from Governor Lowe & Deputy Governor Bullock.
• We also got the Bank’s review of its forward guidance scheme, which pointed to a preference towards a more qualitative brand of forward guidance, when appropriate, in the RBA’s future.
• Bills were -2 to +1 through the reds, twist flattening.
• Wednesday’s docket will see the release of Q3 WPI data, the Westpac leading index & A$900mn of ACGB Nov-33 supply.

NZGBS: Early NZGB Cheapening More Than Reversed As Supply Goes Well

NZGBs finished 4.5-6.5bp richer across the curve, with swap spreads running mixed as longer dated swap spreads tightened and shorter dated swap spreads ran flat to a touch wider.

• The early cheapening in the space more than reversed as the pressure from the pricing of the green NZGB May-34 syndication ebbed, with the amount issued at the top end of the pre-prescribed range, while pricing was at the tighter end of the initial guidance. Most of the paper went offshore (56%), with a relatively even split allotted to Australia, Europe & North America (16-17% apiece).
• Solid demand at the auction and the removal of supply-related pressure seemed to underpin the space through the remainder of the day, even as core global FI moved off firmest levels of the session.
• Long end receiver side flow in swaps would have aided the bid further.
• Local news flow saw REINZ house price data pull lower as the housing market continues to adjust to the rapidly increasing interest rate environment.
• Elsewhere, there wasn’t much to flag in the way of movement surrounding household inflation expectations data released by the RBNZ.
• RBNZ dated OIS pricing of the terminal OCR remained little changed on the day, hovering a little shy of 5.10%, with a steady ~65bp of tightening priced for next week’s RBNZ gathering.
• Non-resident bond holdings data headlines the domestic docket on Wednesday.

EQUITIES: China/HK Sentiment Continues To Recover

The focus remains on China/HK trends, which have remained positive today, despite weaker October activity data for China. Trends elsewhere have been more mixed, although losses haven't been large in markets which are down. US futures have mostly tracked higher (+0.40/+0.60%) for the major indices, offsetting part of the negative lead from overnight.

• The HSI is up over 3.5% at this stage, now clear of the 18000 level, while the tech sub-index is +8%. Developer, Country Garden, has weighed, with shares in the company down sharply, after announcing it will place shares to raise funds for offshore debt payments.
• Still, the Shanghai property sub-index is still up a further 1.12%, the 8th straight session of gains. The CSI 300 is +1.47% at this stage.
• Some thawing in tensions between the US and China, post the meeting between the two presidents late yesterday in Bali, has likely aided broader sentiment. October activity data was weaker across the board, but hasn't impacted market sentiment too much.
• The Taiex is up 2.4%, led by TSMC gains, as it was revealed Berkshire Hathaway added shares of the company during Q3. The Kospi has been around flat levels for most of the session.
• The ASX 200 is down smalls (-0.1%), but is away from worst levels as better HK/China equity sentiment spilled over this afternoon.

OIL: Prices Range Bound Close To November Lows, IEA Report Published Later

Oil prices have been trading in a very narrow range close to the November lows after falling over 3% overnight. Supply concerns are currently slightly outweighing tight supply as there has been little additional energy news. WTI has traded between $85-$86/bbl and is now just under $85.50 while Brent’s range has been $92.50-$93.50 and is now about $92.90.

• The weaker-than-expected October economic data out of China plus a growing number of Covid infections weighed on sentiment in the oil market today.
• News had not been good for either supply and demand with OPEC revising down oil demand expectations again for Q4, while for the first time in 2 years, the US fracked fewer wells than they had drilled. (Bloomberg)
• The International Energy Agency publishes its Oil Market Report for November later and any material change to its supply and demand forecasts could move the market. US API inventory data is also published tonight. Last week it showed a 5.6mn barrel inventory build.

GOLD: Holding Near Recent Highs

Gold is holding near recent highs, last close to $1771, down slightly on NY closing levels ($1771.40). Upside impetus has been curbed to a degree by slightly firmer USD levels, although this is mostly evident against JPY at this stage.

• The precious metal has had very modest changes in recent sessions, largely sticking to a $1750/$1775 range, although the bias appears more to the upside rather than the downside.
• Gold continues to outperform US real yields, but is generally moving in line with USD momentum from a trend standpoint.
• Note we are already through the 200-day EMA ($1760.05), but the simple 200-day MA comes in at $1803.90, which like remains an upside target for bulls.

FOREX: Yen Goes Offered On Japan's Surprise GDP Contraction, Uptick In U.S. Tsy Yields

The yen was the worst G10 performer after preliminary data showed a surprise contraction in the Japanese economy, with higher U.S. Tsy yields adding pressure to Asia's main safe haven currency. Gotobi Day flows may have exacerbated JPY weakness.

• Japan's economy shrank 1.2% Y/Y in Q3 versus expectations of a 1.2% growth, according to preliminary data from the Cabinet Office, as the historic yen sell-off sent import costs soaring. The yen was unfazed in the first minutes after the release, but weakened gradually as the session progressed.
• U.S. Tsy yields sit 0.6-1.5bp higher at typing, with 10-year U.S./Japan yield spread 1bp wider as a result. Expectations of continued tightening from the Fed stands in contrast with the BoJ's ultra-dovish resolve.
• Offshore yuan showed a limited reaction to a slew of China's economic activity indicators, which were broadly weaker than forecast. CNY fixing bias was closed to neutral today, with the reference rate set just shy of the expected level.
• The kiwi dollar caught a bid on the back of better risk sentiment, with U.S. e-minis and Chinese/HK benchmarks tracking higher. AUD/NZD traded on a heavier footing, ignoring a round trip in Australia/New Zealand 2-year swap spread.
• There's a wealth of economic data coming up after Asia hours, including flash EZ GDP, German ZEW Survey, UK unemployment, Swedish CPI, as well as U.S. Empire M'fing & PPI. Comments are due from Fed's Barr, Cook & Harker, ECB's Villeroy & Elderson, as well as Riksbank's Floden.

FX OPTIONS: Expiries for Nov15 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9935-55(E1.2bln), $1.0075(E844mln), $1.0175-00(E1.2bln)
• USD/JPY: Y139.00($500mln), Y140.00($663mln)
• AUD/NZD: N$1.1000(A$511mln)
• USD/CNY: Cny7.0000($1.1bln)