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Yields Firm On Monday, Fed Meeting In View

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(H3) Weaker Into Friday Close

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MNI EUROPEAN OPEN: Familiar Matters Dominate In Japan, Wider Macro Matters Assessed

US TSYS: Little Changed In Muted Asian Session

TYH3 deals at 115-07+, +0-03, operating in a narrow 0-03 range on limited volume of ~30k.

  • Cash Tsys sit little changed across the major benchmarks.
  • Gyrations in JGBs set the tone through the Asian session, however with liquidity impaired due to Chinese and Australian holidays, there was little follow through in Tsys.
  • Macro headline flow was also scarce.
  • The space looked through 40-year JGB supply which passed smoothly.
  • There is a thin docket in Europe today. Further out we have a slew of data from the U.S. including Q4 GDP, new home sales and initial jobless claims. We also have the latest 7-Year Tsy supply.

JGBS: Mostly Firmer, BoJ Side Effects Continue To Ripple Through

JGB futures sit +9 ahead of the bell, after backing away from their post-auction Tokyo peak. The contract hasn’t threatened the boundaries of its recent range.

  • There was smooth takedown of the latest round of 40-Year JGB supply, which saw the high yield print below wider expectations, while the cover ratio nudged higher ticking above the 6-auction average. This allowed the super-long end to outperform, with benchmark JGB yields operating 1.5bp cheaper to 3.0bp richer, as 10s provide the only cheaper point on the curve.
  • Liquidity issues caused by the BoJ’s notable holdings and continued/upsized purchases are starting to have an even more far-reaching impact on JGBs, with JGBs maturing in Mar ’24 & Mar ’32 being removed from the FTSE Russell WGBI, with the Jun ’32 & Sep ’32 JGBs set to follow suit soon.
  • There was a Nikkei article which outlined the well-trodden view of the Japanese life insurer and pension fund community after last year’s cash repatriation and given elevated FX hedging costs.
  • Elsewhere, we had services PPI data (a modest downside outcome) and the previously covered summary of opinions from the most recent monetary policy decision (no surprises) crossed.
  • Looking ahead, Tokyo CPI data headlines tomorrow’s local docket.

NZGBS: Richening Creeps In Wake Of Well-Received Supply

NZGBs added to yesterday’s richening, running 3-5bp firmer across the curve, with yesterday’s bull steepening move extending.

  • Today’s local docket was headlined by the weekly NZGB auctions, covering NZGB-27, -33 & -51. Cover ratios of 1.4-4.8x were observed across the 3 lines, with the Apr-27 line seeing the strongest cover. The smooth to strong reception of the supply allowed NZGBs to richen after a muted start.
  • Swap rates were 5-6bp lower, leaving swap spreads flat to wider. 2-Year swaps hit a fresh YtD low, pulling further below 5.00%.
  • The major RBNZ dated OIS staging posts moved back to yesterday’s post-CPI lows, with just under 60bp of tightening priced for next month’s meeting, alongside pricing of a terminal OCR of ~5.30%.
  • Local headline flow has seen the YtD budget deficit print a touch narrower than expected, but that didn’t move the needle for the space.
  • Elsewhere, comments from new PM Hipkins stressed that labour shortages are the top issue facing businesses at present, not ruling out further moves in immigration policy.
  • The observance of a national holiday in Australia limited regional liquidity on Thursday, while the ongoing LNY holiday in China continues to remove a macro focal point from the broader Asia-Pac region.
  • Looking ahead, the monthly ANZ business survey headlines the domestic docket ahead of the weekend.
  • A reminder that Auckland is closed for a regional holiday on Monday, which will limit liquidity in NZ markets.

EQUITIES: Hang Seng Pushes Higher After LNY Break

Hong Kong returned from the LNY break observed in the city, reacting to the interim bid in U.S. tech stocks and positive signs re: Chinese consumer spending during the holiday period. That allowed the Hang Seng to add the best part of 2% as of typing.

  • Elsewhere, the Nikkei 225 was very limited, posting modest losses ahead of the close.
  • Meanwhile, holidays in mainland China, Australia and India sapped a notable amount of liquidity from the region.
  • E-minis were flat to 0.4% higher, with the NASDAQ 100 leading the way as the tech benchmark ticked higher in lieu of Tesla’s quarterly earnings.

GOLD: Tight Range As Gold Registers Fresh Cycle Highs

Gold consolidated recent gains in what was still holiday-thinned Asia-Pac dealing, managing to register a fresh cycle high in the process, while operating in a narrow range, last dealing little changed, just below the $1,950/oz mark.

  • This came as the broader USD also held to a narrow range, just above its recent cycle base, while U.S. Tsy yields were little changed.
  • Known ETF holdings of the yellow metal have ticked away from their cycle lows in recent days but remain well shy of their ’22 hig, which in itself is shy of the ’20 all-time peak.
  • Technically, trend conditions in gold remain bullish. The fresh cycle highs confirm an extension of the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies remain in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Conversely, support to watch lies at the 20-day EMA. Short-term pullbacks are considered corrective.

OIL: Coiling In Asia, Key Themes Assessed

WTI & Brent are essentially unchanged as we move towards London hours, with both holding tight ranges during the Asia-Pac session amid diminished liquidity owing to the ongoing LNY holiday in China and a national holiday in Australia.

  • That seemed to leave traders time to focus on the well-documented discussion points observed in the early weeks of ’23, namely the Chinese demand question and the Fed outlook, along with its feedthrough into the value of the USD.
  • Technically, key short-term resistance for WTI is located at $82.66, the Jan 18 high. Clearance of this hurdle would reinstate the recent bullish theme and expose $83.14, the Dec 1 high and $85.33, a Fibonacci retracement. On the downside, the support to watch lies at $78.45, the Jan 19 low. A break of this level would signal a potential reversal.

FOREX: Tight G-10 Ranges, USD Little Changed

There has been little in the way of meaningful moves in the Asian session. JPY and the Antipodeans are marginally outperforming, and the DXY is little changed.

  • Japan Dec PPI Services crossed the wires early in the session, the headline figure was a touch below estimates, however this is unlikely to move the needle for the BoJ.
  • BoJ's summary of opinions from the January monetary policy meeting was also on the wires. The comments reiterated themes observed previously, noting the need for continued easing as well as time to assess the impact of December's surprise YCC tweak.
  • JPY was stronger in early trade, however USD/JPY found support ahead of ¥129.00 before paring losses to sit ~0.2% softer.
  • AUD/USD firmed through the session, risk appetite grew after a bid in HK Equities, meeting resistance at yesterday's high. China's Xi wants to deepen cooperation with Australia reported Xinhua.
  • NZD/USD was range bound, dealing in a narrow $0.6470/90 range, also benefiting from the bid in the Hang Seng to recover off early lows.
  • EUR/USD is marginally softer than NY closing levels.
  • Lunar NY Holiday impacted liquidity in Asia-Pac hours, with China still out, while the observance of a national holiday in Australia sapped further liquidity from the timezone.
  • There is a thin calendar in Europe today. Further out we have a slew of U.S. data including Q4 GDP, new home sales and initial jobless claims.

FX OPTIONS: Expiries for Jan26 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.2100(E727mln), $1.2230-50(E625mln), $1.2300(E514mln)
  • USD/JPY: Y105.00($510mln)
  • AUD/USD: $0.7700-15(A$873mln-AUD puts)
  • USD/CNY: Cny6.4600($500mln)

UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
26/01/20230800/0900**SEEconomic Tendency Indicator
26/01/20230900/1000**ITISTAT Business Confidence
26/01/20230900/1000**ITISTAT Consumer Confidence
26/01/20231100/1100**UKCBI Distributive Trades
26/01/20231330/0830*CAPayroll employment
26/01/20231330/0830**USJobless Claims
26/01/20231330/0830**USWASDE Weekly Import/Export
26/01/20231330/0830**USdurable goods new orders
26/01/20231330/0830***USGDP (adv)
26/01/20231330/0830**USAdvance Trade, Advance Business Inventories
26/01/20231500/1000***USNew Home Sales
26/01/20231530/1030**USNatural Gas Stocks
26/01/20231600/1100**USKansas City Fed Manufacturing Index
26/01/20231630/1130**USUS Bill 04 Week Treasury Auction Result
26/01/20231630/1130*USUS Bill 08 Week Treasury Auction Result
26/01/20231800/1300**USUS Treasury Auction Result for 7 Year Note
27/01/20232350/0850**JPTokyo CPI
Keep reading...Show less
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US TSYS: Little Changed In Muted Asian Session

TYH3 deals at 115-07+, +0-03, operating in a narrow 0-03 range on limited volume of ~30k.

  • Cash Tsys sit little changed across the major benchmarks.
  • Gyrations in JGBs set the tone through the Asian session, however with liquidity impaired due to Chinese and Australian holidays, there was little follow through in Tsys.
  • Macro headline flow was also scarce.
  • The space looked through 40-year JGB supply which passed smoothly.
  • There is a thin docket in Europe today. Further out we have a slew of data from the U.S. including Q4 GDP, new home sales and initial jobless claims. We also have the latest 7-Year Tsy supply.

JGBS: Mostly Firmer, BoJ Side Effects Continue To Ripple Through

JGB futures sit +9 ahead of the bell, after backing away from their post-auction Tokyo peak. The contract hasn’t threatened the boundaries of its recent range.

  • There was smooth takedown of the latest round of 40-Year JGB supply, which saw the high yield print below wider expectations, while the cover ratio nudged higher ticking above the 6-auction average. This allowed the super-long end to outperform, with benchmark JGB yields operating 1.5bp cheaper to 3.0bp richer, as 10s provide the only cheaper point on the curve.
  • Liquidity issues caused by the BoJ’s notable holdings and continued/upsized purchases are starting to have an even more far-reaching impact on JGBs, with JGBs maturing in Mar ’24 & Mar ’32 being removed from the FTSE Russell WGBI, with the Jun ’32 & Sep ’32 JGBs set to follow suit soon.
  • There was a Nikkei article which outlined the well-trodden view of the Japanese life insurer and pension fund community after last year’s cash repatriation and given elevated FX hedging costs.
  • Elsewhere, we had services PPI data (a modest downside outcome) and the previously covered summary of opinions from the most recent monetary policy decision (no surprises) crossed.
  • Looking ahead, Tokyo CPI data headlines tomorrow’s local docket.

NZGBS: Richening Creeps In Wake Of Well-Received Supply

NZGBs added to yesterday’s richening, running 3-5bp firmer across the curve, with yesterday’s bull steepening move extending.

  • Today’s local docket was headlined by the weekly NZGB auctions, covering NZGB-27, -33 & -51. Cover ratios of 1.4-4.8x were observed across the 3 lines, with the Apr-27 line seeing the strongest cover. The smooth to strong reception of the supply allowed NZGBs to richen after a muted start.
  • Swap rates were 5-6bp lower, leaving swap spreads flat to wider. 2-Year swaps hit a fresh YtD low, pulling further below 5.00%.
  • The major RBNZ dated OIS staging posts moved back to yesterday’s post-CPI lows, with just under 60bp of tightening priced for next month’s meeting, alongside pricing of a terminal OCR of ~5.30%.
  • Local headline flow has seen the YtD budget deficit print a touch narrower than expected, but that didn’t move the needle for the space.
  • Elsewhere, comments from new PM Hipkins stressed that labour shortages are the top issue facing businesses at present, not ruling out further moves in immigration policy.
  • The observance of a national holiday in Australia limited regional liquidity on Thursday, while the ongoing LNY holiday in China continues to remove a macro focal point from the broader Asia-Pac region.
  • Looking ahead, the monthly ANZ business survey headlines the domestic docket ahead of the weekend.
  • A reminder that Auckland is closed for a regional holiday on Monday, which will limit liquidity in NZ markets.

EQUITIES: Hang Seng Pushes Higher After LNY Break

Hong Kong returned from the LNY break observed in the city, reacting to the interim bid in U.S. tech stocks and positive signs re: Chinese consumer spending during the holiday period. That allowed the Hang Seng to add the best part of 2% as of typing.

  • Elsewhere, the Nikkei 225 was very limited, posting modest losses ahead of the close.
  • Meanwhile, holidays in mainland China, Australia and India sapped a notable amount of liquidity from the region.
  • E-minis were flat to 0.4% higher, with the NASDAQ 100 leading the way as the tech benchmark ticked higher in lieu of Tesla’s quarterly earnings.

GOLD: Tight Range As Gold Registers Fresh Cycle Highs

Gold consolidated recent gains in what was still holiday-thinned Asia-Pac dealing, managing to register a fresh cycle high in the process, while operating in a narrow range, last dealing little changed, just below the $1,950/oz mark.

  • This came as the broader USD also held to a narrow range, just above its recent cycle base, while U.S. Tsy yields were little changed.
  • Known ETF holdings of the yellow metal have ticked away from their cycle lows in recent days but remain well shy of their ’22 hig, which in itself is shy of the ’20 all-time peak.
  • Technically, trend conditions in gold remain bullish. The fresh cycle highs confirm an extension of the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies remain in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Conversely, support to watch lies at the 20-day EMA. Short-term pullbacks are considered corrective.

OIL: Coiling In Asia, Key Themes Assessed

WTI & Brent are essentially unchanged as we move towards London hours, with both holding tight ranges during the Asia-Pac session amid diminished liquidity owing to the ongoing LNY holiday in China and a national holiday in Australia.

  • That seemed to leave traders time to focus on the well-documented discussion points observed in the early weeks of ’23, namely the Chinese demand question and the Fed outlook, along with its feedthrough into the value of the USD.
  • Technically, key short-term resistance for WTI is located at $82.66, the Jan 18 high. Clearance of this hurdle would reinstate the recent bullish theme and expose $83.14, the Dec 1 high and $85.33, a Fibonacci retracement. On the downside, the support to watch lies at $78.45, the Jan 19 low. A break of this level would signal a potential reversal.

FOREX: Tight G-10 Ranges, USD Little Changed

There has been little in the way of meaningful moves in the Asian session. JPY and the Antipodeans are marginally outperforming, and the DXY is little changed.

  • Japan Dec PPI Services crossed the wires early in the session, the headline figure was a touch below estimates, however this is unlikely to move the needle for the BoJ.
  • BoJ's summary of opinions from the January monetary policy meeting was also on the wires. The comments reiterated themes observed previously, noting the need for continued easing as well as time to assess the impact of December's surprise YCC tweak.
  • JPY was stronger in early trade, however USD/JPY found support ahead of ¥129.00 before paring losses to sit ~0.2% softer.
  • AUD/USD firmed through the session, risk appetite grew after a bid in HK Equities, meeting resistance at yesterday's high. China's Xi wants to deepen cooperation with Australia reported Xinhua.
  • NZD/USD was range bound, dealing in a narrow $0.6470/90 range, also benefiting from the bid in the Hang Seng to recover off early lows.
  • EUR/USD is marginally softer than NY closing levels.
  • Lunar NY Holiday impacted liquidity in Asia-Pac hours, with China still out, while the observance of a national holiday in Australia sapped further liquidity from the timezone.
  • There is a thin calendar in Europe today. Further out we have a slew of U.S. data including Q4 GDP, new home sales and initial jobless claims.

FX OPTIONS: Expiries for Jan26 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.2100(E727mln), $1.2230-50(E625mln), $1.2300(E514mln)
  • USD/JPY: Y105.00($510mln)
  • AUD/USD: $0.7700-15(A$873mln-AUD puts)
  • USD/CNY: Cny6.4600($500mln)

UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
26/01/20230800/0900**SEEconomic Tendency Indicator
26/01/20230900/1000**ITISTAT Business Confidence
26/01/20230900/1000**ITISTAT Consumer Confidence
26/01/20231100/1100**UKCBI Distributive Trades
26/01/20231330/0830*CAPayroll employment
26/01/20231330/0830**USJobless Claims
26/01/20231330/0830**USWASDE Weekly Import/Export
26/01/20231330/0830**USdurable goods new orders
26/01/20231330/0830***USGDP (adv)
26/01/20231330/0830**USAdvance Trade, Advance Business Inventories
26/01/20231500/1000***USNew Home Sales
26/01/20231530/1030**USNatural Gas Stocks
26/01/20231600/1100**USKansas City Fed Manufacturing Index
26/01/20231630/1130**USUS Bill 04 Week Treasury Auction Result
26/01/20231630/1130*USUS Bill 08 Week Treasury Auction Result
26/01/20231800/1300**USUS Treasury Auction Result for 7 Year Note
27/01/20232350/0850**JPTokyo CPI
Keep reading...Show less