MNI EUROPEAN OPEN: Post-Fed Central Bank Deluge On Deck

SNAPSHOT: Post-Fed Central Bank Deluge On Deck

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

• Nikkei 225 down 110.84 points at 28045.9
• ASX 200 down 46.502 points at 7204.8
• Shanghai Comp. down 11.487 points at 3164.747
• JGB 10-Yr future down 18 ticks at 148.02, yield up 0.1bp at 0.253%
• Aussie 10-Yr future down 9.2 ticks at 96.5320, yield up 9.4bp at 3.457%
• U.S. 10-Yr future up 0-01+ at 114-24+, yield up 1.64bp at 3.4938%
• WTI crude down $0.71 at $76.57, Gold down $15.44 at $1791.95
• USD/JPY up 25 pips at Y135.73
• FED HIKES RATES BY 50BPS, SEES END-2023 RATE AT 5.1% (MNI)
• SCHOLZ ON SOVEREIGNTY FUND: USE MONEY FROM EXISTING PACKAGES FIRST (RTRS)
• HUNT LOOKS AT PROLONGING ENERGY AID FOR ALL COMPANIES (FT)
• CHINA’S COVID DEATH TOLL COULD TOP 2 MILLION, HK STUDY SHOWS (BBG)
• U.S. TO REMOVE SOME CHINESE ENTITIES FROM RED FLAG LIST SOON, U.S. OFFICIAL SAYS (RTRS)
• TC ENERGY RESTARTS PART OF KEYSTONE OIL PIPELINE AFTER SPILL (BBG)

US TSYS: Off Session Lows As Curve Twist Flattens

TYH3 deals at 114-25+, +0-02+, after ticking away from the base of its 0-11 overnight range, operating on volume of ~73K.

• Cash Tsys are 3.0bp cheaper to 1.5bp richer across the major benchmarks, with the curve twist flattening, pivoting around 20s.
• Early Asia dealing saw regional participants exhibit a willingness to fade the richening observed during Fed Chair Powell’s post-FOMC meeting press conference.
• Cheapening then extended as cross-market impact from the Antipodean rates space was felt, as both ACGBs and NZGBs softened on stronger than expected local data, before Tsys then moved away from session lows through the Asian afternoon.
• The space looked through weaker than expected monthly economic data from China, with more focus on the recent alterations in China’s COVID-related reactions.
• A block seller of FV futures headlined on the flow side (-1.7K).
• Fed dated OIS price ~32bp of tightening for the Feb ’23 meeting and a terminal rate of just under 4.90%, shy of the ~5.10% seen in the Fed’s latest dot plot.
• In Europe today we have the ECB, BOE and SNB rate decisions. Further out there is a slew of U.S. data including retail sales, TIC flows, business inventories, Empire M’fing survey, initial jobless claims and industrial production.

JGBS: 20s Struggle In Wake Of Poorly Received Supply

JGB futures consolidated their overnight losses in Tokyo dealing, with the cash space playing catch up to the post-Tokyo weakness, which was linked to the latest news wire source reports surrounding the potential for a BoJ policy framework review in the post-Kuroda era (that we have documented elsewhere).

• There was a soft reception for the latest round of 20-Year JGB supply, which saw the low price, and indeed the average price, miss wider dealer expectations, with the cover ratio nudging further below the 6-auction average.
• A combination of spill over from the core global FI price action during the Tokyo lunch break and the weak auction details applied pressure to JGB futures in early afternoon trade, although the overnight lows in futures were not tested on the move. 20s cheapened on the curve.
• The space then regained some poise into the close, leaving futures -20 at the bell, while cash JGBs were little changed to 4bp cheaper, with 20s providing the weakest point, both pre- and post-supply.
• In domestic news flow we saw continued rumours surrounding tax tweaks to fund Japan’s increased defence spending, but this was inconsequential for markets, with the broader tax category alterations already highlighted by policymakers.
• Looking ahead, Friday’s local docket will be headlined by flash PMI readings.

JGBS AUCTION: 20-Year JGB Auction Results

The Japanese Ministry of Finance (MOF) sells Y983.1bn 20-Year JGBs:

• Average Yield: 1.088% (prev. 1.029%)
• Average Price: 100.18 (prev. 101.16)
• High Yield: 1.103% (prev. 1.039%)
• Low Price: 99.95 (prev. 101.00)
• % Allotted At High Yield: 81.4814% (prev. 22.0618%)
• Bid/Cover: 2.903x (prev. 3.035x)

AUSSIE BONDS: Labour Market & Offshore Matters Apply Pressure

The combination of a firmer than expected domestic labour market data, trans-Tasman impetus from a blockbuster NZ GDP release and payside swap flow-derived pressure weighed on ACGBs during the post-FOMC Sydney session, leaving YM -7.0 & XM -9.2 at the close, below their respective overnight session bases. Cash ACGBs were 7-10bp cheaper across the curve, with bear steepening in play.

• There was some widening of the AU/U.S. 10-Year yield spread, which moved back towards parity, closing around the -5bp mark.
• Bills finished 8-14bp cheaper on the day, with the back end of the whites and front end of the reds underperforming.
• This came as market pricing re: RBA tightening shifted higher, with RBA dated OIS now pricing ~19bp of tightening for the Feb ’23 meeting, alongside a terminal cash rate of just under 3.80%.
• EFPs were wider against this backdrop.
• Note that we saw a moderation in the monthly consumer inflation expectations print, which pared back to 5.2% from 6.0% (over a 1-Year horizon).
• Flash S&P Global PMI data headlines the local docket on Friday.

NZGBS: Pressured As GDP Hawkishly Reshapes RBNZ Pricing

NZGB yields shifted higher on Thursday, with NZ GDP data, regional reaction to the FOMC meeting and some trans-Tasman impetus in lieu of a firm round of Australian labour market data all applying pressure at different points in the day.

• That left the major cash NZGB benchmarks 14.5-16.5bp cheaper across the curve at the close, with the wings leading the weakness.
• Swap rates were 13-16bp higher across that curve, with some flattening apparent, leaving swap spreads little changed to a touch narrower.
• This came as RBNZ dated OIS shunted higher, to virtually fully price a 75bp hike at the Feb ’23 meeting, alongside a peak OCR of just below ~5.60%, as the market eyes the potential for a more pronounced round of monetary tightening in a bid to “cool the jets” after the much firmer than expected GDP print (which blew all expectations, including that of the RBNZ, out of the water).
• Today’s NZGB supply (covering NZGB Apr-27, Apr-33 & May-51) saw cover ratios between 1.50-2.00x, representing smooth, albeit relatively vanilla, reception of the auctions.
• Friday’s local docket will headlined by m’fing PMI and non-resident bond holding data.

EQUITIES: Weaker Across The Board

Regional equities are tracking lower, although for some of the major index's losses haven't extended since the open. These moves are in line with overnight weakness in major bourses, while US futures have edged lower this afternoon. Higher US cash Tys yields, 3-4bps firmer across the curve, have also weighed on broader risk appetite.

• China/HK stocks opened lower, but have recouped some losses as the session progressed. The HSI is down a little over 1.1% at this stage, while the CSI 300 is off by -0.25%.
• China activity data was uniformly weaker than expected, but there was a 150bn net injection via the 1yr MLF, which likely helped sentiment at the margin.
• The Kospi is down over 1.2%, while the Taiex is close to flat. Japan stocks are weaker, with the Nikkei 225 down 0.40% at this stage. The weaker tech trend from overnight has likely weighed on these markets today.
• South East Asia markets are lower across the board.

GOLD: Gold Prices Down On Hawkish Fed Comments

Gold prices are down during the session by 0.8% to around $1793.50/oz unwinding just over half of the post-US CPI gain. Even though DXY is only up slightly, gold markets have been rattled by Fed Chairman Powell’s comment that rates are not yet close to their terminal rate.

• The Fed’s rate expectations were revised up to end 2023 at 5.1% before being eased to 4.1% in 2024. A longer and higher rate trajectory is likely to weigh on bullion as it is non-yielding and thus other assets become more attractive to investors. But there tends to be safe haven buying of gold during recessions. As a result, ANZ has revised up its end-2023 forecast to US$1900/oz.
• Despite the correction seen today trend conditions for gold remain bullish. Resistance is at Tuesday’s high of $1824.50.
• In the US, retail sales data print for November and are expected to moderate from the October gains. There are also jobless claims and the Philly and NY Fed surveys. A number of European central banks meet with the focus on the ECB and BoE.

OIL: Oil Prices Ease As Pipeline Partially Reopens

MNI (Australia) - Oil prices are down around 0.8% during the session but they have been trading in a range of around a dollar. The partial reopening of the Keystone pipeline in North America weighed on crude after it rallied over the week. WTI is currently trading around $76.60/bbl and Brent $82.10.

• Prices are now below the resistance levels they broke through during the NY session.
• The reopening of Keystone helped to ease supply concerns in the market. The demand outlook continues to be influenced by the offsetting factors of a tightening Fed and China reopening its economy.
• The International Energy Agency said in its report yesterday that prices may rise in 2023 as sanctions impact Russian supply and demand improves. But it expects demand in early 2023 to be muted.
• In the US, retail sales data print for November and are expected to moderate from the October gains. There are also jobless claims and the Philly and NY Fed surveys. A number of European central banks meet with the focus on the ECB and BoE.

​FOREX: Dollar Firms, Aided By Higher Yields ​​​

The USD has firmed as the session has progressed. The BBDXY is up around 0.25% for the session so far, putting the index above 1254.00. Highs post the FOMC in NY trading were around 1256.75. The USD has been aided by a 3-4bps move higher in yields (2-7yr part of the curve), while softer equity sentiment in the region has also weighed.

• AUD/USD is among the weakest performers, down over 0.50% at this stage, and back sub 0.6830. This comes despite employment data comfortably beating expectations. Commodities are weaker in terms of oil and copper, with weaker China activity data a potential catalyst, although iron ore is trading resiliently (last above $109/tonne).
• NZD/USD is down 0.30%, last under 0.6440. NZ also saw better data, this time in terms of Q3 GDP, which has buoyed NZ bond yields. This has likely help NZD outperform on a cross basis. AUD/NZD is back to the low 1.0600 region, against NY session highs above 1.0600.
• NOK is also weaker by 0.50%, with USD/NOK back above 9.7700, as oil prices weigh.
• USD/JPY has been supported on dips, the pair last 135.75/80. The yen has slightly outperformed on a cross basis.
• Looking ahead, in the US, retail sales data print, there are also jobless claims and the Philly and NY Fed surveys. A number of European central banks meet with the focus on the ECB and BoE.

FX OPTIONS: Expiries for Dec15 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0450(E3.5bln), $1.0500(E542mln), $1.0550(E526mln), $1.0600(E551mln), $1.0700(E1.7bln)
• USD/JPY: Y138.80-00($1.1bln)
• GBP/USD: $1.2350(Gbp1.5bln), $1.2450(Gbp693mln), $1.2495-00(Gbp574mln)
• USD/CAD: C$1.3500($659mln)
• USD/CNY: Cny6.9900-00($1.8bln), Cny7.1500($1.1bln)