MNI US MARKETS ANALYSIS - FED In Focus

UST SUMMARY: Tsys Bid Ahead ADP Employ, Tsy Quarterly Refunding, FOMC Annc

• Focus on FOMC (1400) and Fed chair Powell presser (1430ET): Fed expected to announce tapering of net Tsy purchases by $10B/m and mortgage securities by $5B/m, ending $120B monthly QE program by mid-2022. Note: decent carry-over short end bid from accts toning down pace of rate-hike bets in 2022-2023.
• Private ADP employment on tap at 0815ET (+400k est vs. +568k prior), US Tsy quarterly refunding at 0830ET: coupon issuance reductions are expected (3Y -$2B to $56B; 10Y -$3B to $38B; 30Y -$2B to $25B), no auctions or Fed buy operations.
• Overnight trade included two-way in 2s-7s with better buying on net from leveraged accts, real$ selling into strength in 10s and 20s.
• Currently, 2-Yr yield is up 0.2bps at 0.452%, 5-Yr is down 0.8bps at 1.1395%, 10-Yr is down 1.6bps at 1.5331%, and 30-Yr is down 1.9bps at 1.9403%.

EGB/GILT: ECB Reiterates 'Temporary' Nature of Inflation Spike

European government bonds have rallied this morning while equities are broadly close to flat on the day.

• Bunds have rallied and the curve has bull flattened with the 2s30s spread narrowing 3bp.
• OATs have marginally outperformed bunds at the longer end with the curve flattening by 4bp.
• It is a similar story for BTPs.
• The rally in gilts has been more containged with cash yields 1-2bp lower.
• Speaking earlier today, the ECB's Vasle argued that there is a growing risk that inflation will stay elevated, while Madis Muller reiterated the ECBs official stance that the inflation spike is largely temporary. Meanwhile President Lagarde again stressed that the medium-term inflation outlook is subdued and stated that conditions for a rate hike are unlikely to be met next year.
• The ECB's Elderson, de Cos and Villeroy are due to speak later today.
• The final UK services and composite PMIs for October came in a touch higher than expected (59.1 vs 58.0 and 57.8 vs 56.8, respectively),
• The UK sold GBP2.5bn of the 0.50% Jan-29 gilt and Germany allotted EUR3.27bn of the 0% Oct-26 Bobl, the EU will sell EUR1.5bn of 3m bills and Greece will sell EUR625mn of 13-week bills.

EUROPEAN ISSUANCE UPDATE

GILT AUCTION RESULTS: 0.50% Jan-29 Gilt

GERMAN AUCTION RESULTS: 0% Oct-26 Bobl

FOREX: Weaker Dollar ahead of Fed later

• The Dollar has seen better selling in early European trade, but we trade well within past ranges, with attention turning towards the Fed later today.
• The Greenback tested session low against the EUR, CHF, AUD, CNH, NOK, SEK, NZD.
• The Kiwi remains the best performer against the USD up 0.32%, after New Zealand unemployment rate fell to the lowest level in 14 years.
• There has been limited impact in Petro currencies so far today, after Oil gave back some gains.
• We have OPEC meeting tomorrow, which could be interesting, given Biden's latest comment blaming the Cartel for inflationary pressures.
• Looking ahead, on the data front will be on ISM services. Durable good is final reading, while US ADP has no real proven correlation with NFP and the NFP isn't an "all eyes" this week, with short term focus squarely on inflationary risk.
• Most of the attention is on Fed Powell, other speakers include ECB Lagarde, Muller, Elderson, de Cos, Villeroy, abd BoE Bailey

FX OPTION EXPIRY

FX OPTION EXPIRY (closest ones)

Of note:

GBPUSD: 822mln at 1.3615.

EURUSD 1bn at 1.1555, but for tomorrow expiry.

• EURUSD: 1.1585 (311mln), 1.1600 (533mln), 1.1625 (365mln)
• GBPUSD 1.3550 (545mln), 1.3615 (822mln), 1.3650 (675mln)
• USDJPY: 113.75 (750mln), 114 (485mln), 114.30 (580mln)
• USDCAD; 1.2425 (296mln), 1.2450 (920mln)

EQUITIES: Crude off the highs

• WTI Crude down $1.93 or -2.3% at $81.99
• Natural Gas down $0.04 or -0.78% at $5.501
• Gold spot down $5.16 or -0.29% at $1782.18
• Copper up $5.45 or +1.25% at $442.1
• Silver up $0.03 or +0.14% at $23.5567
• Platinum up $5.07 or +0.49% at $1046.23

COMMODITIES: Crude off the highs

• WTI Crude down $1.93 or -2.3% at $81.99
• Natural Gas down $0.04 or -0.78% at $5.501
• Gold spot down $5.16 or -0.29% at $1782.18
• Copper up $5.45 or +1.25% at $442.1
• Silver up $0.03 or +0.14% at $23.5567
• Platinum up $5.07 or +0.49% at $1046.23