MNI US MARKETS ANALYSIS - AUD/USD Tops 200-dma For First Time Since July

Intraday Bid Back To Near Unchanged, Heavy Issuance Ahead

• Cash Tsys trade between unchanged to just 0.5bp cheaper from Friday’s early close, although that masks a sizeable intraday rally (~3.5bp for 2s) from cheapest levels shortly after the open.
• Europe has led the rally, and continues to outperform, with added pressure from crude continuing to fall (-1.4%) in an extension of Friday's second half weakness.
• TYZ3 at 108-14+ sits off an earlier high of 108-16+, back little changed from Friday's early close having lifted off a fresh push lower overnight to 108-06 in a test of the 50-day EMA at the same level. Roll activity continues to boost volumes.
• Catch-up from the holiday shortened week sees heavy issuance heavy the docket, including both 2Y and 5Y Treasury sales. It’s a quieter start to the week and along with no scheduled Fedspeak today.
• Data: New home sales Oct (1000ET), Dallas Fed mfg Nov (1030ET)
• Note/bond issuance: US Tsy $54B 2Y notes (1130ET), US Tsy $55B 5Y notes (1300ET)
• Bill issuance: US Tsy $68B 26-week bills (1130ET), US Tsy $75B 13-week bills (1300ET)

Fed Rate Path Holds Push Higher Since Thanksgiving

• Fed Funds implied rates have for the most part drifted up to 1.5bp lower from Friday to unwind most of its nudge higher in post-Thanksgiving thinned trade.
• However, compare with pre-Thanksgiving levels and rates late into 2024 sit 4.5bp higher than Wednesday’s close.
• Cumulative tightening is seen peaking with +3.5bp at the January FOMC, followed by 88bp of cuts to end-2024. This peak to end-2024 cut pricing last closed lower on Nov 13 ahead of US CPI.
• The first cut from current levels is seen with the June FOMC (26bp cumulative).

OI Data Points To SOFR Short Setting Over The Thanksgiving Period

The mix of preliminary open interest data and the general move lower in SOFR futures between Wednesday & Friday settlements points to net short setting as the dominant factor in SOFR futures over the Thanksgiving holiday window, as core global bond markets cheapened.

• Pockets of apparent long cover were seen in the whites, and blues.

GERMANY: Spox-Will Try To Present '24 Budget By Year-End, If Not Then In Jan

Wires carrying comments from a gov't spox claiming that the administration will try to present the 2024 federal budget by year-end, but that if this doesn't work out then they plan to agree on the budget in January. Comes a short time after spox claimed that the Cabinet would seek to agree on the supplemental 2023 budget this afternoon before Chancellor Olaf Scholz's address to the Bundestag on the issue tomorrow.

FOREX: AUD/USD Builds on Recent Strength to Touch Multi-Month High

• Scandi currencies are modestly outperforming, with SEK and NOK firmer against most others ahead of the NY crossover. The USD index is on the backfoot, keeping last week's lows of 103.178 within reach. Weakness through here would put the USD Index at the lowest levels since late August, with 102.936 the next downside level to watch.
• CAD is the poorest performer in G10 as oil prices continue to perform poorly and undermine the currency. Markets watch the awaited and delayed OPEC meeting later in the week, at which they are under pressure to cut supply further in order to prop up a price that's faltered due to global demand concerns and tighter economic conditions. USD/CAD trades back above last week's 1.3594 low, with the 1.3679 50-dma the next upside level.
• AUD strength has built on last week's rally, with the pair benefiting from the first close above the 200-dma since July (0.6584). Resultingly, AUD/USD has touched the best level since Aug10 at 0.6601 ahead of the US open.
• US new home sales and the Dallas Fed manufacturing activity index make up the data schedule for Monday, with ECB's Lagarde the sole central bank speaker. She appears in front of EU Parliament, conducting a monetary dialogue with lawmakers.

HONG KONG: HKD Option Volumes Surge as Spot Buoyed by HIBOR Squeeze

• Despite the quieter start to the week for FX options, HKD hedging is busier, amid local demand for HKD and a run higher in front end HKD implied vols. 1m USD/HKD implied has traded just above 1.3 points today - the highest since August - as USD/HKD is pressured to the lowest level since late last year.
• Cash demand (partly seasonal, partly due to the still-low HKMA aggregate balance) remains the key issue here, evident in today's 1m HIBOR, which fixed at the highest level in decades to tighten liquidity further and provide a tailwind for the HKD via wider front-end US-HK rate differentials.
• Despite the pullback in spot, USD/HKD options buyers have favoured calls, with over $4 trading in calls for every $1 in puts so far Monday. While much of the interest was in longer-dated 7.85 call strikes (options would be in the money on a break of the 7.75-7.85), the position would also gain on an uptick in implied vol toward levels seen at the tail-end of 2022.
• Tighter liquidity conditions also reflected in HKD forwards, with the 12m points discount retreating to ~270 points from ~500 points at the beginning of this month.

Expiries for Nov27 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0845-65(E2.8bln), $1.0950(E935mln), $1.1005(E787mln)
• USD/JPY: Y148.00-15($755mln), Y150.00($1.6bln), Y153.00($537mln)
• AUD/USD: $0.6822(A$1.5bln)

EGB SUMMARY: Bunds A Touch Firmer, Peripherals Tighten

Bund futures are +20 or so, above 130.50 and registering fresh session highs at typing. We haven’t seen much in the way of meaningful headline flow, leaving the space to trade in a two-way manner alongside wider core global FI markets.

• German yields are 1.0-2.0bp lower across the curve.
• Light hedging flows ahead of EU bond supply may have applied some modest pressure, but the move more than reversed ahead of auction results.
• Over the weekend, Bundesbank chief Nagel called on Germany to resolve the ongoing budget situation quickly, while sticking to his usual hawkish monetary policy tone, stressing that the ECB is "not yet where we want to be" on inflation.
• Elsewhere, Bank of Spain Governor de Cos noted on Friday that Eurozone bank lending has been "falling faster than we expected."
• Finally, Estonian CB chief Muller does not currently see the need for more rate hikes from the ECB.
• 10-Year peripherals are tighter to Bunds with the exception of Greece. The 10-year BTP/Bund spread is currently 2.3bps narrower at 172.7bps, still some 4bps wider than the multi-month tights seen last Monday, post-Moody's ratings update (Italy affirmed at Baa3, outlook upgraded to stable from negative).
• Today's European docket is highlighted by comments from ECB President Lagarde (1400GMT/1500CET), who speaks at the EU Parliament before the Committee on Economic and Monetary Affairs.

EQUITIES: Bullish EuroStoxx50 Theme Persists Into End-November

• A bullish theme in S&P e-minis remains intact and price is trading closer to its recent high. Recent gains have resulted in the break of a trendline drawn from the Jul 27 high. This breach reinforces bullish conditions and signals scope for a climb towards 4597.50, the Sep 1 high.
• A bullish theme in Eurostoxx 50 futures remains intact and the contract traded higher Friday as the uptrend extends. Moving average studies are in a bull-mode position signalling a rising cycle and the potential for a continuation higher.

COMMODITIES: Bearish Theme Plays Out in WTI Futures

• The trend condition in Gold remains bullish and last week’s gains reinforce this condition. The yellow metal has started this week on a bullish note and pierced resistance at $2009.4, the Nov 7 high. A clear break of this hurdle would confirm a resumption of the uptrend and open $2022.2.
• A bearish theme in WTI futures remains in play and recent gains are considered corrective. Attention is on support at $72.37, the Nov 16 low. A break would confirm a resumption of the downtrend that started late September and maintain a price sequence of lower lows and lower highs.