MNI US MARKETS ANALYSIS - BoJ Decision Works Against JPY

US TSYS: Bull Flatter On BoJ and Softer Eurozone Data

• Treasuries sit bull flatter after a dovish leaning BoJ overnight and then softer than expected Eurozone CPI inflation and GDP growth, trading between 3.5bp and 8bp richer across benchmark tenors.
• It sees 2s10s drop to -19.6bps (-4bps on the day) back to levels seen mid-to-late last week.
• TYZ3 trades within a few ticks of its session high of 106-19 after solid cumulative volumes of 415k. It has moved close to resistance at 106-25+ (20-day EMA) but the trend structure remains bearish with support seen at the bear trigger of 105-10+ (Oct 19 low).
• Data: ECI Q3 (0830ET) headlines the docket but it's also followed by FHFA house prices Aug (0900ET), S&P CoreLogic house prices Aug (0900ET), MNI Chicago PMI Oct (0945ET), Dallas Fed services Oct (1030ET)
• Bill issuance: US Tsy $44B 52W, $75B 42D CMB Bill auctions (1130ET)

STIR FUTURES: Modest Build In Fed Cut Expectations With Q3 CPI Ahead

• Fed Funds implied rates see limited spillover from the BoJ overnight, little changed for near-term meetings to the expected terminal in January and after that with a modest build again in cut expectations.
• Cumulative hikes from 5.33% effective: 0bp for tomorrow’s FOMC (unch), +5.5bp for Dec (unch) and +8bp for Jan (-0.5bp) for a terminal 5.41%.
• Cuts from terminal: 28bp to Jun’24 (from 26.5bp) and 83bp to Dec’24 (from 80bp), the latter at similar levels to the past few sessions at the high end of the rough 65-85bp range since US CPI on Oct 12.
• The Q3 ECI headlines today’s docket at 0830ET but we also get house prices after recent notable strength, the MNI Chicago PMI and Conference Board consumer confidence.

EUROPE ISSUANCE UPDATE

• E1.5bln of the 2.20% Jun-27 BTP. Avg yield 3.84% (bid-to-cover 1.73x).
• E2.5bln of the 4.10% Feb-29 BTP. Avg yield 4.12% (bid-to-cover 1.45x).
• E3.5bln of the 4.20% Mar-34 BTP. Avg yield 4.76% (bid-to-cover 1.33x).
• E1.25bln of the 0.80% Oct-28 CCTeu. Avg yield 5.16% (bid-to-cover 1.72x).

• E1bln (E994mln allotted) of the 1.80% Aug-53 Green Bund. Avg yield 3.04% (bid-to-cover 2.11x).

FOREX: JPY Offered, EUR/JPY Touches Fresh Multi-Decade Highs

• With markets geared for a potential formal tweak to yield curve control, asset markets were disappointed by no headline change to policy, and merely a more flexible approach to policy-setting. Resultingly, markets have interpreted the decision dovishly, tipping JPY lower against all others in G10. USD/JPY is rallying back toward the cycle highs at 150.78, while EUR/JPY makes a clear break to cycle highs.
• EUR/JPY rallied to 160.15 this morning, breaking to the highest levels since August 2008.
• NOK sits offered on the back of the Norges Bank FX sales being upped to NOK 1.4bln/day from NOK 1.2bln prior - EUR/NOK hits session highs, aided by the rallying EUR, but USD/NOK also on the front foot, recovering off the overnight low of 11.1306.
• EUR/NOK showing through the late October high to print the best levels since early July. Likely to place further pressure on the I-44 import-weighted FX rate, which printed at 122.11 yesterday, in close proximity to multi-month highs from Oct26.
• EUR is modestly outperforming along with SEK, benefiting from the steadier market backdrop as futures point to a positive open on Wall Street later today.
• Focus ahead turns to the MNI Chicago PMI the highlight on the data docket.

FX OPTIONS: Expiries for Oct31 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0450(E1.2bln), $1.0500(E1.1bln), $1.0525-33(E1.2bln), $1.0575-80(E688mln), $1.0600-20(E1.6bln), $1.0640-50(E835mln), $1.0700-10(E770mln)
• USD/JPY: Y148.45-65($1.1bln), Y150.00-15($1.3bln)
• GBP/USD: $1.2160-80(Gbp536mln)
• NZD/USD: $0.5850(N$641mln)

BONDS: Core FI Firmer Post-BOJ, And Ahead of Likely Soft Euro Inflation

Core FI sits firmer across the board Tuesday as 2s10s curves bull flatten, with the BoJ decision overnight being viewed as a dovish pause. Gilts and Treasuries outperform Bunds in spite of Eurozone CPI tracking to come in below sub-3% according to MNI estimates.

• The BoJ changed the language on the 1% upper bound for the 10-year JGB yield, now referring to it as a "reference point" rather than a strict bound. The move to add more flexibility was less hawkish than expected after Nikkei reported that the BoJ would tweak the YCC framework after the European session yesterday.
• Gilt futures are up 54 ticks at 93.18 with 10y yields down -5.3bp at 4.505%. The softening in the BRC Shop Price Index overnight (to 5.2% Y/Y from 6.2% prior) may be providing additional support here.
• TY1 futures are up 0-5+ at 106-12+ with 10y UST yields down -5.3bp at 4.842%. The main domestic interest yesterday came with Treasury borrowing estimates - the Q4 estimate was $76bln lower than previously announced in July, due to projections of higher receipts.
• Bund futures are up 42 ticks at 129.15 with 10y Bund yields down -2.6bp at 2.794%. French CPI came inline and did not move the needle while German retail sales came in softer than expected.
• Peripheries are mixed vs Bunds at 10-year handle, with the 10-Yr BTP/Bund spread 1.3bps wider at 192.9bps and the 10-year PGB/Bund spread 1.3bps tighter at 69bps. Italian flash Q3 GDP was stagnant, slightly below expectations of a 0.1% rise Q/Q and Y/Y.
• Today's docket includes the EZ-wide inflation estimate, alongside Italian/German supply and ECB-speak from de Cos, Visco, Muller, Nagel, and Guindos. In the US, we get the Employment Cost Index and the October MNI Chicago PMI.

EQUITIES: Eurostoxx Futures Trade Just Ahead of Last Week's Lows

• A bearish theme in Eurostoxx 50 futures remains in play and price is trading just ahead of its recent lows. The recent break of support at 4082.00, the Oct 4 low and a bear trigger, confirmed a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. The focus is on the 4000.00 handle. Initial firm resistance is at 4116.80, the 20-day EMA.
• S&P e-minis maintain a softer tone. The contract traded to a fresh cycle low last Friday and bears remain in the driver’s seat. Last week’s breach of support at 4235.50, Oct 4 low and bear trigger, confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. The focus is on 4100.00. Initial firm resistance is at 4285.39, the 20-day EMA.

COMMODITIES: Gold Remains Close to Recent Cycle Highs

• WTI futures traded lower Monday as the pullback from $89.85, the Oct 20 high, extends. The medium-term trend condition is unchanged and remains bullish plus the recent move lower appears to be a correction. A resumption of gains would expose the bull trigger at $92.48, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $80.20, the Oct 6 low, would instead highlight a short-term top.
• Gold conditions are unchanged - the metal remains firm and traded to a fresh cycle high last Friday. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The continuation higher strengthens a bullish theme and opens $2022.20 next, the May 15 high. Initial firm pivot support lies at $1924.4, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.