MNI US MARKETS ANALYSIS - ECB, BoE In View

US TSYS: Curve Steeper Post-FOMC

Treasuries continued to gain overnight from Wednesday's FOMC decision lows, with the curve a little steeper amid belly outperformance.

• The 2-Yr yield is down 2.6bps at 0.637%, 5-Yr is down 3.9bps at 1.206%, 10-Yr is down 2.2bps at 1.4343%, and 30-Yr is down 1.2bps at 1.8484%.
• That's no reflection of the tone of risk appetite, with S&P futures touching all-time highs. Weak European PMIs haven't seemed to dampen the mood, with core global FI yields continuing lower.
• A busy schedule today, with attention first of all on the Bank of England and ECB decisions. Plenty of data too: jobless claims and housing starts along with Philly Fed, all at 0830ET; industrial production at 0915ET; PMIs at 0945ET.
• In supply: $55B combined in 4-/8-week bill auctions at 1130ET. NY Fed buys ~$1.625B of 10-22.5Y Tsys, and $1.525B of 1-7.5Y TIPS.

EGB/GILT SUMMARY: Post-Fed, Focus Turns To ECB & BoE

EGBs have firmed ahead of today's key ECB meeting while the gilt curve has steepened leading into the BoE meeting at midday.

• The gilt curve is now 1-2bp steeper on the day. Uncertainty is running high ahead of the BoE meeting. Although labour market data has been quite robust of late, and inflation continues to push higher, the impact of the Omicron variant on the economic recovery is unclear.
• The ECB also faces a similar predicament. With inflation continuing to accelerate, the official stance that it is transitory rather than persistent will come under further scrutiny. While many expect the GC to announce the end of PEPP in March and an increase in purchases under the APP, it is possible that specific details on purchase volumes are announced at a later date.
• While bunds have firmed across much of the curve, the very long end has steepened with the 2s30s spread 2bp wider.
• OATs now trade close to flat on the day.
• BTPs have rallied with cash yields 1-2bp lower on the day.,
• Preliminary December PMI data for Europe came in mixed relative to expectations, while continue to point to a sustained expansion in economic activity across the region. The most notable outlier was the German services PMI which printed 48.4 vs 51.0 expected.

NB Hike Rates by 25bps, Name Checks March as Next Hike

• In a slightly more hawkish than expected decision, the Norges Bank raise rates by 25bps to 0.50% and name check March as the most likely next date by which the bank will raise rates.
• The new rate path raises the terminal rate to 1.75% - the rate deemed by the Norges Bank as being 'close to neutral':

SNB Keep Policy Unchanged

Swiss National Bank keep the sight deposit rate unchanged at 0.75%, alongside expectations.

Policy statement found here: https://www.snb.ch/en/mmr/reference/pre_20211216/s...

Highlights:

• Retains view that CHF is "highly valued"
• Inflation forecasts bump higher - as expected
• No change to tiering multiplier which had been mentioned by some
• SNB flag that mortgage, real estate risks have increased, and they continue to reassess the need for a reactivation of the capital buffer.
• Largely inline with expectations, and no response in CHF.

FOREX: NOK Rolls Higher as Norges Bank Err Hawkishly

• NOK is comfortably the best performer across G10, with EUR/NOK fading to the 100-dma at 10.1197 as the Norges Bank proceeded with a 25bps rate hike despite some outside expectations that the Bank could stand pat given the looming omicron risks. Not only did the bank raise rates, but they also name-checked March as the next most likely point at which the bank would tighten further, underpinning today's NOK strength. Elsewhere, the SNB kept policy unchanged - as expected.
• The USD Index remains weaker ahead of the NY crossover, with the USD holding post-Fed losses as Powell painted a particularly confident picture of the US economy headed into 2022.
• The JPY is the poorest performer so far in G10, moving against the general strength in equities posted following the Federal Reserve rate decision late yesterday. This keeps resistance at 114.26 in view, as well as the 114.38 level - marking the 61.8% Fib for the late November downtick.
• Focus turns to the looming BoE and ECB rate decisions. A small - but not insignificant - minority of analysts see the Bank of England raising rates at today's decision, but the majority see the BoE unchanged in the face of omicron risks.

FX OPTIONS: Expiries for Dec16 NY cut 1000ET (Source DTCC)

• EURUSD: 1.1270 (371mln), 1.1275 (225mln), 1.1300 (812mn), 1.1310 (407mln),1.1315 (331mln), 1.1325 (293mln), 1.1330 (309mln), 1.1345 (562mln)1.1350(1.09bn), 1.1375 (304mln)
• USDJPY: 114.00 (395mln), 114.10 (361mln), 114.15 (206mln), 114.20 (545mln),114.25 (1.34bn), 114.30 (1.68bn), 114.50 (1.26bn)
• AUDUSD: 0.7150 (354mln), 0.7160 (239mln)
• USDCNY: 6.35 (885mln)

Price Signal Summary - Equity Bulls Return

• In the equity space, S&P E-minis rallied yesterday to reinstate a bullish tone. Attention is once again on key resistance and all-time high of 4735.00, Nov 22 high. The contract has remained above the 50-day EMA, at 4586.92. A break of 4735.00 would open the 4800.00 handle. EUROSTOXX 50 futures have rebounded from recent lows. A key short-term support has been defined at 4134.50, Dec 3 low. Further gains would open 4289.00, Dec 8 high where a break would reinstate the recent bullish theme and open 4311.70, 76.4% of the Nov 18 - 30 downleg.
• In FX,EURUSD is firmer but remains below resistance at 1.1383, Nov 30 high. A break of this hurdle is required to signal potential for a stronger short-term recovery. Support levels to watch are; 1.1222, the Dec 15 low and 1.1186, Nov 24 low and the bear trigger. GBPUSD trend conditions remain bearish. Scope is seen for weakness towards 1.3135, the Dec 11 2020 low. 1.3308 is resistance, the 20-day EMA. A clear break of the EMA would signal scope for a stronger short-term bounce. USDJPY has broken out of its recent tight range and short-term conditions have improved for bulls. The bullish engulfing candle on Dec 6 is still in play and highlights a reversal from the recent low of 112.53 on Nov 30. The next objective is 114.38, 61.8% of the Nov 24 - 30 downleg. Support is at 113.23, Dec 10 / 13 low.
• On the commodity front, Gold attempted yesterday to clear the base of its bull channel from the Aug 9 low. The base is at $1768.9 but key support has been defined at $1753.7, Wednesday’s low. The recovery has taken the yellow metal back into its recent range. Initial resistance to watch is $1794.5, Dec 1 high where a break would warn of a developing base and provide a bullish signal. The short-term trend outlook in WTI futures remains bullish. Support has been defined at $69.39, Dec 15 low. While this level remains intact, attention is on $73.34/74.12, the Dec 9 high and 50-day EMA.
• In the FI space, Bund futures remain above the 20-day EMA, at 173.76 today. Last week’s high of 175.02 is the bull trigger where a break would confirm a resumption of the uptrend. A move below the 20-day EMA would threaten the trend and signal a reversal. The Gilts trend outlook remains bullish and short-term dips are considered corrective. The focus is on 128.00 next, the Aug 31 high. Initial support to watch lies at 126.67, Dec 10 low.

EQUITIES: Stocks Hold Post-Fed Gains, Tech Leads

• Equity markets across Europe trade solidly throughout the Thursday morning, with the EuroStoxx50 adding close to 1.75% and moving in lockstep with US markets, that cemented a very positive close post-Fed.
• Europe's tech and energy names are leading the gains, but all sectors tracked are higher ahead of the NY crossover.
• S&P E-minis rallied yesterday and have started today's session on a firmer note. Attention is once again on key resistance and the all-time high of 4735.00, the Nov 22 high. The contract has remained above the 50-day EMA, at 4586.92, reinforcing the current bullish theme. A break of 4735.00 would confirm a resumption of the uptrend and open the 4800.00 handle. A break of the 50-day EMA is required to alter the picture.

COMMODITIES: Energy And Industrial Metals Rally

• WTI Crude up $0.83 or +1.17% at $71.74
• Natural Gas up $0.13 or +3.52% at $3.94
• Gold spot up $10.13 or +0.57% at $1787.05
• Copper up $11.9 or +2.85% at $430
• Silver up $0.15 or +0.67% at $22.2202
• Platinum up $14.23 or +1.55% at $934.85