MNI US MARKETS ANALYSIS - JPY on Backfoot as Sources See Little Chance of NIRP Exit

US TSYS: Heavy Issuance Schedule Leads With CPI/FOMC On Horizon

• Cash Tsys trade 2-3bp cheaper as the front end builds on Friday’s on net hawkish payrolls report to extend fresh lows for levels last seen Nov 28, whilst longer-dated tenors push lower but remain within Friday’s range.
• TYH4 at 110-06 (-02+) sits close to the day’s low of 110-03+ but doesn’t yet trouble support at 109-23+ (20-day EMA). The decline is deemed a corrective pullback with resistance at 111-09+ (Dec 7 high).
• Issuance headlines today with double note and double bill supply. Otherwise it’s a very light data docket, with only NY Fed inflation expectations for Nov slated but it’s of more note than usual after particular volatility in the U.Mich survey. On the horizon, tomorrow’s CPI report before the FOMC decision on Wednesday.
• Data: NY Fed inflation expectations (1100ET)
• Note/bond issuance: US Tsy $50B 3Y Note (1130ET), US Tsy $37B 10Y Note re-open (1300ET).
• Bill issuance: US Tsy $68B 26W bills (1130ET), US Tsy $75B 13W Bills (1300ET)

STIR: Fed Rate Path Drifts Higher

• Fed Funds implied rates have pushed a little higher since Friday’s close, building on the post-payrolls lift on stronger than expected wage growth and a surprise dip in the unemployment rate.
• Cumulative cuts have dropped to 11bp for the March FOMC (12bp Fri, 17bp pre-payrolls) and just holds onto fully pricing the first cut in May with 26bp May (28bp Fri, 34bp pre-payrolls).
• It builds to a cumulative 108bp cuts for 2024 (111bp Fri, 122bp pre-payrolls).

MNI US Employment Insight, Dec'23: Five Fed Cuts In 2024 Deemed Excessive

• We have published and e-mailed to subscribers the MNI Employment Insight, including MNI analysis of the latest labor data plus seventeen analyst views on Friday's payrolls report.
• Please find here: https://roar-assets-auto.rbl.ms/files/58416/USEmploymentReportDec2023.pdf

Politics Week: No Holiday Cheer As Conservatives Slow Votes

• Conservative opposition continues to push Liberals on housing squeeze and carbon tax, forcing late night procedural votes as holidays approach.
• More sparring between federal government and oil-rich province of Alberta as Ottawa announces “Roadmap for the Decarbonization of Canada's Oil and Gas Sector” and Premier Danielle Smith criticizes the plan.
• Angus Reid poll: Three-in-five (61%) Canadians choose the cost of living as the top issue facing the country.
• House Speaker Greg Fergus apologizes for appearing at a Liberal event and a committee is reviewing if he showed inappropriate partisanship. (Fergus is a Liberal MP and it’s another flap shortly after the last speaker quit for inviting a former Nazi soldier to a Zelensky visit.)
• Polling aggregator 338Canada shows Conservatives likely to win a majority government if an election were held now. Election is due in 2025 under a traditional four-year mandate but the Liberals rely on NDP to pass confidence motions and avoid an earlier campaign.
• Sample headline: Tom Mulcair: Poilievre keeps scoring into the Liberals' empty net (CTV)

SPD Co-Leader-2024 Budget Deal Possible This Week

The co-leader of the governing centre-left Social Democrats (SPD) Saskia Esken stated on 11 Dec that in talks regarding the 2024 federal budget "We have made significant progress", and said to broadcaster ZDF that, "Something will happen now". The tripartite 'traffic light' coalition has engaged in difficult budget talks in recent weeks after a Constitutional Court ruling blew a hole in the state's finances.

• Major disagreements remain over the imposition of the constitutional debt brake (which restricts the deficit to 0.35% of GDP) in 2024. Finance Minister Christian Lindner from the pro-business liberal Free Democrats (FDP) wants it re-imposed after four years of non-application, while Economy Minister Robert Habeck from the environmentalist Greens has called for the brake's suspension for the fifth year in succession.
• Speaking to Deutschlandfunk Radio, FDP leader in the Bundestag, Christian Duerr, claimed that the EUR17bn gap Lindner foresees in the 2024 budget "is managable", but that cost-cutting measures would be required.
• Talks continue today between the coalition members.

US TSYS: OI Suggests Long Cover Dominated Post-Payrolls

The combination of the payrolls-driven weakening in Tsy futures and preliminary OI data points to long cover as the dominant positioning factor on the Tsy futures curve ahead of the weekend.

• TY futures saw the largest DV01 adjusted shift in OI on the day.
• TU was the exception to the broader theme, seemingly seeing modest fresh shorts set in net terms.

SOFR: OI Points To Dominant Short Setting In SOFR Whites & Reds Post-Payrolls

Friday’s payroll-inspired weakness on the SOFR strip, coupled with preliminary OI data, points to short setting as the dominant positioning factor into the weekend, with the degree of Fed cuts priced into markets moderating post-payrolls.

• SFRH5 was the only contract that seemed to experience net long cover through the reds.
• Beyond there, the greens saw little net OI change, with short setting and long cover essentially offsetting.
• Meanwhile, long cover seemed to dominate in the blues.
• A reminder that long setting had been the dominant positioning theme over the last few weeks or so, given quirks in the very front end of the strip (surrounding month-end fixings) and dovish repricing re: Fed expectations.

FOREX: JPY Circles Lower as Reports See BoJ NIRP to Hold Next Week

• JPY has circled lower, helping tip USD/JPY back above Y146.00 and further erase last week's pullback on Bloomberg headlines citing sources in saying the BoJ see little need to reverse negative interest rate policy at next week's policy meeting. EUR/JPY's recovery toward 158.73 has confirmed the 154.08 200-dma as solid support, a level which should hold focus as the week progresses.
• The USD Index holds close to last week's highs, making 104.263 a level of focus ahead. The EUR trades well, helping EUR/GBP maintain the recent range, however a sharper recovery off last week's 0.8553 remains to be seen.
• Norwegian CPI data this morning came in to the low side of expectations, further reinforcing calls for the Norges Bank to keep policy rates unchanged this week, despite a soft signal for further tightening at the last rate decision. NOK trades modestly softer, but EUR/NOK has seen little support as oil markets remain off the recent bottom.
• Risk is backloaded this week, with the Fed, ECB and BoE rate decisions set to follow from Wednesday. The NY Fed's 1yr inflation expectation gauge is released during US market hours.

Expiries for Dec11 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0720-30(E2.1bln), $1.0745-60(E756mln), $1.0780-00(E976mln)
• USD/JPY: Y144.05-25($951mln), Y145.00($500mln), Y146.00($852mln), Y147.00($1.3bln), Y148.30-50($1.3bln)
• GBP/USD: $1.2610-15(Gbp548mln)
• AUD/USD: $0.6550(A$895mln), $0.6600(A$548mln)
• USD/CAD: C$1.3550-60($530mln), C$1.3575-80($530mln)

EQUITIES: E-Mini S&P Within Close Proximity of Multi-Month Highs

• A bullish theme in Eurostoxx 50 futures remains intact and the contract is trading at its recent highs. Resistance at 4387.00, the Nov 24 high, was breached on Nov 30, confirming a resumption of the uptrend and maintaining the price sequence of higher highs and higher lows. MA studies are in a bull-mode position too, signalling a rising cycle. The focus is on 4561.00, a Fibonacci projection. Support to watch is at 4382.20, the 20-day EMA.
• In S&P e-minis, a bullish theme remains intact and the contract traded higher Friday. Since the October 27 reversal, corrections have been shallow - this is a bullish signal. Note too that moving average studies are in a bull-mode position, highlighting positive market sentiment. A continuation higher would signal scope for a climb towards 4690.75, the Aug 2 high. Initial support lies at 4583.14, the 20-day EMA.

COMMODITIES: Gold Close to Recent Lows as Pullback from All-Time High Extends

• Bearish conditions in WTI futures remain intact and last Wednesday’s sell-off reinforced this condition. The contract has cleared support at $72.37, the Nov 16 low. The break lower confirms a resumption of the downtrend and note too that moving average studies are in a bear-mode position, highlighting a clear downtrend. Sights are on $67.28 next, the Jun 23 low. Resistance is seen at $74.79, the 20-day EMA. The latest recovery is considered corrective.
• Gold traded in a volatile manner last week. The trend condition is bullish and last week’s early gains reinforce this theme. The precious metal touched a fresh all-time high of $2135.4 and this signals potential for a climb towards $2177.6 next, a Fibonacci projection. Price has since retraced and is trading at its recent lows. A short-term pullback is considered corrective. The next support to watch is $1978.2, the 50-day EMA.