MNI US MARKETS ANALYSIS - JPY Shows at New Low, But Still No Comment on Levels

US TSYS: Modestly Richer With Lighter Docket Before Tuesday's CPI

• Cash Treasuries are holding a modest rally with benchmark tenors 1-2bp richer, broadly consolidating Friday’s bear flattening with 2s10s at -42bps.
• Participants continue to attempt to assess the market impact of Moody's late Friday move to revise the U.S. sovereign rating outlook to negative (Moody's are the only 1 of the 3 major rating agencies that still give the U.S. a AAA rating), although impact appears limited for now.
• TYZ3 at 107-13+ trades at the high end of the overnight session’s narrow range on subdued volumes of 250k compared to regular heavy overnight sessions of recent weeks.
• Data: NY Fed Inflation Expectations (1100ET) for October are of interest after the recent ramping up in the U.Mich equivalent. It’s followed by the monthly budget statement for Oct (1400ET).
• Fedspeak: Gov Cook (0850ET) - we don’t expect anything monetary policy related -see STIR bullet- but it’s worth watching in an otherwise light docket.
• Bill issuance: US Tsy $75B, 13W, $68B 26W bill auctions (1130ET)

STIR: Fed Path Chips Away At Friday’s Trimming Of Cut Expectations

• Fed Funds implied rates are modestly higher from Friday’s close for the next few upcoming meetings but then also slightly lower for later into 2024.
• There is now 7.5bp of tightening eyed over the next two meetings before 80bp of cuts to end-2024 (the move unwinding about half of Friday’s trimming of cut expectations) whilst the first cut from current levels is seen back in July rather than June from earlier last week.
• After last week’s heavy Fedspeak, it’s a much quieter day today with only Gov. Cook (voter) on the slate, giving introductory remarks at 0850ET at the Fed’s conference on nontraditional data which likely limits direct mon pol relevance.
• Her latest comments have focused on financial stability on Nov 6 & 8 (rising geopol tensions pose market risks, monitoring vulnerabilities at nonbanks) and she has generally given very little monetary policy-focused remarks since June.

OI Indicates Mix Of Positioning Swings On SOFR Strip On Friday

The mix of preliminary open interest data and Friday’s twist steepening of the SOFR curve point to the following positioning swings on the SOFR strip ahead of the weekend.

• Whites: Hard to be certain on net OI matters given the unchanged price status of SFRZ3 come settlement. SFRU3 seemed to see longs set, while SFRH4 seemed to see long cover and SFRM4 seemed to see shorts set.
• Reds: Long cover seemed to dominate, although SFRH5 seemed to see fresh shorts set on net.
• Greens: Short setting seemed to dominate, although SFRU5 seemed to see long cover on net.
• Blues: Short setting was seemingly seen across all contracts in the pack in net terms.

OI Points to Mix Of Short & Long Setting As Curve Twist Flattened On Friday

The combination of preliminary open interest data and Friday’s twist flattening of the Tsy futures curve point to a mix of net short and long setting ahead of the weekend.

• TU through TY futures seemingly saw fresh shorts added on net, while UXY through WN futures seemingly saw fresh longs added on net.
• The cumulative apparent net short setting seen in TU through TY futures marginally outweighed the cumulative apparent net long setting in UXY through WN futures in OI equivalent terms.

FOREX: New Highs for USD/JPY, But Suzuki Won't Be Drawn on Rates

• JPY has started the week on the back foot, slipping against most others in G10 to keep USD/JPY at new cycle highs, touching 151.86 headed into the European morning. The moves were shortly followed by a reiteration of the Japanese authorities' stance on the currency, as Suzuki stressed that while he cannot comment on currency levels, the Japanese finance ministry will monitor markets and respond with a sense of urgency, with market prices needing to be set by fundamentals, rather than speculation.
• The USD is more mixed, sitting mid-table headed into the NY crossover, with the 50-dma in the USD Index remaining a solid anchor for prices. Short-term trends remain pointed higher for the greenback, however prices are still below pre-NFP levels.
• AUD is modestly the best performer, aided by positive equity markets across European cash markets, however US futures point to a more modest open at the US opening bell later today. NOK sits at the other end of the G10 table, as markets partially reverse the sharp post-inflation strength seen on Friday.
• The Monday session sees a light schedule, with focus and risk events back-loaded later in the week, with US, UK and Eurozone inflation updates due. Speakers today include newest addition to the BoE MPC Breeden as well as Mann and Fed's Cook.

Expiries for Nov13 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0540-55(E1.5bln), $1.0610-25(E945mln), $1.0700(E549mln), $1.0800(E1.3bln)
• USD/JPY: Y149.50($795mln), Y150.00($1.9bln), Y152.00($1.2bln)
• AUD/USD: $0.7000(A$1.3bln)
• USD/CAD: C$1.3425($1.5bln)

RATINGS: U.S. Outlook Revision to Negative at Moody’s Headlined on Friday

Rating reviews of note released after hours on Friday include:

• Fitch affirmed Italy at BBB; Outlook Stable
• Fitch affirmed Poland at A-; Outlook Stable
• Moody's affirmed Croatia at Baa2, outlook changed to positive from stable
• Moody's affirmed the United States of America at Aaa, outlook changed to negative from stable
• DBRS Morningstar confirmed the European Union at AAA, Stable Trend
• DBRS Morningstar confirmed Luxembourg at AAA, Stable Trend
• DBRS Morningstar confirmed Poland at A, Stable Trend

EGB/GILTS: Bounce From Lows, Wider Market Swings and Reduced Gilt Issuance Requirement Eyed

EGBs sit slightly flat to slightly firmer on Monday with Bund, OAT and periphery curves flattening.

• Local headline flow has been light otherwise, with news of the Cabinet Reshuffle in the UK not spilling over notably into the EGB space. Comments from ECB's de Guindos this morning have reiterated previous rhetoric from Lagarde r.e. policy rates staying sufficiently restrictive for as long as necessary.
• Bund futures are broadly flat today at 129.81 having previously found some resistance at 130.13. Technical studies remain bullish following the recent breach of a key resistance at 130.20, the Oct 12 high and a bull trigger. Current volumes are the lowest in the past 5 sessions.
• 10Y Bund yields down are -0.5bp at 2.711%, while Schatz underperforms the curve with yields up 1.8bp at 3.076% (potentially owing to ECB cut pricing being incrementally pared back in recent sessions).

Gilt participants seem happy to track wider core global FI moves to start the week.

• Political matters have dominated on the UK headline front, with the latest UK cabinet reshuffle coming on the back of the removal of Suella Braverman from the post of Home Secretary.
• Elsewhere, a soft Rightmove house price index reading and sell-side speculation/estimates surrounding a reduction in gilt issuance needs in next week’s Budget (which may be aiding gilts) have garnered attention.
• A quick reminder that the BoE will sell gilts in the short maturity bucket today.

EQUITIES: E-Mini S&P Trades Close to Trendline Resistance

• A short-term bull cycle in Eurostoxx 50 futures remains intact and the contract is holding on to its recent gains. Price has recently traded through resistance at both the 20- and 50-day EMAs. The clear break of the 50-day EMA, at 4186.70, signals scope for a stronger bull cycle and opens 4256.00, the Oct 12 high. On the downside, key support and the bear trigger lies at 4001.0, the Oct 27 low. Initial support is at 4153.90, the 20-day EMA.
• S&P e-minis maintain a firmer short-term tone and the contract traded to a fresh short-term high on Friday. This reinforces bullish conditions and has also resulted in a test of trendline resistance at 4428.75. The trendline is drawn from the Jul 27 high and a clear break of it would strengthen current bullish conditions. This would open 4470.18, a Fibonacci retracement. Initial firm support lies at 4332.18, the 20-day EMA.

COMMODITIES: Gold Remains Within Close Proximity to Support at 50-Day EMA

• A bearish theme in WTI futures remains in play following last week’s sharp sell-off. The recent move down has resulted in a break of support at $80.20, the Oct 6 low. The breach highlights a stronger reversal and a continuation lower would pave the way for a move towards $74.26, the 76.4% retracement of the May 4 - Sep 28 bull run. On the upside, initial firm resistance has been defined at $83.60.
• The latest pullback in Gold appears to be a correction - for now - and the trend condition is bullish. MA studies are in a bull-mode set-up, highlighting a rising trend. A resumption of gains would open $2022.20, the May 15 high. The bull trigger is at $2009.4, the Oct 27 high. Note that support at the 50-day EMA, at $1938.1, has been pierced. A clear break of this average would undermine the bullish theme and expose $1908.3, the Oct 16 low.