MNI US MARKETS ANALYSIS - JPY Slides as BoJ Keep Quiet on '24 Details

US TSYS: Modestly Richer In BoJ Spillover

• Cash Tsys trade 1-2bp richer across the curve, with the day’s richening helped at the margin by the BoJ decision and subsequent commentary failing to commit to any meaningful normalization steps.
• Today sees a slightly heavier docket than yesterday, with housing data before some further Fedspeak from 2024 FOMC voters, but flow and headlines are again likely to set the tone barring any major surprises.
• TYH4 trades at 112-15+ (+ 07+) off earlier highs of 112-18+, having lifted off yesterday’s low of 112-06. The most recent pause appears to be a flag formation, a bullish signal that highlights resistance at 112-28+ and 113-12+, Fibo projection points.
• Data: Building permits/housing starts Nov (0830ET), TIC Flows Oct (1600ET)
• Fedspeak: Barkin (0930ET, interview), Bostic (1230ET, fireside chat with no text), Goolsbee (1800ET, interview)
• Bill issuance: US Tsy sells $70B 42-day CMB (1130ET)

Fed Rate Path Nudges Lower With More 2024 FOMC Voters Ahead

• Fed Funds implied rates have nudged lower overnight, biased by BoJ commentary failing to commit to any meaningful normalization steps.
• The 1-2.5bp decline in implied rates across 2024 meetings leaves 20bp of cumulative cuts for March, 42bp for May, 66bp for June and 144bp for December.
• Daly (’24 voter) late yesterday told the WSJ she was “very close” to the median FOMC projection for rates and inflation, noting mon pol “will still be quite restrictive even if we cut three times next year” [per the median dot].
• We hear two ’24 voters ahead in Barkin and Bostic. It will be the first time Barkin has spoken since last week’s FOMC whilst Bostic said Friday that he sees two rate cuts in 2024, likely from Q3.

OI Suggests Short Setting & Long Cover Generally Offset On Monday

The combination of yesterday's downtick in Tsy futures and preliminary OI data points to a mix of short setting and long cover that essentially offset from a net DV01-adjusted OI perspective.

• Fedspeak, swings in oil prices and European bond peers, as well as a sizeable block sale in FV futures, were all digested on Monday.
• The largest DV01-adjusted swing came via apparent short setting in the WN contract.

OI Points To Mixed Positioning Swings On SOFR Strip On  Monday

The mix of the modest, non-uniform net price swings on the SOFR strip on Monday and preliminary OI data points to the following net positioning swings as market participants digested the latest round of Fedspeak:

• Whites: A mix of long setting (SFRU3 & H4), long cover (SFRZ3) & short cover (SFRM4).
• Reds: A mix of short cover (SFRU4 & Z4) & long cover (SFRM5). It's hard to be definitive re: SFRH5 given the lack of net price movement on the day.
• Greens & Blues: Both packs saw some light short setting in net terms, albeit with pockets of long cover observed.

EUROZONE ISSUANCE UPDATE: 

Gilt auction result - Not a great 10-year gilt auction:

• The bid-to-cover and the tails weren't too bad (albeit not that this was a smaller auction as we approach the holiday period: GBP3.00bln versus GBP3.75bln previously). However, the mild weakness was seen in the price. The LAP of 107.364 was below the immediate pre-auction mid-price - and was marginally higher than seen for the lows in the secondary market around 5 minutes ahead of the auction cutoff. Post-auction we have seen the 4.625% Jan-34 gilt trade below the LAP and hit an intraday low of 107.285.
• GBP3bln of the 4.625% Jan-34 Gilt. Avg yield 3.739% (bid-to-cover 2.84x, tail 0.5bp).

German 2024 Funding Plan: https://marketnews.com/germany-2024-funding-plan-h...

• No big surprises in the German 2024 funding plan, hence the lack of market movements, with nominal non-green issuance via auctions E247.5bln (2023 E262bln from initial E274bln target). Green E17-19bln (E17.25bln in 2023; E7.5bln auction, E9.75bln synd; E15-17bln target). E12bln via syndications due in 2024 of which 1 green and including a new 30-year Aug-54 Bund (4 in 2023 of which 2 were green; total raised E16.75bln of which E7.0bln was non-green). No linkers to be issued in 2024 (as previously announced, E6-8bln target in 2023, E5.1bln issued). Bubill issuance E165bln (E209bln in 2023; E242bln initial target).
• There is a small increase in Schatz issuance but reduced Bobl issuance.

FOREX: JPY Stutters as Ueda Provides Few Fresh Clues

• The JPY is sliding against all others in G10, prompting USD/JPY to rise back toward the Y145.00 handle and further work against the sharp downtick posted on the Wednesday session last week. The BoJ decision disappointed markets by disclosing few new details on the bank's thinking on an exit from negative interest rate policy. After keeping policy unchanged, the press conference with BoJ's Ueda made no firm signals toward a shift across the first few quarters of 2024, helping bid USD/JPY well off the 200-dma of 142.63.
• Meanwhile, EUR/USD trades just off a fresh session high, with generally healthy volumes if futures activity is anything to go by. EUR/USD's 1.0949 print matches the 50% retracement for the downleg from the Thursday high. Progress through here will be needed before 1.0981 intraday resistance comes into play. US yields likely to play the key role across Tuesday trade, as the backtrack in the USD on the day coincides with a modest retracement for US 10y yields.
• While EUR trading well over the past hour or so, AUD and NZD remain the firmest performers in G10 as the positive equity futures performance and the resolute weakness in the JPY buoy antipodean currencies.
• Despite EUR/USD holding close to the week's best levels, EUR/GBP remains below the equivalent mark, with 0.8647 marking the next nearby upside level.Focus in the coming session turns to the US housing starts and building permits releases, which come alongside the November CPI data from Canada. Central bank speakers include Fed's Barkin, Bostic and Goolsbee.

EGBS: Remain Firmer Following Dovish BoJ; Peripheries Mixed

Core/semi-core EGBs sit firmer this morning as dovish impulses from JGBs continue to feed through.

• Today's BoJ decision saw a lack of commitment to future policy normalisation.
• Elsewhere, the 2024 German funding plan came out broadly in line with expectations while Eurozone November final HICP confirmed flash estimates on the annual print. Neither of those meaningfully impacted markets.
• That leaves Bunds up 51 ticks at 137.25, still below yesterday's high of 137.49. The German cash curve bull flattens with 2s10s down -2.5bps at -49.5.
• Periphery spreads are mixed, with the BTP/Bund spread 1.9bps tighter at 166.4bps and the GGB/Bund spread 2.2bps wider at 114.0bps.
• ECB-speak has continued to push back on current rate cut pricing, with Simkus unsurprisingly weighing in on the hawkish side (re: market rate cut pricing being optimistic). Earlier today, Villeroy presented remarks that may be inferred as slightly less dovish than previously (re: rate cuts only coming after a "plateau" at current levels).
• Despite this, ECB-dated OIS contracts still price over 150bps of cuts through 2024.
• The remainder of today's docket is light.

EQUITIES: E-Mini S&P Targets Early-2022 Highs

• A bullish theme in Eurostoxx 50 futures remains intact and the latest pullback is considered corrective. Last week’s gains confirm, once again, a resumption of the uptrend and maintain a bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode position too, signalling a rising cycle. The focus is on 4636.70, a long-term Fibonacci retracement. Support to watch is at 4488.10, the 20-day EMA.
• A bullish theme in S&P e-minis remains intact and the contract traded higher Monday. The rally last week confirmed a resumption of the uptrend that started Oct 27. Note too that the contract has cleared resistance at 4738.50, the Jul 27 high, reinforcing current positive trend conditions. This signals scope for a climb towards 4808.25 next, Jan 4 2022 high. On the downside, initial firm support lies at 4659.25, the 20-day EMA.

COMMODITIES: Trend in WTI Futures Remains Bearish Despite Latest Bounce

• Bearish conditions in WTI futures remain intact and the recent bounce appears to be a correction. Last week’s fresh trend low reinforces a bearish theme and the break of $69.08, Dec 7 low, confirms a resumption of the downtrend. This maintains the price sequence of lower lows and lower highs and note that moving average studies are in a bear-mode position. The focus is on $67.07, the Jun 23 low. Resistance to watch is $76.23, the 50-day EMA.
• Gold traded sharply higher last Wednesday. This signals a S/T reversal and the end of the recent Dec 4 - 13 corrective pullback. Moving average studies remain in a bull-mode position, highlighting an uptrend. A continuation higher would signal scope for a climb toward key resistance and the Dec 4 all-time high of $2135.4. A break of this level would confirm a resumption of the primary bull trend. Initial firm support lies at $1973.2, the Dec 13 low.