MNI US MARKETS ANALYSIS - JPY Surge Puts Currency Front and Centre

JGB Cheapening Impulse Fuels Sell-Off, Jobless Claims In Focus Ahead

• Cash Tsys trade 2.5-5bp cheaper, led by 7s, for a modest steepening in 2s10s space but leaving the -46bps well within yesterday’s range.
• JGB impulses drove initial pressure, via perceptions of BoJ communique/policy normalization risks and a poorly received round of 30-Year JGB supply before softer-than-expected Germany IP data helped move away from best levels.
• TYH4 at 110-29+ (-07) trades towards the lower end of the day’s range and remains with yesterday’s, with strong volumes of 465k. Support is seen at 109-16+ (20-day EMA) but the trend direction remains north with initial resistance at the intraday high of 111-09+ before 111-19 (Fibo projection of Oct-Nov price swings).
• Data: Weekly jobless claims (0830ET) are likely to have more impact than yesterday’s modest miss for ADP. We also get Challenger Job Cuts for Nov (0730ET), Wholesale sales/inventories for Oct/Oct final (1000ET), household change in net worth Q3 (1200ET) and consumer credit Oct (1500ET)
• Bill issuance: US Tsy $80B 4W, $80B 8W bill auctions (1130ET)

STIR: Fed Implied Rates Still Pondering March Cut Ahead Of Jobless Claims

• Fed Funds implied rates have faded an earlier push higher in early European trade but most sit slightly higher on the day.
• Near-term cut expectations are similar to levels from just before yesterday’s ADP miss, whilst later 2024 implied rates have pushed higher, helping the rate path push back closer to levels before a dovish reaction to Chair Powell's Spelman College discussion on Dec 1.
• Of note, there are a cumulative 17bp of cuts for the March decision, 53bp for Jun and 123bp for Dec – see table.

Mix Of SOFR Positioning Swings On Wednesday

The combination of mixed price action on the SOFR strip and preliminary open interest data points to the following net positioning swings on Wednesday.

• Whites: An apparent mix of long setting (SFRU3 & Z3) and short setting (SFRH4 & M4), with the net OI swing in the former comfortably outweighing that in the latter.
• Reds: Seemed to be dominated by short setting, SFRM5 was the exception, seeing apparent long cover in net terms.
• Greens: An apparent mix of long cover, long setting and short cover.
• Blues: An apparent mix of short cover and long setting, with the former dominating on a pack basis.
• A reminder that markets reacted to the softer than expected ADP employment and ULC prints, which come ahead of tomorrow’s monthly NFP readings.
• Note that end of ’24 FOMC cut pricing remained shy of the recent dovish extremes on the Fed Funds futures strip.

EUROPE ISSUANCE UPDATE

Spain Auction Results - 6/15-year Obli, 10-year Obli-Ei Results

• E1.198bln of the 0.60% Oct-29 Obli. Avg yield 2.831% (bid-to-cover 2.18x).
• E1.727bln of the 3.90% Jul-39 Obli. Avg yield 3.589% (bid-to-cover 1.74x).
• E505mln of the 0.70% Nov-33 Obli-Ei. Avg yield 1.199% (bid-to-cover 1.76x).

• E988mln of the 2.75% Oct-27 OAT. Avg yield 2.45% (bid-to-cover 4.38x).
• E1.318bln of the 0% May-32 OAT. Avg yield 2.59% (bid-to-cover 2.79x).
• E2.01bln of the 1.25% May-34 OAT. Avg yield 2.75% (bid-to-cover 2.95x).
• E680mln of the 0.10% Mar-29 OATei. Avg yield 0.44% (bid-to-cover 3.11x).

Decent French auction with the maximum target amount sold (E5.0bln) and the stop price exceeding the pre-auction secondary market mid-price. The bid-to-covers all look flattered as the December auction is smaller than other months (as announced last week and is always the case in France). All four bonds sold this morning hit an intraday high in the aftermath of the auction.

Finland Auction Results - 0.125% Sep-31 RFGB

• E80mln of the 0.125% Sep-31 RFGB. Avg yield 2.6% (bid-to-cover 2.44x).

FOREX: JPY Surge Triggered by Cumulative BoJ Effect

• JPY has surged, comfortably outperforming all others in G10 to put USD/JPY through Y145.00 on the downside for the first time since early September. The move was triggered by the cumulative effect of appearances from BoJ's Himono and Ueda, both of which strongly suggested that the BoJ are already considering how to exit NIRP once economic conditions justifying a policy switch are met. A poorly received longer-end JGB auction added to the JPY impetus.
• USD/JPY's weakness through Y145.00 opens Y144.45 as the next intraday downside level, and a broader retrenchment would open 142.85, marking the 61.8% retracement for the July - November upleg.
• The greenback is the poorest performer, sliding against all others and tipping the USD Index off yesterday's highs. This snaps the winning streak for the USD that extended to six sessions.
• Weekly jobless claims data and the final October wholesale inventories/sales numbers are the calendar highlights, while the central bank speaker slate is quieter given the proximity to the ECB, Fed meetings due next week. BoC's Gravelle is set to present the Economic Progress Report at 1750GMT/1250ET.

FX OPTIONS: Expiries for Dec07 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0720-25(E833mln), $1.0750-55(E893mln), $1.0770-75(E936mln), $1.0800-05(E788mln), $1.0825-30(E1.2bln), $1.0840-50(E1.0bln)
• USD/JPY: Y147.00($677mln), Y147.35($583mln), Y148.00($508mln), Y149.90-00($1.5bln)
• GBP/USD: $1.2475-85(Gbp722mln)
• AUD/USD: $0.6545(A$2.5bln), $0.6650(A$2.3bln)
• NZD/USD: $0.6150(N$889mln)
• USD/CAD: C$1.3550($615mln)
• USD/CNY: Cny7.1810($890mln)

EQUITIES: Bullish Equity Theme Intact Through Consolidation Phase

• A bullish theme in S&P e-minis remains intact and the contract is trading closer to its recent highs. So far, corrections have been shallow - a bullish signal. Note too that moving average studies are in a bull-mode position and this highlights positive market sentiment.
• A bullish theme in Eurostoxx 50 futures remains intact and the contract is trading higher this week. Last week, resistance at 4387.00, Nov 24 high, was breached. The break confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows.

COMMODITIES: Bearish Crude Trajectory Cemented on Break of $70/bbl

• Gold traded in a volatile manner Monday. The trend condition is bullish and Monday’s initial 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.
• Bearish conditions in WTI futures remain intact and yesterday’s sell-off reinforces 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.