MNI US MARKETS ANALYSIS - Markets Watch First Post-Decision Fed Commentary

US TSYS SUMMARY: Treasuries Consolidate Yesterday's Rally

• Cash Tsys have seen a small bear flattening this morning after yesterday’s rally. The shorter-end is up 1bp on the day but yields remain lower than immediately before Wed’s FOMC (2Y -4bps, 5Y -7.5bps) as markets have priced in lower odds of hiking further out.
• 2Y yields are +1.1ps at 0.623%, 5Y +1.1bps at 1.175%, 10Y +0.5bps at 1.416% and 30Y -0.5bps at 1.847%.
• TYH2 futures have consolidated yesterday’s rally to weekly highs, unchanged at 131-03 on higher-than-average volumes. Clearing 131-16 would reinstate a bullish outlook.
• Fedspeak: Williams (NY Fed) on CNBC Squawk Box interview 0830ET followed by Waller (Board member) on the economic outlook with text and Q&A at 1300ET.
• No data today.
• NY Fed buy-op: Tsy 22.5Y-30Y, appr $1.825B vs. $1.600B prior (1030ET).

EGB/GILT SUMMARY: Digesting Policy Shifts

Gilts have traded weaker and EGBs have firmed in the aftermath of yesterday's policy meetings. Equities are broadly lower across the board while European FX trades weaker against the dollar.

• Gilt yields are now 1-2bp higher on the day with the longer end of the curve slightly underperforming.
• Following an ongoing scandal over an alleged party at 10 Downing St in which Covid rules were not followed, the ruling UK Conservative party lost a by-election to the Lib Dems in North Shropshire in what was a Tory stronghold for nearly 200 years.
• UK retail sales data came in stronger than expected for November (ex auto fuel: 2.7% Y/Y vs 2.3% expected.
• The bund curve has bull flattened with the 2s30s spread 2bp narrower.
• The OAT curve has similarly flattened 2bp
• BTP cash yields are 2-3bp lower with the belly of the curve marginally outperforming on the day.
• Supply this morning came from the UK (UKTBs, GBP2bn) and Belgium (ORI Facility, EUR504mn).

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXG2 172/170ps, sold at 24 in 6k

UK:
SFIM2 99.30/99.00ps 1x2, bought for 1 in 1k

FOREX: USD/CNH Narrows Gap With 50-DMA

• In early Friday trade, the USD Index is holding the bulk of the post-Fed decision weakness, trading either side of the 96.00 handle. This has kept EUR/USD and GBP/USD within the Thursday range, keeping GBP/USD north of 1.33 and EUR/USD below yesterday's highs of 1.1360.
• CNH stands out slightly, with USD/CNH making headway through the mid-December highs of 6.3893 to narrow the gap with first resistance of 6.3912, the 50-dma.
• NZD sits at the bottom-end of the table, falling against all others in G10 as EUR/NZD narrows the gap with November/December resistance crossing at 1.6762/1.6775. Softer commodities prices so far Friday are driving growth proxies lower, with WTI and Brent off around 1.5% apiece.
• There are no notable data releases due Friday, with market focus turning to the first post-Fed decision commentary from the FOMC, with Waller due just after the London close discussing the economic outlook.

FX OPTIONS: Expiries for Dec17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1200(E2.4bln), $1.1300(E2.5bln), $1.1340-50(E1.4bln), $1.1380-00(E4.4bln), $1.1415-25(E1.37bln), $1.1450(E2.1bln), $1.1500(E1.2bln)
• USD/JPY: Y113.00($1.8bln), Y113.50-75($3.0bln), Y113.90-05($1.9bln), Y114.50($1.3bln)
• GBP/USD: $1.3200-10(Gbp1.1bln), $1.3250(Gbp1.5bln), $1.3300-20(Gbp1.1bln), $1.3350(Gbp1.1bln)
• EUR/GBP: Gbp0.8400(E2.0bln), Gbp0.8540-50(E1.1bln)
• USD/CAD: C$1.2730-50($1.0bln), C$1.2850($826mln), C$1.2900($785mln)
• USD/CNY: Cny6.3700($675mln), Cny6.4000($1.4bln)

Price Signal Summary - Reversal In Gold At Its Channel Base

• In the equity space, S&P E-minis rallied yesterday to reinstate a bullish tone and delivered a fresh all-time high of 4743.25. The failure however to hold onto yesterday’s gains refocuses attention on key support at 4589.76, the 50-day EMA. The outlook remains bullish above this EMA. A clear break of it would alter the picture. EUROSTOXX 50 futures have also failed to hold onto yesterday’s high of 4251.00 and the contract is weaker today. Key near-term support is at 4134.50, Dec 14 low where a break would expose 4053.50, Dec 3 low. For bulls, initial resistance is at yesterday’s high of 4251.00.
• In FX, EURUSD is firmer but price remains below resistance at 1.1383, Nov 30 high. A break is required to signal potential for a stronger recovery. Support lies at 1.1222, the Dec 15 low and 1.1186, Nov 24 low. The latter is the bear trigger and the trend remains down. GBPUSD is firmer following yesterday’s rally and has breached the 20-day EMA. Further gains would signal scope for a climb to the 50-day EMA at 1.3439. Key support and the bear trigger has been defined at 1.3163, the Dec 8 low. USDJPY broke out of its recent tight range yesterday and short-term conditions have improved for bulls. The bullish engulfing candle on Dec 6 is still in play and a resumption of strength would open 114.38 initially, 61.8% of the Nov 24 - 30 downleg. Support to watch is at 113.23, Dec 10 / 13 low. A break of this level would threaten the bull tone and expose the key support at 112.53, Nov 30 low.
• On the commodity front, Gold on Wednesday attempted to clear the base of its bull channel from the Aug 9 low. At this stage, the move lower appears to be a false break and the strong recovery from $1753.7, Dec 15 low suggests the yellow metal is basing at the lower end of the channel. Watch resistance at $1815.6, the Nov 26 high. A breach would strengthen bullish conditions. 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 $73.34/74.05, the Dec 9 high and 50-day EMA. A break of support would allow for a deeper pullback near-term.
• In the FI space, Bund futures traded through the 20-day EMA yesterday. Support at 173.40 though has remained intact and this needs to be cleared to signal a short-term reversal. The key resistance and bull trigger is unchanged at 175.02, Dec 8 high. The Gilts trend outlook remains bullish. Short-term support has been defined at 126.34, yesterday’s low. A break would sour the short-term tone. The trigger for a resumption of strength is 127.67, Dec 8 high.

EQUITIES: Markets Mixed Follow Late Wall Street Weakness

• Equity markets across the continent are mixed-to-lower, with sentiment softer from the open given the late sell-off in US stocks on Thursday. Peripheral indices underperform, with Italy's FTSE-MIB leading losses to dip by 1.1%, while the EuroStoxx50 drops 1%.
  
• The FTSE-100 is the sole index in the green, with strength across UK bank names (following the Thursday BoE rate hike) prompting outperformance headed into the NY crossover.
• The e-mini S&P is off around 10 points, rolling off the alltime highs posted on Thursday. The break to fresh all-time highs confirms a resumption of the underlying uptrend and paves the way for a climb towards 4800.00 next. However, the contract failed to hold onto the day's high and attention turns to support at 4589.76, the 50-day EMA. A break would strengthen a bearish threat.

COMMODITIES: WTI, Brent Pull Lower to Fade Thursday Rally

• WTI futures traded lower earlier this week but did find support at Wednesday's low. A deeper retracement would signal scope for weakness towards $65.60, the Dec 3 low. The major support is at the Dec 2 low of $62.43. On the upside, clearance of $73.34, Dec 9 high and $74.05 the 50-day EMA would reinstate a bullish focus and open $78.65, Nov 26 low. MA studies are pointing south. This suggests short-term gains are corrective.
• Gold is firmer and is extending the recovery from $1753.7, the Dec 15 low. The yellow metal has this week attempted to clear the base of its bull channel drawn from the Aug 9 low and it appears the move lower has been a false break. Initial resistance at $1794.5, Dec 1 high has been cleared and this signals potential for a stronger recovery with the focus on $1815.6, the Nov 26 high.