MNI US MARKETS ANALYSIS - Post-CPI Dollar Downtick Extends

US TSYS: Giving Back Just A Bit Of Post CPI Rally On Veterans Day

• Cash Tsys closed for Veterans Day holiday but Tsy futures edge only slightly lower after surging after yesterday’s notable core CPI miss.
• TYZ2 trades 9+ ticks lower at 112-07, off yesterday’s late high of 112-19 that now forms resistance (1-31 higher from just prior to CPI). That jump also cleared the 50-day EMA of 112-13 before retreating overnight - a further clear break here would strengthen the case for short-term bulls and open 113-30 (Oct 4 high).
• It may be Veterans Day but we still get the preliminary U.Mich consumer survey for Nov at 1000ET. The inflation expectations components are again in focus after the 1Y jumped from 4.7 to 5.0% in October but the 5-10Y reverted to its narrow 2.9-3.1% range after dipping below it in Sep for the first time since Jul’21.

Source:

US DATA: ISM Manufacturing Survey Suggests a Slowdown in US Exports

In October, the ISM manufacturing survey recorded a third consecutive month of contracting new export orders.

• Prior to August 2022, the last recorded contractions in the ISM new export orders subindex were during the initial pandemic shock period of March to June 2020. A slowdown in European activity and weak Chinese growth amid Covid lockdowns are currently underpinning the continued decline in orders.
• With the US dollar at multi-decade highs and domestic inflation seeing little relief, it is little surprise that global appetite for US goods is quickly dwindling.
• The healthier US Q3 trade deficit saw a boost from energy exports as commodity prices increased and countries looked for alternatives to Russian supply. This largely drove the strong Q3 GDP print of +2.6% Q/Q annualised, which saw a 2.77pp boost on the back of net trade (of which exports made up 1.63pp, the highest since Q4 2021, with imports making up the remaining 1.14pp).
• Going forward, the contraction of the ISM index implies exports will have less of a positive impact on overall activity.

Source: MNI / ISM / Bloomberg

DOLLAR: Sell-side Views Vary on Sustainability of Post-CPI USD Weakness

Many sell-side analysts see the post-CPI USD downleg as having further to run, but some are more cautious – a quick summary of views below:

• JPM FX see the current USD move lower as having legs, at least in the short-term. As such, they remain short USD, particularly against EUR, AUD and CAD, looking to add on USD rallies.
• Credit Agricole see EUR/USD as still looking cheap relative to the S/T fair value, with Ukrainian developments potentially playing a key role going forward.
• RBC write that the close of the USD Index below the 100-day SMA is the first since Jun’21, opening the potential for a fresh leg lower for the dollar correction.
• Berenberg write that the CPI release was supportive of EUR/USD long-term, but the large move has high short-term correction potential.
• ING see it as too soon to call for a broad dollar downtrend, with a Fed pivot not a given and risk assets still facing a variety of headwinds. As such, ING remain moderately bullish USD.

FOREX: Greenback Extends Post-CPI Pullback

• The greenback is extending the post-CPI pullback, falling against all others in G10. The USD Index is now comfortably through the 100-dma, potentially opening another leg lower for the dollar. 107.037 Fib retracement marks first support, and a break through puts the dollar at the weakest level since mid-August.
• This has put USD/JPY through the September intervention lows and below Y140.00 for the first time since early September. This opens 138.64 next, a Fibonacci retracement.
• USD/JPY's sharp downtick puts JPY top of the G10 pile, with SEK and AUD similarly outperforming. AUD/USD prints the best level since mid-September, with the 100-dma of 0.6703 the next upside level.
• Focus turns to the prelim Uni. of Michigan release for November, with 1-yr inflation expectations seen ticking higher to 5.1% from 5.0%. The central bank speaker slate picks up, with ECB's Panetta, de Guindos, Lane, de Cos, Centeno and Nagel on the docket as well as BoE's Haskel and Tenreyro.

FX OPTIONS: Expiries for Nov11 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9955-65(E1.3bln), $1.0000(E1.8bln), $1.0050-65(E1.4bln), $1.0240(E2.2bln)
• USD/JPY: Y144.40-50($560mln)
• GBP/USD: $1.1600(Gbp503mln)
• AUD/USD: $0.6475(A$624mln), $0.6575(A$680mln)
• USD/CAD: C$1.3605-20($1.2ln)
• USD/CNY: Cny7.20($1.1bln)

BONDS: Giving Back Some of Yesterday's CPI Rally

• Core fixed income has been drifting lower this morning, but remains well above pre-US CPI levels. The biggest moves have been seen in Treasury futures, but cash USTs are closed today for Veterans Day.
• The gilt curve has flattened today after the BOE announced after the close yesterday that it would commence sales of long-dated and index-linked gilts on 29 November (not the QE stock, but the "temporary" purchases from October). We have also received UK activity data which was mixed - Q3 GDP was better than expected but still contractionary - and September's data is hard to interpret with the extra bank holiday for the Queen's funeral.
• Looking ahead we will hear from BOE's Haskel and Tenreyro today as well as a number of ECB speakers.
• On the data calendar, the highlight will be Michigan inflation expectation data.
• TY1 futures are down -0-2 today at 112-14+ with 10y UST yields unch at 3.814% and 2y yields unch at 4.334%.
• Bund futures are down -0.66 today at 139.84 with 10y Bund yields up 3.9bp at 2.044% and Schatz yields up 6.8bp at 2.045%.
• Gilt futures are down -0.29 today at 104.89 with 10y yields unch at 3.286% and 2y yields down -1.0bp at 3.045%.

EQUITIES: Eurostoxx Futures Eye March Highs

A bullish EUROSTOXX 50 futures outlook remains intact and yesterday’s rally reinforces this set-up. The contract has cleared resistance at 3810.00, the Aug 17 high and an important bull trigger. Moving average studies are in a bull mode set-up and this highlights current market sentiment. The focus is on a climb towards 3944.00, the Mar 29 high on the continuation chart. First support lies at yesterday’s 3697.00 low. S&P E-Minis rallied sharply higher Thursday and in the process cleared a key resistance at 3928.00, the Nov 1 high. The break of this hurdle strengthens a short-term bullish condition and price has established a sequence of higher highs and higher lows on the daily scale. This signals scope for gains towards 4023.44 next, a Fibonacci retracement. On the downside, key short-term support has been defined at 3704.25, the Nov 3 low.

• Japan's NIKKEI closed higher by 547.14 pts or +2.98% at 28263.57 and the TOPIX ended 41.1 pts higher or +2.12% at 1977.76.
• Elsewhere, in China the SHANGHAI closed higher by 51.16 pts or +1.69% at 3087.292 and the HANG SENG ended 1244.62 pts higher or +7.74% at 17325.66.
• Across Europe, Germany's DAX trades higher by 55.91 pts or +0.4% at 14195.28, FTSE 100 higher by 25.52 pts or +0.35% at 7402.57, CAC 40 up 65.59 pts or +1% at 6622.18 and Euro Stoxx 50 up 30.53 pts or +0.79% at 3875.85.
• Dow Jones mini up 242 pts or +0.72% at 33961, S&P 500 mini up 30.75 pts or +0.78% at 3992.5, NASDAQ mini up 109 pts or +0.94% at 11744.75.

COMMODITIES: Gold Target Shifts to $1800/oz Handle

The pullback in WTI futures earlier this week undermines the recent bullish theme and suggests scope for a continuation lower near-term. A bearish shooting star candle Monday was followed by a bearish engulfing candle formation on Tuesday. These patterns highlight a short-term reversal. A continuation lower would open $81.30, the Oct 18 low. On the upside, key short-term resistance is at $93.74, Nov 7 high. Gold found support again Thursday and rallied sharply higher. This week’s gains have resulted in the break of a number of important resistance points. Yesterday’s rally cleared $1729.5, the Oct 4 high. This strengthens the current bullish theme and paves the way for a climb towards the $1800.0 handle and resistance at $1807.9, the Aug 10 high. On the downside, initial support is seen at $1702.3, the Nov 9 low.

• WTI Crude up $2.15 or +2.49% at $88.62
• Natural Gas up $0.04 or +0.56% at $6.275
• Gold spot up $4.78 or +0.27% at $1760.93
• Copper up $9.9 or +2.63% at $386
• Silver up $0.1 or +0.44% at $21.8024
• Platinum up $21.14 or +2.04% at $1058.37