MNI US MARKETS ANALYSIS - US Yields Extend Move to New Pullback Lows

TSYS SUMMARY: Futures Extend Post-Fed Rally

• Treasuries rallied yesterday and the contract is firmer once again today. Resistance at 111-09+, the Dec 7 high, has been cleared. This confirms a resumption of the uptrend and confirms an extension of the price sequence of higher highs and higher lows. Sights are on 112-28+ next, a Fibonacci projection. On the downside, key short-term support has been defined at 109-31+, the Dec 11 low. First support is at 111-09+.
• Following the BoE decision, Gilt futures hit a low of 100.34 from around 101.07 pre-meeting (now trading around 100.58 at writing so around 50 ticks lower). GBPUSD up from 1.2665 to 1.2713 (just under a 50 pip move higher).

OI Points To Large Long Setting In SOFR Whites & Reds Post-FOMC

The combination of preliminary OI data and yesterday’s richening on the SOFR strip points to sizable net long setting in both the whites and reds post-FOMC, with the reds seeing the largest OI swing on a net pack basis. Pockets of short cover were seen in both of those packs, although those positioning swings were relatively modest.

• Further out, the greens and blues were seemingly subjected to modest net short cover in pack terms, although pockets of net long setting were seen in both packs.
• For reference, markets have bought pricing of the first 25bp cut forward to the March ’24 FOMC vs. May '24 pre-meeting. Further out, 157bp of cuts are now priced through ’24 on the whole, vs. ~115bp pre-decision and early Thursday extremes of ~164bp.

BOE: Instant Answers For MPC decision - Bank On Hold, 6-3 Vote

1.    Was the Bank Rate raised, and if so by how much? No - hold at 5.25%

2.    Number of members voting for cut? 0

3.    Number of members voting for unchanged rate? 6

4.    Number of members voting for a 25bp hike? 3 - Greene, Haskel, Mann

5.    Did the MPC (or the majority of MPC) again say Bank Rate is likely to remain sufficiently restrictive for sufficiently long? Yes

6.    Did the MPC (or the majority of MPC) again say monetary policy is likely to need to be restrictive for an extended period? Yes

7.    Did the MPC again say “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”? Yes

8.    Did the MPC leave its guidance paragraph materially unchanged versus the November policy statement? Yes

9.    Did the MPC say, that in the run-up to the December policy decision, it believed market pricing was over-estimating future rate cuts? No

Kishida Reshuffles Cabinet In Move Likely To Cause Further Tensions

Prime Minister Fumio Kishida delivered on his pledge to purge his Cabinet of representatives of the ruling Liberal Democratic Party's (LDP) most powerful Abe faction amid the ongoing political fundraising scandal, which local observers suggest may result in further tensions within his administration.

• Kishida tapped former Foreign Minister Yoshimasa Hayashi (Kishida faction) to become Chief Cabinet Secretary. Former Justice Minister Ken Saito (unaffiliated) became the new Economy Minister, former Regional Revitalisation Minister Tetsushi Sakamoto (Moriyama faction) became Agriculture Minister, while Takeaki Matsumoto (Aso faction) returned as Internal Affairs Minister.
• Asahi ran an op-ed arguing that Kishida has become increasingly dependent on LDP Vice President Taro Aso amid the decline of his own position within the ruling party. The newspaper claims that two lawmakers Yasukazu Hamada and Masashi Adachi rejected Kishida's offers to join his Cabinet, which suggests that the Prime Minister is struggling to control the party.
• The latest Jiji opinion poll showed that Kishida Cabinet's approval rating plunged to just 17.1%, marking the first time that the metric bell below 20% since the electoral defeat of the Aso administration in 2009. The disapproval rating rose to 58.2%, an all-time high for the Kishida Cabinet. In addition 86.0% of respondents said that Kishida's response to the political fundraising scandal was insufficient.

FOREX: Markets Built on Post-Fed USD Losses

• Dollar weakness pervades further after the Fed decision, with the reaction extending into early Thursday trade. EUR/USD has shown above $1.0900 handle for the first time since early December, adding to gains following the close above the 200-dma yesterday.
• USD/JPY holds the entirety of the post-Fed losses, tipping the pair through the 141.71 post-Ueda lows and looking to cement weakness through 141.52 support. Next key support undercuts at 140.71, the 76.4% Jul - Nov upleg.
• The NOK trades sharply higher after the Norges Bank took a large part of the market by surprise in hiking rates by a further 25bps to 4.50%. While the bank subsequently signaled that this will mark a peak for the policy rate, a large number of sell-side analysts saw no change today, meaning the NOK was marked sharply higher.
• EUR/NOK traded lower by as much as 3% on the initial decision, piercing key support at both the 100- and 200-dma to print the lowest level since early October.
• The SNB decision also prompted a spell of volatility. While rates were held unchanged, the decision to omit the bias for selling foreign currency drew some focus, although EUR/CHF trades broadly inline with pre-decision levels headed into the NY crossover.
• Focus remains on central banks, with the European Central Bank decision ahead. While the bank is not expected to change headline policy, ample market focus will be on any communications for rates ahead, with hefty rate cuts already well-priced in for 2024.

FX OPTIONS: Expiries for Dec14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0715-25(E2.7bln), $1.0790-10(E3.3bln), $1.0825-35(E1.8bln), $1.0855-70(E2.5bln), $1.0900(E1.8bln)
• USD/JPY: Y145.00($698mln), Y147.50-55($1.1bln), Y146.25-30($745mln), Y147.50-55($1.1bln)
• GBP/USD: $1.2465-75(Gbp755mln), $1.2640(Gbp528mln)
• AUD/USD: $0.6500-15(A$1.8bln), $0.6600(A$1.7bln), $0.6700(A$2.1bln)
• NZD/USD: $0.6090(N$750mln), $0.6150(A$611mln), $0.6190(N$1.1bln)

EQUITIES: E-Mini S&P Holds Onto Post-Fed Gains, Targets $4800 Next

• A bullish theme in Eurostoxx 50 futures remains intact and the contract has traded to a fresh trend high today. This confirms, once again, a resumption of the uptrend and maintains 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 4608.00, the Jun 2007 high and a key resistance. Support to watch is at 4423.00, the 20-day EMA.
• A bullish theme in S&P e-minis remains intact and the contract traded sharply higher yesterday. Price is firmer again today and confirms 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 4800.00 next. On the downside, initial firm support lies at 4617.32, the 20-day EMA.

COMMODITIES: Gold Rally Wednesday Signals Short-Term Reversal

• Bearish conditions in WTI futures remain intact and Tuesday’s sell-off reinforced this condition. The contract has cleared $68.80, the Dec 7 low, to confirm 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, highlighting a downtrend. The focus is on $67.28, the Jun 23 low. Key short-term resistance is at $71.96, the Dec 12 high.
• Gold traded sharply higher yesterday. This signals a short-term 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 $2135.39. A break of this level would confirm a resumption of the primary bull trend. Initial firm support lies at $1973.2, yesterday’s low.