MNI US MARKETS ANALYSIS - USD Index Offered For Fourth Session

US TSYS: Off Session Highs With FOMC Minutes, Existing Home Sales & 10Y TIPS Ahead

• Cash Tsys trade mostly flat but drift to 2bp richer for 30s, having pared earlier gains that had come with a continuation of yesterday’s flattening seen after the strong 20Y auction, if anything, magnified by a relatively well-received round of 20-Year JGB supply in Asia.
• Reported positives surrounding the Israeli-Hamas hostage situation didn’t initially filter into wider markets although have perhaps helped the intraday sell-off.
• TYZ3 at 108-27+ has pulled back near to the day’s lows after earlier breaching yesterday’s high with 109-01+, stopping short of initial resistance at 109-08+ (Nov 17 high). Cumulative volumes are solid at 340k with rolls getting underway.
• Fed Funds implied rates continue to price very little tightening ahead (+1bp over next two meetings) before the first cut in July (cumulative 31bp) and a cumulative 91bp to end-2024.
• Fed: FOMC meeting minutes (1400ET) - MNI preview here.
• Data: Chicago Fed activity Oct (0830ET), Philly Fed non-mfg Nov (0830ET), Existing home sales Oct (1000ET). Existing home sales are expected to show further weakness having already slumped to ~25% below pre-pandemic levels.
• Note/bond issuance: US Tsy $15B 10Y TIPS re-open (91282CHP9) (1300ET)
• Bill issuance: US Tsy $26B 2Y FRN re-open, $75B 41D bill CMB (1130ET)

OI Signals Mixed SOFR Positioning Swings On Monday, Long Cover In Whites Most Prominent

The mix of yesterday’s twist flattening on the SOFR strip and preliminary open interest data points to the following positioning swings on the SOFR strip on Monday:

• Whites: Long cover appeared to dominate, with only SFRU3 seemingly seeing fresh shorts set in net terms.
• Reds: An apparent mix of short setting, long cover and long setting.
• Greens: Short cover seemed to dominate on a pack basis, with pockets of apparent long setting noted.
• Blues: The pack was seemingly tilted towards net long setting, although net short cover was seemingly seen in SFRU6.

MNI PREVIEWS: FOMC Minutes, Canada CPI, UK Autumn Statement

MNI FOMC MINUTES PREVIEW: Rebalancing Act

The Minutes will be scrutinized for further insight into how participants viewed the impact of tighter financial conditions on the outlook, particularly given that they were added to the Statement as a factor that was "likely to weigh on economic activity, hiring, and inflation". The market's take on the implication was that the FOMC effectively saw higher longer-end yields as doing some of the job of potential short-end rate hikes, but the Fed's tightening bias remained, pending incoming data. There will as always be attention paid in the minutes to mentions of participants' criteria to hike further, or alternatively, to be satisfied that rates are sufficiently restrictive to return inflation to target.

MNI UK ISSUANCE DEEP DIVE: Autumn Statement Preview and FQ4 Outlook

In this note we outline the main measures that are expected to be under consideration for the Autumn Statement, expectations for revisions to the gilt remit, the wider political implications and outline our expectations for which gilts will be on offer in FQ4 (January to March). The median expectation of the 10 sell-side summaries that we have compiled looks for gilt issuance in 2023/24 to be cut from GBP237.8bln to GBP220.0bln. We look at the implications for the maturity breakdown and bills. We also include updated tables including all gilts in issue, how much is owned by the BOE, an auction calendar and data on BOE gilt sales.

MNI CANADA CPI PREVIEW: Watching for Potential Drop in Median/Trim Trend Rates

Consensus sees headline CPI slowing notably to 3.1% Y/Y in October owing to large energy-focused base effects, back to just above the BoC's upper end of the 1-3% target range. The Bank has been waiting to break through this level for some time and has grown more impatient, although a significant softening in its growth outlook has provided a partly offsetting factor.

EUROPE ISSUANCE UPDATE

• E3.5bln (E2.83bln allotted) of the 2.40% Oct-28 Bobl. Avg yield 2.56% (bid-to-cover 1.68x)

• E656mln of the 3.00% Sep-33 RFGB. Avg yield 3.138% (bid-to-cover 1.45x)
• E270mln of the 0.125% Apr-36 RFGB. Avg yield 3.285% (bid-to-cover 2.19x)

FOREX: Greenback Downdraft Extends, Prompting New Pullback Lows

• The greenback remains offered, with the USD Index lower for a fourth consecutive session to touch the lowest level since late August. The solid demand at the 20y Treasury auction yesterday has spilled over into currency markets, as the retreat in the 10y yield holds through to Tuesday morning.
• NZD has continued to be the primary beneficiary, pushing NZD/USD to new multi-month highs and within range of the 200-dma resistance at 0.6096. Clearance here would see the highest levels since mid-August, while AUD/NZD also reverts back to the midpoint of the recent range.
• JPY is among the firmest performers, helping aide a fourth session of losses for EUR/JPY. 161 undercuts as support, marking the 50% retracement for the late October – mid November upleg.
• Focus ahead turns to the Canadian CPI release, at which markets expect Y/Y to slow to 3.1% from 3.8% previously. US existing home sales data is also set to cross, as well as the Fed minutes for their November 1^st meeting. The central bank speaker slate includes ECB’s Lagarde, Schnabel & Centeno as well as BoE’s Bailey.

FX OPTIONS: Expiries for Nov21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0850-60(E1.5bln), $1.0925-30(E750mln)
• GBP/USD: $1.2375(Gbp624mln)
• USD/JPY: Y149.00-20($2.5bln), Y149.50($1.5bln), Y151.00($1.3bln)
• AUD/USD: $0.6520-25(A$1.1bln)

FX OPTIONS: TWD, CNY Spot Breakouts Stimulate Solid Hedging Demand

• FX options volumes were unusually busy for a Monday session, with total notional traded via the DTCC topping $100bln for a second consecutive session. The demand for options coincides with uptick in front-end G10 vols, with CNY, JPY, AUD and NZD 1m vols touching new multi-week highs in Tuesday trade. The exception here is EUR and GBP vols, which remain subdued and close to recent lows.
• Today’s activity has been propped by sizeable trade across TWD options, likely triggered by the sharp multi-day rally in TWD over the past week or so. USD/TWD spot slipped below 31.50 for the first time since early August overnight, helping trigger a wave of vol-hedging evident in several sizeable strangle trades across late Asia/early Europe hours.
• The strengthening of spot CNY above the daily fix has also been accompanied by higher-than-average CNY options volumes, with downside exposure in demand throughout. Close to $3 in USD/CNY puts have traded for every $2 in calls, with 7.12, 7.10 and 7.05 put strikes seeing the most notable interest.

EQUITIES: E-Mini S&P Starts Week on Bullish Note, Confirming Extension of Recovery

• A short-term bull cycle in Eurostoxx 50 futures remains intact and the contract continues to appreciate. Price has recently cleared resistance at both the 20- and 50-day EMAs - a bullish development. Note that last Tuesday’s gains resulted in a breach of resistance at 4256.00, the Oct 12 high, reinforcing the bullish theme The focus is on 4388.00, the Aug 30 high. Initial firm support to watch is at 4228.90, the 20-day EMA.
• S&P e-minis traded higher Monday, starting the week on a bullish note and confirming an extension of the recovery that started Oct 27. Recent gains have resulted in a break of a trendline drawn from the Jul 27 high. This reinforces bullish conditions and signals scope for a climb towards 4597.50, the Sep 1 high. On the downside, initial firm support is seen at 4415.80, the 20-day EMA

COMMODITIES: Recent Gains in Gold Continue to Support Bullish Conditions

• A bearish theme in WTI futures remains in play and the latest recovery is considered corrective. The break lower last week marks an extension of the downtrend that started late September and maintains the price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position, highlighting bearish market sentiment. The focus is on $70.96, a Fibonacci retracement. Key resistance is at $79.65, the Nov 14 high.
• The trend condition in Gold remains bullish and recent gains reinforce this condition. Furthermore, MA studies are in a bull-mode set-up, highlighting a rising trend cycle. A stronger resumption of gains would open $2022.20, May 15 high. The bull trigger is at $2009.4, the Oct 27 high. Note that support at the 50-day EMA, at $1944.7, has been pierced. A clear break of this average would undermine the bullish theme and expose $1908.3, Oct 16 low.