MNI US MARKETS ANALYSIS - USD Index Through 50-dma Support

US TSYS: Treasuries Maintain Recent Trend Rally

• Cash Tsys have pulled back off recent highs but still see a modest rally on the day and some flattening beyond 10Y tenors, as they maintain a recent trend helped by yesterday’s weaker data (which started with a larger than expected decline in house prices with MBA mortgage apps & new home sales ahead today). Treasuries notably outperform EU FI where Gilts for instance touched lows after the UK fiscal plan has been delayed to mid-Nov.
• 2YY -3.4bps at 4.443%, 5YY -2.7bps at 4.234%, 10YY -3.7bps at 4.065%, and 30YY -6.3bps at 4.195%
• TYZ2 trades 7 ticks higher at 110-25+, off session highs of 111-01+ that had moved closer to initial resistance at the 20-day EMA of 111-11. Support remains the bear trigger of 108-26+ (Oct 21 low).
• Data: MBA mortgage apps/rates (0700ET), Advance goods trade balance (0830ET), Wholesale & retail inventories (0830ET), New home sales (1000ET).
• Bond issuance: $24B 2Y FRN Note auction (91282CFS5) – 1130ET, $43B 5Y Note auction (91282CFU0) – 1300ET
• Bill issuance: $33B 17W bill auction – 1130ET

STIR FUTURES: Chipping Away At 2023 Rate Expectations

• Fed Funds implied hikes see a similar pattern to yesterday’s cooling, little changed at upcoming meetings and slightly lower further out.
• 77.5bp for Nov 2 (unch), 137bp to 4.45% for Dec (unch), terminal 4.92% May’23 (-1bp) and 4.54% Dec’23 (-2bp).
• No lasting impact from the Australia CPI beat overnight and firming of a 25bp hike, but potential spillover from the BoC at 1000ET with consensus leaning to a 75bp hike and roughly 70bps priced.

FOMC-dated Fed Funds futures implied hike (top panel) and rates (bottom panel)Source: Bloomberg

UK: Gilts hold up pretty well given delay to fiscal statement

• Gilts are underperforming both USTs and Bunds this morning with concerns that the fiscal statement would be delayed from 31 October (based initially on a Times report that it would be considered today and then a later BBC piece that said it was a done deal ahead of an official confirmation). The fiscal statement has now been upgraded to a formal "Autumn Statement" and the OBR forecasts will be released alongside it.
• On the BBC story, gilt futures hit their lows of the day of 100.49 (around 90 ticks off yesterday's close) although given the recent volatility the moves were relatively small.
• Gilts have since recovered around half of these losses to trade around 40 ticks lower on the day with 10-year yields up around 3.5bp.
• The long-end has seen a bigger move today with the 10s30s curve around 6.6bp steeper on the day at 8.7bp. Since Truss' resignation as PM the curve has traded in a broad -7bp to +10bp range.
• Given the Autumn Statement is due to be held in a week with 3 gilt auctions and next week there is no issuance (due to the DMO moving the syndication to accommodate the fiscal plan announcement), there is a chance we see a bit of a change to the DMO calendar.
• 2y yields up 0.3bp today at 3.306%, 5y yields up 0.3bp at 3.729%, 10y yields up 3.6bp at 3.664% and 30y yields up 9.7bp at 3.762%.
• 2s10s up 3.3bp today at 35.8bp and 10s30s up 6.1bp at -0.8.bp.

IMF Chief-'Expect PM Sunak To Steer UK To MT Fiscal Sustainability'

Speaking to Reuters, IMF managing director Kristalina Georgieva states that she expects new UK Prime Minister Rishi Sunak to 'steer the United Kingdom towards the path of medium-term fiscal sustainability'. Also expects to speak to UK Chancellor of the Exchequer Jeremy Hunt in the coming days.

• Comes as PM Sunak prepares for his first prime minister's questions in the House of Commons at 1200BST (0700ET, 1300CET). Livestream: https://www.parliamentlive.tv/Event/Index/0176524f...
• Regarding the planned 31 October medium-term fiscal plan from Chancellor Jeremy Hunt there is still no concrete confirmation of it going ahead as planned. The re-appointment of Hunt as chancellor in yesterday's Rish-uffle was seen as an attempt to quell markets and signal stability at the Treasury.
• However, this morning re-appointed Foreign Secretary James Cleverly refused to commit to the Oct 31 date and there is speculation that today's meeting between Sunak and Hunt could see a suspension of the MTFP date to allow the new PM greater input on the plans.
• Cabinet appointments to continue this afternoon, with junior ministers and principal private secretaries set to be selected.

FOREX: USD Index Sinks, Through 50-dma Support For First Time in Three Months

• The Greenback saw another wave of weakness in early European hours, with the price action reminiscent of the USD dip after the US equity open on Tuesday.
• EUR/USD is now back above parity for the first time since mid-September and trades north of resistance at the early October highs (0.9999). This narrows the gap with the next upside levels at 1.0051 and the 100-dma of 1.0094. A close at current levels or higher would mark a significant bullish development, and coincides with the USD Index falling through the 50-dma of 110.783 for the first time since early August.
• The USD downtick is similarly notable against the CNH, with USD/CNH off over 1.5% on the day. The price action will raise suspicion of intervention via state-run banks as we've seen in recent weeks - particularly after the pair hit record highs this week and the Chinese authorities conducted a survey of banks to gauge both positioning and market sentiment toward the currency.
• AUDUSD now trades a point above the 20-day EMA - flagged as a key resistance this week - cementing a break to confirm a bullish shift to the technical backdrop. This opens gains toward key resistance at the Oct 4 highs at 0.6547.
• Focus turns to September trade balance data and new home sales from the US, amid growing evidence that the US real estate market is slowing quickly. The Bank of Canada rate decision is also due, with the Bank are seen raising rates by a further 75bps to 4.00%. The BoC's monetary policy report also crosses, followed by a press conference with the BoC governor.

MNI China Liquidity Index™– Falls To 46.9 in October

Liquidity conditions across China’s interbank market eased in October, as end-quarter MPA stress and Golden week sash needs fell away. The outlook for the economy picked up, helped by the mood music from the 20^th Party Congress, the latest MNI liquidity conditions survey showed.

The Liquidity Condition Index, slid to 46.9 from September’s 59.4, with one quarter of the participants reporting a marginal loosening of liquidity conditions. The higher the index reading, the tighter liquidity appears to survey participants.

• The Economy Condition Index stood at 53.1, picking from August's 48.4, with sentiment improved in the wake of easing Covid restrictions.
• The PBOC Policy Bias Index remained below 50 for a 16^th consecutive month.
• The Guidance Clarity Index was little changed, as respondents again claim to understand the signals from the PBOC.

The MNI survey collected the opinions of 32 traders with financial institutions operating in China's interbank market, the country's main platform for trading fixed income and currency instruments, and the main funding source for financial institutions. Interviews were conducted October 10 – October 21.

Click below for the full press release:

MNI China Liquidity Index -2022_10 presser.pdf

For full database history and full report on the MNI China Liquidity Index™, please contact:sales@marketnews.com

French Consumer Sentiment Boost as Inflation Expectations Stabilise

FRANCE OCT CONSUMER SENTIMENT 82; SEP 79

• French consumer confidence surprised to the upside in October, improving by three points to 82 instead of seeing an expected two-point slide to a fresh record low. The indicator remains pessimistic and below the long-run average of 100.
• Households' expected financial conditions improved in October alongside a marked rebound in future standard of living conditions in France. Unemployment concerns remained stable following a sharp increase in September and inflation expectations also stabilised, despite remaining high.
• This combination of improvements is an early indication that the French consumer likely sees the economy rebounding after the anticipated European winter recession plagued by high energy prices.
• On Friday French GDP is expected to weaken to +0.1% q/q in the Q3 flash estimate (vs +0.5% q/q in Q2), whilst flash HICP data sees another uptick in price growth to +6.5% y/y.