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Under Pressure


Trend Condition Remains Bearish

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  • Weidmann departure seen changing ECB hawk/dove mix in 2022
  • Light data, but plethora of Fed speakers and 20y supply to digest
  • Futures point to flat US open

US TSYS SUMMARY: Overnight Weakness Reverses, Fed Speakers And 20Y Supply Eyed

Treasuries set fresh lows in Asia-Pac trade but have since bounced back to largely unchanged overnight Wednesday.

  • The 2-Yr yield is down 0.2bps at 0.3935%, 5-Yr is down 0.8bps at 1.1538%, 10-Yr is up 0bps at 1.6373%, and 30-Yr is up 1bps at 2.0947%.
  • Overnight losses (10Y yields touched a fresh post-May high of 1.6707%) followed through from Tuesday; some factors weighing early included weakness in Aussie bonds, White House optimism over a fiscal package deal, and headlines signaling diminished odds of a PBOC RRR cut.
  • Plenty of Fed communications today, including the last scheduled pre-Nov meeting blackout period appearances by Bostic/Kashkari/Evans/Bullard who are on a panel at 1200ET, and Gov Quarles who's speaking on the economic outlook at 1300ET.
  • Also, the Fed releases its latest Beige Book at 1400ET.
  • In supply, at 1300, Tsy sells $24B in 20Y Bond (earlier at 1130ET, $100B combined in 27-day and 119-day bills).
  • In data, we get weekly MBA mortgage applications at 0700ET.
  • NY Fed buys ~$3.225B of 7-10Y Tsys.

EGB/GILT SUMMARY: Weidmann Resignation Could Impact ECB Hawk-Dove Composition

European sovereign bonds have pushed higher this morning alongside a mixed performance across equities and FX.

  • Bundesbank president Jens Weidmann announced his resignation. This could have a significant impact on the composition of hawks and doves on the GC given that Weidmann has been particularly critical of unorthodox monetary policies over his long tenure.
  • Bunds have firmed with cash yields 1-2bp lower on the day and the short-end of the curve outperforming.
  • The OAT curve has similarly bull steepened.
  • BTPs have traded broadly in line with core EGBs. Yields are now down 2-3bp.
  • UK inflation came in a touch below consensus for September (3.1% Y/Y vs 3.2% expected), though still significantly above target.
  • Gilts have also outperformed at the shorter end with the 2s10s spread 2bp narrower.
  • Supply this morning came from the UK (Gilt, GBP2.25bn) and Germany (Green Bund, EUR1.649bn). Italy is also tapping the 1.50% Apr-45 Green BTP for EUR5bn with books north of EUR48bn.


Germany allots E1.649bln 0% Aug-31 Green Bund, Avg yield -0.16% (Prev. -0.38%), Bid-to-cover 0.59x (Prev. 1.05x), Buba cover 1.08x (Prev. 1.14x)

UK DMO sells GBP2.25bln 0.25% Jul-31 Gilt, Avg yield 1.144% (Prev. 0.740%), Bid-to-cover 2.65x (Prev. 2.52x), Tail 0.2bp (Prev. 0.2bp)

Italy syndication: Green BTP final terms:

  • E5bln WNG tap of 1.50% Apr-45 Green BTP
  • Spread set at 1.80% Mar-41 BTP + 10bp (initial guidance was +12bp)
  • Books in excess of E48bln (inc JLM interest)

FOREX: AUD, NZD Solid, NOK Drops Off Firmest Level in Two Years

  • Growth proxies and antipodean currencies are faring most firmly, with AUD and NZD at the top of the G10 pile. AUD/USD is extending the Tuesday rally (spurred by a somewhat hawkish set of RBA minutes), allowing the pair to narrow in on key resistance at the 0.7566 200-dma.
  • GBP edged lower through the European open, with GBP/USD trading south of the 1.38 handle ahead of NY hours. Price action seems more reminiscent of consolidation and profit-taking following sharp strength seen since the beginning of the week rather than a direct market response to the slightly softer-than-expected CPI data - although that will be supporting.
  • A failure to sustain gains in GBP/USD at these levels will mean the pair failed to break the 200-dma at 1.3848 which becomes an important level ahead of any progress on the mid-September high at 1.3913.
  • NOK is the poorest performing currency in G10, knocked back by a modest reversal in oil prices (WTI and Brent crude futures are both lower by circa 1%) and some profit-taking on yesterday's strength in the currency. EUR/NOK bounced off yesterday's 9.7063, which marked a new two-year low for the cross, but the outlook remains resolutely bearish below resistance at 9.9417 - the 23.6% retracement of the July-Oct downleg.
  • Canadian CPI data is the sole release on the data schedule, with focus turning to the Fed's Beige Book and speeches from ECB's Holzmann, Villeroy and Visco as well as Fed's Bostic, Quarles, Kashkari, Evans and Bullard.

FX OPTIONS: Expiries for Oct20 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1595-00(E650mln), $1.1690-95(E533mln), $1.1765-75(E1.0bln)
  • USD/JPY: Y113.50-65($741mln)
  • AUD/USD: $0.7250-65(A$911mln), $0.7300(A$503mln)
  • AUD/NZD: N$1.0408(A$680mln), N$1.0518(A$934mln), N$1.0568(A$1.1bln)
  • GBP/USD: $1.3550(Gbp605mln), $1.3575(Gbp583mln)
  • USD/CNY: Cny6.4300($531mln)

PRICE SIGNAL SUMMARY: Bunds Resume Their Downtrend

  • In the equity space, S&P E-minis remain firm and futures have breached resistance at 4472.00, Sep 27 high and the 4500.00 handle. This signals potential for stronger gains near-term and attention is on 4539.50, Sep 3 high and the bull trigger. EUROSTOXX 50 futures are consolidating and trading close to recent highs and holding onto the bulk of last week's gains. The focus is on 4200.50, Sep 24 high.
  • In FX, EURUSD traded higher yesterday and has breached its 20-day EMA at 1.1625. The break signals scope for a stronger short-term corrective bounce and a resumption of strength would open the 50-day EMA that intersects at 1.1701. Support is at 1.1572/24, Oct 18 low. GBPUSD traded above resistance at 1.3795, 76.4% of the Sep 14 - 29 downleg. An extension would open 1.3913, Sep 14 high. USDJPY maintains a bullish tone and has traded to a fresh trend high today. Attention is on 114.99, 1.50 projection of the Apr 23 - Jul 2 - Aug 4 price swing
  • On the commodity front, Gold remains below recent highs and the sharp reversal lower on Oct 15 highlights a developing bearish threat. Short-term resistance has been defined at $1800.6, the Oct 14 high. Support to watch is at $1746.0, Oct 6 low. Both levels represent key short-term directional triggers. WTI trend conditions remain bullish. The focus is on $85.01, 1.00 projection of the Sep 21 - Oct 6 - 7 price swing.
  • In the FI space, the path of least resistance remains down. Bund futures have traded to a fresh trend low today and confirmed a resumption of the underlying downtrend. This has exposed 167.98, 2.382 projection of the Sep 9 - 17 - 21 price swing. Resistance is at 169.92, Oct 14 high. Gilt futures remain in a downtrend. A resumption of weakness would open 123.27, 2.00 projection of the Aug 31 - Sep 17 - 21 price swing. Resistance is at 125.27, the Oct 14 high.

EQUITIES: US Futures Point to Mixed Open Wednesday

  • Japan's NIKKEI up 40.03 pts or +0.14% at 29255.55 and the TOPIX up 1.1 pts or +0.05% at 2027.67
  • China's SHANGHAI closed down 6.152 pts or -0.17% at 3587.001 and the HANG SENG ended 348.81 pts higher or +1.35% at 26136.02.
  • The German Dax up 18.81 pts or +0.12% at 15541.63, FTSE 100 down 5.83 pts or -0.08% at 7209.67, CAC 40 down 14.84 pts or -0.22% at 6661.07 and Euro Stoxx 50 up 1.44 pts or +0.03% at 4168.34.
  • Dow Jones mini up 4 pts or +0.01% at 35338, S&P 500 mini down 1.5 pts or -0.03% at 4508.75, NASDAQ mini down 9 pts or -0.06% at 15397.

COMMODITIES: Silver Gaining Again

  • WTI Crude down $0.7 or -0.84% at $82.33
  • Natural Gas down $0.01 or -0.2% at $5.078
  • Gold spot up $10.01 or +0.57% at $1776.32
  • Copper down $4.3 or -0.91% at $464.25
  • Silver up $0.28 or +1.18% at $23.8756
  • Platinum up $2.95 or +0.28% at $1049.38