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Free AccessMNI EUROPEAN MARKETS ANALYSIS - Tsy Yields Just Below Week's High Ahead of Truncated Pre-Holiday Session
Highlights:
- Treasuries inch lower ahead of final pre-holiday session
- NZD claws back a small part of this week's underperformance
- Data deluge ahead of the early close, with US personal income/spending, durable goods, Michigan confidence and new home sales data
US TSYS: Marginally Cheaper In Asia, PCE Due Before Christmas
Tsys were biased lower overnight on the Asia-Pac reaction to Thursday’s cheapening in wider core global FI markets, leaving TYH3 -0-06+ at 113-11 into London hours, 0-01 off the base of its narrow 0-05+ range, on modest volume of ~46K. Cash Tsys sit 0.5-1.5bp cheaper across the curve, with marginal bear steepening in play.
- Tsys ticked lower alongside an uptick in the USD & weakness in e-minis during the early rounds of Asia-Pac dealing, with cross-asset flows at the fore, before stabilising as e-minis pared losses and the broader DXY moved back to neutral levels.
- Macro headline flow was fairly limited, with an as expected uptick in Japanese inflation, comments from President Biden stressing that inflation will take some time to normalise and the usual rounds of critique out of China re: U.S. views/actions towards the country all noted.
- Looking ahead PCE readings provide the focal point of Friday’s NY session, although this will of course come against a thinner liquidity backdrop owing to the time of the year, which will limit risk taking capabilities/desire.
- Tsys will be subjected to curtailed trading hours ahead of the Christmas weekend (see earlier bullet for more details).
JGBS: Futures Hold Cheaper, Curve Twist Flattens
JGB futures consolidated around overnight closing levels after a two-way start to Tokyo trade. That leaves the contract -15 into the bell, with 7s providing the weakest point on the curve on the weakness in futures (~2bp cheaper on the day), while wider JGBs observe some twist flattening.
- 10-Year yields continue to hover around the ~40bp mark, 10bp shy of the BoJ’s new YCC cap.
- Local headline flow saw the 3 major Y/Y CPI readings print broadly in line with expectations, once again ticking higher in November, while reports did the rounds re: a potential January cabinet reshuffle from PM Kishida.
- Looking ahead, PPI services data headlines the local docket on Monday, with the labour market report and retail sales prints due on Tuesday. Tuesday will also bring the latest round of 2-Year JGB supply.
AUSSIE BONDS: Cheapening Into Christmas
Aussie bonds nudged away from worst levels into the pre-Christmas close, after the impact of Thursday’s cheapening in core global FI markets applied some weight to the space in Sydney hours.
- Both YM & XM printed through their overnight lows, settling -5.0 & -3.0, respectively, while wider cash ACGB trade saw a similar degree of bear flattening. The AU/U.S. 10-Year yield spread continues to hover around multi-month highs, in the ~+15bp zone.
- Bills were 2-7bp cheaper through the reds, while RBA dated OIS pricing was little changed to a touch higher, looking for 18-19 of tightening at the Feb ’23 meeting, alongside a terminal cash rate of ~3.85%.
- Broader news flow was limited, with domestic private sector credit data printing in line with wider expectations.
- The domestic docket is empty between Christmas and NY.
NZGBS: Marginally Cheaper Come The Close, Early Cheapening Holds
There was little in the way of net movement for NZGBs after the early modest cheapening that came in the wake of Thursday’s light cheapening in core global FI markets. That left the major NZGB benchmarks ~3bp cheaper across the curve at the close, while swap rates were ~2bp higher across the term structure. RBNZ dated OIS is little changed on the day, with Feb ’23 meeting pricing indicating just over 70bp of tightening, alongside a terminal OCR of ~5.55%.
- We didn’t receive any notable domestic news flow, with macro headlines also on the light side.
- There isn’t anything in the way of meaningful domestic points of note slated between Christmas and the turn of the year.
FOREX: Safe Havens Edge Down, NZD Claws Back Some Underperformance
Earlier trends have mostly stayed on track as we progress into the Asian afternoon session. Safe havens in terms of JPY and CHF remain underperformers, while higher beta plays have seen modest outperformance against these plays and the USD.
- This largely owes to the slightly better tone from equities, although market participants are unlikely to be putting on much fresh risk ahead of the Christmas holiday period.
- USD/JPY currently tracks close to 132.65, down slightly from session highs near 132.80. US cash Tsy yields are off intra-day highs as well.
- NZD/USD has rebounded by nearly 0.50%, the pick of the high beta plays. We were last around 0.6275, but this unwinds only a small proportion of the past week's underperformance.
- AUD/USD is back above 0.6680, +0.20% for the session. The AUD/NZD cross has corrected lower though, back sub 1.0650, versus yesterday's highs near 1.0720.
- Coming up, the main focus is likely to be on US data due, with the PCE deflator, durable good orders, U. of Mich. consumer sentiment and new home sales all set to print.
FX OPTIONS: Expiries for Dec23 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0300(E754mln), $1.0400-15(E900mln), $1.0500(E1.4bln), $1.0550(E969mln), $1.0800(E1.6bln)
- USD/JPY: Y130.00-10($981mln), Y132.00($548mln), Y134.00($690mln), Y135.00($1.8bln)
- GBP/USD: $1.2000(Gbp860mln), $1.2100(Gbp511mln)
- AUD/USD: $0.6650-55(A$607mln), $0.6710-25(A$852mln)
- USD/CAD: C$1.3570-75($611mln), C$1.3665-75($933mln)
- USD/CNY: Cny6.8580($1.1bln), Cny6.9000($965mln), Cny7.0460($1.5bln)
ASIA FX: Higher US Real Yields Weighs On SEA FX, Won Rebounds
USD/Asia pairs are mixed today, with plays sensitive to US yield developments, like those in South East Asia and INR, generally underperforming the likes of CNH, KRW and SGD.
- USD/CNH is back below 7.0000, around 0.15% firmer in CNH terms. The 20-day EMA at 7.0167 looks to be acting as a near term resistance point. The CNY fixing bias was slightly firmer compared to yesterday but remains within recent ranges. The US Secretary of State and China Foreign Minister also spoke earlier today.
- 1 month USD/KRW gapped lower after onshore spot opened. We got to just below 1280 before USD support emerged (last around 1281/82). Onshore equities are noticeably weaker today (-1.70%, with outflows from offshore investors resuming).
- USD/IDR is slightly higher, last at 15612. FX remains front and centre of BI thinking. The central bank unveiling a new tool to attract export receipts back into the local currency at yesterday's policy meeting. BI Governor Warjiyo stated the central bank will offer attractive yield to entice such earnings. IDR has been an underperformer through Q4 to date, -2.43%, the worst in EM Asia. The IDR NEER (J.P. Morgan Index) has fallen nearly 8% from its late September peak.
- USD/SGD is slightly lower at 1.3520, with SGD FX outperforming other Asian currencies today. November inflation data showed price pressures remained sticky. Headline was slightly firmer than expected at 6.7%y/y (6.5%y/y forecast. 6.7% prior), while core inflation remained at 5.1% y/y (5.0% forecast). While inflation metrics aren't trending higher, we aren't rolling over rapidly either, which is supportive for SGD from a MAS policy standpoint. Note the Goldman Sachs NEER estimate is edging higher today. Also released IP growth figures disappointed, -3.2%y/y, against -1.2% forecast.
- USD/PHP has rebounded today, back to 55.33, +0.40% for the session. USD/THB is also higher, back above 34.80, also +0.40% for the session, while spot USD/INR is creeping back towards 82.90. Firmer US yields, particularly in the real yield space, have likely weighed at the margins today.
GOLD: Unchanged For The Week, But Technicals Still Appear Positive
Gold has been range bound so far today, currently close to $1793.5, slightly higher for the session. This comes after yesterday's -1.2% drop. At this stage, gold is tracking close to unchanged for the past week.
- Better US data, coupled with a rebound in yields, has crimped the precious metals move above $1800, at least for now. Recent highs remain capped just above $1820.
- On the downside, the 20-day EMA at $1784.74 looks to be a support point and is trending higher, which is a positive from a technical standpoint. The simple 200-day is also near by at $1783.8.
OIL: Tracking Higher For The Week, Russia May Cut Production By 5-7% In Early 2023
Despite Thursday's dip, Brent crude is tracking +3.36% higher for the week, a similar gain to last week. We last tracked near $81.65/bbl, close to the 20-day EMA at $82.06/bbl, beyond that is recent highs between $83/$84/bbl. WTI is close to $78.50/bbl, and on track for a stronger gain this week, +5.72% at this stage.
- Headlines crossed a short while ago that Russia may cut oil output by 5-7% in early 2023 in response to the price caps introduced at the start of the month. This is between 500-700k barrels per day per Bloomberg reports.
- Supply side issues are likely to be the main focus point as we progress in the first part of 2023.
- The drop in US oil inventories, reported earlier in the week, has been supportive, while the market remains wary of the impact of US winter storms and the potential for further supply disruptions in the near term.
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
23/12/2022 | 0745/0845 | ** | FR | PPI | |
23/12/2022 | 0800/0900 | ** | ES | PPI | |
23/12/2022 | 0800/0900 | *** | ES | GDP (f) | |
23/12/2022 | 0900/1000 | ** | IT | ISTAT Business Confidence | |
23/12/2022 | 0900/1000 | ** | IT | ISTAT Consumer Confidence | |
23/12/2022 | 1330/0830 | *** | CA | Gross Domestic Product by Industry | |
23/12/2022 | 1330/0830 | ** | US | durable goods new orders | |
23/12/2022 | 1330/0830 | ** | US | Personal Income and Consumption | |
23/12/2022 | 1400/1500 | ** | BE | BNB Business Sentiment | |
23/12/2022 | 1500/1000 | *** | US | New Home Sales | |
23/12/2022 | 1500/1000 | *** | US | Final Michigan Sentiment Index |
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.