DAILY US OPENING NEWS: Fixed income markets feel the squeeze in Europe amid a rapid turnaround with the front end of the curve giving way first

ASIA-PACIFIC

Asia equity markets were higher across the board as the regional bourses received a lift from their US counterparts, where tech outperformed and all major indices posted fresh record levels. ASX 200 (+0.4%) was led by energy names as crude prices extended on post-API gains after the latest inventory report showed the largest drawdown in 3 months, while Nikkei 225 (+0.5%) shrugged off a firmer currency and jumped aboard the tech-rally ahead of tomorrow’s market closure. Elsewhere, the Taiex (+0.4%) posted a 27-year high, while Hang Seng (+0.6%) rose to its highest in a decade above the 30,000 level after the PBoC upped its liquidity operations again, with blue-chip energy names also underpinned. Finally, 10yr JGBs shrugged off the positive risk tone across the region and traded higher with mild support seen amid the BoJ’s presence in the market for nearly JPY 1tln of JGBs ranging from 1yr-10yr maturities.

PBoC Governor Zhou said China should allow markets to play a decisive role in financial resource allocation, while he added they will reduce FX intervention and push ahead on CNY internationalization. (Newswires)

PBoC injected CNY 100bln via 7-day reverse repos, CNY 80bln via 14-day reverse repos & CNY 10bln via 63-day reverse repos. PBoC set CNY mid-point at 6.6290 (Prev. 6.6356). (Newswires)

Sources state that although the BoJ sees no immediate need to withdraw stimulus, officials are now more vocal on increasing costs of prolonged ultra-loose policy which could be a hint that the next move would be to cut back stimulus rather than widen it. (Newswires)

EUROPE/UK

The UK government have told the EU that resolving issues surrounding the Irish border will only be possible once a trade deal between the UK and EU has been agreed. (Newswires)

US

US Senator Murkowski who is seen as a key moderate swing vote, is said to support repealing of ObamaCare's individual mandate. (Newswires)

Fed Chair Yellen said the Fed must keep an open view and not be trapped by forecasts and said so far so good in terms of reducing the balance sheet. Yellen also commented that she is uncertain whether low inflation is transitory and is keeping an open view that it could be long-lasting. (Newswires)

EQUITIES

European stocks are relatively directionless with the EuroStoxx 50 trading flat. Newsflow has also been on the lighter side ahead of the UK Autumn Budget. Among the biggest movers is Thomas Cook, slipping some 13% after its earnings report. Although, profit figures had come in-line or ahead of analyst estimates, focus was on the tighter margins and aggressive discounts, signalling potential warnings over heightened competition. On a sector basis, basic materials and oil names are faring better, with the latter bolstered by the rise in oil prices, in which WTI is now at fresh 2-yr highs.

FIXED INCOME

More colour and analysis around the rapid turnaround in bonds courtesy of market contacts, as we hear that the front end caved first. Dec 2 year contracts breached the pre-October ECB QE tapering low at 112.2400 (low now 112.200), while 5 year Bobls have been underperforming since the off on spreads and some positioning after Coeure hinted at more forward guidance before September 2018 to flag the end of bond buying. There is also talk about 10s vs 30s flattening trades, and block sales of Bunds in 10k lot clips, one at the 162.67 low, but set more than 10 ticks higher, and the other vs an option strategy (162.50/160.50 put spread against 163.50 calls).  Some consolidation off the lows in Eurex contracts in wake of a strong 30 year German auction, with the retention at the lower end of norms, albeit not a big offering to place.

FX

DXY: The Index is back below 94.000 yet again on broad USD losses ahead of Thanksgiving, with comments from outgoing Fed Chair Yellen weighing as she expresses serious doubts about inflation reaching target due to factors that may not be transitory. The DXY is holding around 93.770, but in danger of revisiting recent multi-week lows under 93.500 if the Greenback succumbs to more selling pressure in holiday-thinned volumes.

EUR: EUR/USD has trimmed its early gains after initially rebounding strongly from sub-1.1720 lows as residual offers from 1.1780-1.1800 continue to obstruct re-tests of the highs above 1.1800. Option expiries could exert more direction influence as Thanksgiving approaches and nearest strikes to watch in decent size are at 1.1750-75 (1.2 bn) then 1.1800-30 (2.4 bn). EUR/GBP also firmer and just under 0.8900, with potential for volatility around the Frankfurt fix (385 mn expiry at the figure too).

JPY: Initially the firmest of the G10 vs the Dollar, with the pair chopping and changing above 112.00 (1.4bln expiry), and a market contact also noting selling in the GBP/JPY cross through 148.50 (program offers reportedly) and key chart support at 147.50.

AUD/NZD: Narrowly mixed vs the USD, as the AUD/NZD cross dips sub-1.1100 again and as the Aud only garnered brief support from strong data overnight.

COMMODITIES

Brent and WTI crude futures are firmer this morning, with sentiment bolstered by the sizeable drawdown in last night’s API crude report (largest drawdown in 3-months). As such, WTI rose to a fresh 2-yr high, however did fail to push through USD 58. Elsewhere, gold prices are modestly higher amid the support from the softer greenback.

US API weekly crude stocks (Nov 17) -6.356M (Prev. 6.513M). (Newswires)

22 Nov 2017 - 10:43- Research Sheet- Source: RANsquawk

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