CHINA STOCKS: Another Notable Round Of Net Selling Via Stock Connect Channels
The previously flagged sell off in the Chinese equity space has been aided by the third largest daily round of net outflows from mainland shares via the Hong Kong-China Stock Connect schemes (under the current Connect scheme structure which dates back to late ’16), totalling CNY16.02bn. This comes after yesterday saw the fifth largest round of net daily outflows on record. The mixture of heightened regulatory oversight, the PBoC’s choice to leave the interest rate applied to today’s MLF operations unchanged (when a majority of those surveyed looked for a cut), China’s political proximity to Russia and the continued widening of localised COVID-related lockdowns (which now cover areas populated by over 45 million Chinese people, while new COVID cases in the country topped the 5,000 mark on Monday), have weighed on the space. Firmer than expected Chinese economic activity data for the January-February period provided some brief respite for the space after the initial PBoC inaction-/COVID-induced sell off, but that impetus fell away through the Chinese afternoon session, with the CSI 300 shedding ~4.5%, going out virtually at worst levels of the day, after breaking below the 4,000 level for the first time since June ‘20.
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US TSYS: Risk-Off on Russia Invasion Concerns, US$ Rally, Steady QE TAPER
Aside from the risk-off buying on Russia/Ukraine invasion fears, Tsys extend session highs after the bell -- for a more prosaic reason: measured pace of QE wind-down after NY Fed annc final buy-operations (see 1513ET bullet).
- Final buy-op on Thu March 9: Tsy 2.25Y-4.5Y, appr $4.025B.
- FI markets unwind shorts on bets the Fed could have annc'd an immediate end to QE, quelling chances of intermeeting move prior to March 16 FOMC.
- 30YY falls to 2.2321%, 2.2349 last (-.0814); 10YY falls to 1.9112%, 1.9147%last (-.1147).
Late Trade, Selling Into Risk-Off Bid: Trading desks report pick up in selling after knee-jerk/risk-off move on Russia/Ukraine headline, Tsys have trimmed gains briefly, finish near highs (USH +1-6 at 152-27), equities drew some dip buying but remain weaker (ESH2 around 4418.0).
- Trading desks report leveraged $selling 30s and putting on 5s30s steepeners. Incidentally, 5s30s currently +3.81 at 40.21.
- Eurodollar Options: Better volumes than Treasury options so far, but still fairly sporadic from exhausted markets after Thursday's re-pricing of larger/faster rate hikes due to inflation spike.
- Treasury Options: Trade varied but volumes relatively muted given the shifts in policy pricing since Thursday, not to mention support for underlying futures evaporating around the London close.
USDCAD TECHS: Bullish Focus
- RES 4: 1.2964 High Dec 20 and a key resistance
- RES 3: 1.2924 High Dec 22
- RES 2: 1.2843 76.4% retracement of the Dec 20 - Jan 19 sell-off
- RES 1: 1.2797/2814 High Jan 28 / High Jan 6 and a key resistance
- PRICE: 1.2685 @ 15:53 GMT Feb 11
- SUP 1: 1.2636 Low Feb 10
- SUP 2: 1.2560 Low Jan 26
- SUP 3: 1.2451/48 Low Jan 19 / 76.4% of the Oct - Dec rally
- SUP 4: 1.2387 Low Nov 10
USDCAD reversed an overnight rally into the Friday close, with yesterday’s low of 1.2636 marks the initial support. A positive outlook remains intact following the recovery from 1.2451, Jan 19 low that resulted in a move above the 50-day EMA and a climb through 1.2768, 61.8% of the Dec 20 - Jan 19 sell-off. This has opened 1.2843, the 76.4% value. A break below 1.2636 would threaten the bullish theme.
AUDUSD TECHS: Sharp Reversal
- RES 4: 0.7314 High Jan 13 and a key resistance
- RES 3: 0.7277 High Jan 20
- RES 2: 0.7258 2.0% 10-dma envelope
- RES 1: 0.7249 High Feb 09
- PRICE: 0.7177 @ 15:51 GMT Feb 11
- SUP 1: 0.7107/7052 Low Feb 8 / Low Feb 4
- SUP 2: 0.6968/6963 Low Jan 28 / Low Jul 16, 2020
- SUP 3: 0.6921 Low Jul 14, 2020
- SUP 4: 0.6884 0.764 proj of the Oct ‘21 - Dec ‘21 - Jan price swing
AUDUSD has reversed sharply lower from Thursday’s high of 0.7249. The pullback means the pair has failed to remain above the 50-day EMA and is an early warning of a possible stronger short-term reversal. A deeper pullback would expose support at 0.7052, Feb 4 low. A break of this level would open 0.6968/6963, the Jan 28 and Jul 16, 2020 lows. On the upside, clearance of 0.7249 is required to reinstate the recent bullish theme.
