US TSYS: J.P.Morgan: Positioning And Timing Impacted Wednesday’s Price Action
J.P.Morgan note that “despite the intraday reversal (on Wednesday), it’s telling that Treasury yields were unable to follow through considerably higher, and the change on day looks rather muted all things considered. This is particularly notable as valuations continue to flag as rich in our fair-value framework.”
- “Thus, we attribute this to both position technicals and where we stand in the year as well.”
- “As we’ve highlighted for the last week, both our Treasury Client Survey and the CFTC’s weekly Commitment of Traders release indicate positioning has turned more bearish on duration over the last month. Thus, it’s possible the brief move to higher yields was used as an opportunity to reduce risk.”
- “This is particularly important, as today was likely the last meaningful trading day of 2022, and liquidity conditions should deteriorate further from current levels. Total Treasury market depth tends to decline about 25% over the course of December with most of this move occurring over the last 10 days of the year.”
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CNH: CNY Fixing Bias Holds Close To Neutral
The USD/CNY fixing printed at 7.0421, versus a Bloomberg consensus of 7.0433
- Today's outcome represents a surprise of -12pips in USD/CNY terms, which compares to yesterday's outcome of -4pips.
- The 5-day rolling sum of the error term is almost back to flat, sitting at -46pips following today's outcome.
- USD/CNH had a slightly firmer bias in the early part of trading, rising to 7.05, but we now sit back in the low 7.0400 region, little changed for the session.
BOJ: Fixed Rate Operation Offer
The BoJ offers to buy an unlimited amount of 10-Year JGBs at a fixed rate of 0.25%.
RBA: Further Rate Hikes Ahead, Expect 25bp As Consistency Important To RBA
The RBA meeting minutes contained the same key points that were in the statement and speeches by Governor Lowe and Deputy Governor Bullock since November 1. It does give some colour as to the discussion ahead of the 25bp move. Again the RBA states that it expects to increase rates further to balance supply and demand and to return inflation to target but that it is on a narrow, uncertain path.
- Again the Board discussed whether to hike rates 25bp or 50bp and found that there were arguments for both. It decided on 25bp due to the significant amount of tightening that had occurred since May and that not all of that had filtered through to the economy yet.
- It was also concerned about maintaining consistency after the 25bp hike in October and thus confidence in the community and financial markets.
- Other reasons included the impact on household budgets and the housing market, wages consistent with the target, easing global supply chain issues, some commodity prices falling and slower global growth outlook.
- Current elevated inflation, upside risks to inflation from the tight labour market, rents and energy, and a possible shift in price- and wage-setting behaviour drove the arguments for 50bp. The minutes also noted that rates were still historically low.
- The RBA remains prepared to accelerate tightening if need be or even pause - “members did not rule out returning to larger increases if the situation warranted. Conversely, the Board is prepared to keep rates unchanged for a period while it assesses the state of the economy and the inflation outlook. Interest rates are not on a pre-set path.”
- See minutes here.
