MNI EUROPEAN OPEN: Hong Kong COVID Restriction Rollback Rumours Do The Rounds

SNAPSHOT: Hong Kong COVID Restriction Rollback Rumours Do The Rounds

Below gives key levels of markets in the second half of the Asia-Pac session:

• Nikkei 225 down 135.61 points at 27550.79
• ASX 200 down 53.886 points at 7175.5
• Shanghai Comp. down 2.23 points at 3197.389
• JGB 10-Yr future down 13 ticks at 149.02, yield unchanged at 0.255%
• Aussie 10-Yr future down 1.0 tick at 96.635, yield up 1.00bp at 3.366%
• U.S. 10-Yr future down 0-12+ at 114-24+, yield up 4.16bp at 3.4585%
• WTI crude up $0.66 at $72.67, Gold down $3.05 at $1783.24
• USD/JPY up 37 pips at Y136.99
• CHINA ASKS INSURERS TO BUY BONDS AS RETAIL INVESTORS PULL BACK (BBG)
• MOST CHINESE MAY END UP WITH COVID, SENIOR HEALTH ADVISER WARNS (BBG)
• CHINA HEALTH OFFICIALS TO HOLD PRESS CONFERENCE ON COVID MEASURES (RTRS)
• HONG KONG MAY END OUTDOOR MASK RULE, RELAX COVID TESTS, REPORT SAYS (BBG)
• AUSTRALIA’S TREASURER SAYS RBA REVIEW TO GUIDE LOWE DECISION (BBG)

US TSYS: Cheapening Observed As Asia Fades NY Move

TYH3 deals at 114-26, -0-11, a little above the base of its 0-10+ session range, on volume of 115K. Cash Tsys run 0.5-4.0bp cheaper across the curve, with the belly leading the weakness. The 2-/10-Year yield spread hovers just off inverted cycle extremes, which were registered on Wednesday.

• With broader macro headline news flow on the light side, early overnight dealing saw Asia-Pac participants lean against Wednesday’s richening, with block sales in TY (-10,674) & FV (-3K) futures aiding the direction of travel. Other notable rounds of overnight flow included TY screen sales and demand for TY downside exposure via TYF3 114.00 puts and TYG3 111/110 put spreads.
• Reports pointing to the potential roll back of COVID restrictions in Hong Kong, fuelling a rally in Hong Kong equities, would have aided the cheapening momentum further.
• We have a light European docket, with comments from ECB’s Lagarde, Villeroy & de Cos slated. Further out, weekly initial jobless claims headline a thin NY calendar. Also note that both China & Hong Kong are scheduled to hold COVID related press conferences over the next couple of hours.

JGBS: Curve Twist Flattens

JGBs twist flattened, as the early catch-up bid in the longer end remained sticky (potentially pointing to life insurer/pension fund demand), while paper out to 7s struggled as U.S. Tsys softened in Asia-Pac hours.

• That leaves the major cash JGB benchmarks running 2bp cheaper 3bp richer, pivoting around 10s.
• 7s lead the shorter end the curve lower after futures more than unwound all of their overnight rally, leaving the contract -17 ahead of the bell.
• Local headline flow has been fairly subdued (final GDP and monthly BoP data headlined the data docket), with the broader impulse from swings in wider core global FI markets in the driving seat.
• The latest round of 5-Year JGB supply saw an uptick in the cover ratio (printing virtually in line with the 6-auction average of 3.59x), with the tail holding tight, while the low price matched wider dealer expectations (as proxied by the BBG poll). This suggested that outright yield levels were enough to promote smooth takedown of supply, although the previously alluded to speculation re: a BoJ policy tweak in ’23 likely capped demand.
• Looking ahead, Friday’s domestic docket is very limited, with only money stock and 3-month Bill supply due.

JGBS AUCTION: 5-Year JGB Auction Results

The Japanese Ministry of Finance (MOF) sells Y2.0309tn 5-Year JGBs:

• Average Yield: 0.121% (prev. 0.060%)
• Average Price: 99.90 (prev. 100.19)
• High Yield: 0.125% (prev. 0.064%)
• Low Price: 99.88 (prev. 100.17)
• % Allotted At High Yield: 18.5385% (prev. 80.1910%)
• Bid/Cover: 3.579x (prev. 3.306x)

JGBS AUCTION: 6-Month Bill Auction Results

The Japanese Ministry of Finance (MOF) sells Y3.26498tn 6-month Bills:

• Average Yield: -0.1322% (prev. -0.1148%)
• Average Price: 100.066 (prev. 100.057)
• High Yield: -0.1162% (prev. -0.1007%)
• Low Price: 100.058 (prev. 100.050)
• % Allotted At High Yield: 33.4036% (prev. 48.3438%)
• Bid/Cover: 4.109x (prev. 3.665x)

AUSSIE BONDS: Early Richening Gives Way

Aussie bonds finally gave way to the move lower in U.S. Tsys during Asia-Pac hours, as futures relinquished their overnight bid and cash ACGBs gave back their early catch-up richening. That left YM +1.0 & XM -1.0 at the bell, while wider cash ACGB trade saw the major benchmarks running 1bp richer to 1bp cheaper late on.

• Local data had little impact on the space, with a marginally wider than expected monthly trade surplus accompanied by softer than expected import and export prints.
• NSW TCorp sold a cumulative A$600mn of Apr-29, Feb-30 & March-31 paper, which could have applied some hedging pressure to XM futures early in the day.
• Local news flow saw Treasurer Chalmers note that a decision will be made whether to reappoint RBA Governor Lowe in mid-2023 after consultations with the PM and cabinet. Chalmers said that the RBA review, set to be published in March, will be "relevant" to the decision.
• Bills were -2 to +1 through the reds, while RBA dated OIS was little changed, pricing 16bp of tightening for the Bank’s Feb ’23 meeting, alongside a terminal cash rate of ~3.65%.
• Friday’s local docket will be headlined by the release of the weekly AOFM issuance slate and A$700mn of ACGB Nov-25 supply.

NZGBS: Firm Demand At Auctions Helps Support Space

NZGBS were a little more resilient than U.S. Tsys after adjusting to Wednesday’s firming in core global FI markets. The major benchmarks were 2bp cheaper to 4bp richer at the close, withs 2s a touch cheaper and 10s outperforming as the curve twist flattened.

• A solid round of NZDM auctions (covering NZGB May-28, May-32 & Apr-37) aided NZGBs even after Tsy cheapening weighed, with cover ratios across the 3 offerings ranging from the low 2s to the mid 4s, allowing the space to correct from cheapest levels of the session.
• The early swap spread tightening impulse faded, with the major swap rates finishing 1bp higher to 2bp lower as that curve also twist flattened, leaving swap spreads little changed to a touch wider. Note that the flattening of the 2-/10-Year swap spread moved to fresh cycle extremes, pushing below the -90bp mark. That moves it closer to its GFC inverted extreme as participants weigh up the prospect of continued RBNZ tightening into a recession.
• RBNZ dated OIS was little changed/marginally firmer, with ~65bp of tightening priced for the Bank’s Feb ’23 meeting, while the strip continues to eye a terminal OCR of 5.35-5.40%.
• The monthly BNZ-SEEK report revealed an 8.1% M/M fall in job adverts in November, with BNZ noting that “there is now clearer evidence that NZ job advertising is coming off the boil,” although they flagged that “advertisement levels are still relatively high, roughly where they were a year ago.”
• Looking ahead, Friday’s local docket is headline by manufacturing activity data for Q3 and monthly card spending readings.

EQUITIES: Hong Kong Equities Pull Higher On COVID Restriction Speculation

MNI (London) - Hong Kong equities were the notable Asia-Pac mover on Thursday as press reports alluded to the potential for the rollback of some COVID restrictions, with a press conference to be held this afternoon (local time) subsequently scheduled. That leaves the Hang Seng +3% as we work through the latter rounds of Asia-Pac dealing. Nomura turned more positive on HK equities before the aforementioned reports did the rounds.

• Elsewhere, the major regional equity indices were little changed to marginally softer, with the rally in HK equities helping take the edge off some early weakness.
• The same could be said for e-minis, with the 3 major contracts running little changed after spill over from the HK rally unwound the bulk of the early downtick that was linked to firmer USD and an uptick in U.S. Tsy yields.

GOLD: Prices Down Slightly Today, Risk-off Supportive Going Forward

Gold prices are down slightly on the NY close level at around $1783.40 after rising 0.9% on Wednesday, as the DXY is up 0.2%. Prices remain below their December 5 peak of almost $1810/oz but have been range trading since then. Bullion reached a high of $1788.10 during today’s session and a low of $1781.51.

• The risk-off environment with recession fears growing is likely to be positive for gold prices going forward. Key resistance is at $1807.90, the August 10 high.
• The fall in Australian October exports was driven by a 20.5% drop in non-monetary gold (overall exports to India were down 37.8% y/y).
• There is little of note overnight with the Fed in blackout ahead of its December 14 meeting. The US jobless claims data are the only major release.

OIL: Prices Trending Down But Today Found Support From China Reopening

MNI (Australia) - Oil prices are trading in a narrow range again today of less than a dollar. December has seen range trading at continually lower levels driven by recession fears. WTI and Brent are up around 1% on their NY close at around $72.75/bbl and $77.85 respectively, but remain close to January’s levels.

• WTI reached a high of $72.85 today and a low of $72.27. While Brent’s high was $77.99 and low $77.34. Crude’s move lower over the last few days now opens up $70 as a key support level for WTI and $77.04 for Brent.
• Oil during today’s session found some support from the improved demand outlook from China, the world’s largest oil importer, as it gradually reopens.
• While the EIA US inventory data overnight showed another crude drawdown it reported an increase in distillate and gasoline suggesting weaker demand in the US. The government is monitoring demand and supply factors before deciding whether to increase the strategic reserves.
• Currently, the cap on Russian seaborne oil that began at the start of the week doesn’t seem to have had a significant impact but there is a growing hold up of tankers around Turkey (bbg).
• There is little of note overnight with the Fed in blackout ahead of its December 14 meeting. The US jobless claims data are the only major release before the PPI and Michigan consumer sentiment on Friday.

FOREX: USD Firmer In Asia Alongside Higher Tsy Yields

The greenback benefitted from an uptick in U.S. Tsy yields as Asia-Pac participants faded yesterday’s richening in the Tsy space (and resultant weakness in the USD), with a firmer Hang Seng Index, linked to press reports pointing to a potential loosening of Hong Kong’s COVID restrictions, doing little to dent the early rally in the greenback. E-mini futures are weaker on the uptick in the USD, but off lows on the bid in the Hang Seng.

• Regional headline flow was limited, with Australian trade balance data having little impact on the AUD.
• The JPY finds itself at the bottom of the G10 FX table, with a surprise Japanese BoP current account deficit perhaps applying further pressure to the JPY, on top of the U.S. Tsy yield-derived USD bid.
• USD/CNH has coiled, with a lack of meaningful inputs observed. Participants now await the latest Chinese press briefing on COVID matters (due at 07:00 London) after the country outlined its home quarantine guidelines. The press conference is set to focus on COVID prevention & control measures.
• Central bank communique headlines on Thursday, with comments from ECB President Lagarde, as well as ECB’s de Cos & Villeroy, Riksbank’s Ingves & Floden and SNB’s Maechler all slated.

FX OPTIONS: Expiries for Dec08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0400-20(E798mln), $1.0450(E810mln), $1.0732(E800mln)
• USD/JPY: Y137.00($761mln), Y141.15($900mln), Y142.00($909mln)
• AUD/USD: $0.6700(A$787mln), $0.6800-15(A$1.2bln)
• USD/CAD: C$1.3650($715mln)
• USD/CNY: Cny6.9700($900mln)