News and Market Analysis

Asia Session-The day ahead
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asia-session

Asia-Session

Overnight Bullets

-Asia: South Korea consumer confidence; Hong Kong trade

-Treasury’s $57 bln 5-year sale mixed, tails to 0.397%, garners 2.38 cover

-Treasury’s 2-year auction decent but mixed results, record $56 bln at 0.165%

-U.S. flash Markit PMIs climb, manufacturing index at 56.7, best since Sep 2014

-Wall Street firmer on third vaccine candidate optimism; Brexit progress

-Treasuries cheaper amid rise in risk appetite and heavy upcoming supply

-U.S. Chicago Fed national activity index rose 0.51 points to 0.83 in Oct

-Brexit: Signs looking good for a trade deal, deadline now reportedly December 1

-Sterling up on reports of EU and UK drawing near to reaching a trade deal

-Dollar, yen softer on risk-on theme; vaccine news, data and Brexit news in the mix

– 2020 U.S. Holiday Sales Poised to Weather the Pandemic

-A Brexit Deal Is Unlikely to Be the End of Trade Tensions

-Growth Outlooks Hit By Second Wave

Asian Open

Asia Market Outlook (November 24)

Wall Street moved higher overnight, buoyed by news that AstraZeneca’s Covid vaccine achieved efficacy of as much as 90% in late-stage trials (though it requires 2 doses for that efficacy). This particular vaccine is reportedly cheaper to produce and does not require super-cold temperatures to store it. That will make distribution to poorer countries much easier. U.S. data was supportive of stocks as well, as the November Markit PMIs came in better than expected. Core European bourses all closed fractionally lower after giving up the day’s gains. Treasuries cheapened on the day due to the rise in risk appetite and as record coupon supply hit. The 30-year bond was up nearly 4 bps to 1.566%. The 10-year was 3 bps cheaper at 0.86%, while the just auctioned 2-year was at 0.170%, at a small loss from the 0.165% award rate. The curve bear steepened to 68.8 bps versus 66.3 bps on Friday. Core EGB yields moved higher in tandem with U.S. Treasury yields, as encouraging vaccine news and positive signals on Brexit helped to boost sentiment. The Gilt underperformed, with the rate rising 1.7 bps to 0.316%. The Bund edged up slightly to -0.583%. Eurozone peripherals traded mixed, with Italian and Greek 10-year bonds outperformed as ECB officials continue to signal a strengthening of the PEPP program in December.

Today’s regional calendar

Today’s regional calendar is light. Japan returns from Monday’s holiday. South Korea reports November consumer sentiment. Hong Kong has October trade, which should see the deficit narrow slightly to HKD 12.2 bln from 12.7 bln.

In Europe, Germany will reveal the 2nd releases of Q3 GDP, along with Q3 consumption, investment, government spending, and Q3 import and export figures. November Ifo business climate data are due as well. France has November business confidence and the November production outlook. In the U.K., November CBI distributive trades survey – realized is due.

In the U.S., it’s a heavier slate of data. November consumer confidence is expected to lift to 104.0 from 100.9. The November Richmond Fed index is forecast to have fallen to 16 from 29. the September FHFA home price index is due along with the September S&P/Case-Shiller home price index. Weekly chain store sales are on tap as well. The Treasury auctions $56 bln of 7-year notes and $24 bln of reopened 2-year FRNs. For Fedpeak, Bullard and Williams are on deck. The earnings calendar features reports from Medtronic, Vmware, Autodesk, Dell, Analog Devices, Best Buy, HP, Hormel Foods, Dollar Tree, Burlington Stores, J.M. Smucker, and Autohome.

FX Overnight

N.Y. FX Summary (November 23)

The dollar turned broadly higher in N.Y. on Monday, with the better Markit PMI outcomes providing the main driver. USD Short-covering was noted after the unit tumbled through much of the month of November. The DXY recovered from near three-month opening lows of 92.02 to 92.80. In addition, firmer Treasury yields gave some support to the Greenback. More positive vaccine news appears to have helped, as the FX market begins to look through the current spike in Covid cases to the spring when widespread vaccine distribution is expected, which will mark the beginning of the end of the pandemic. Wall Street was higher as well. EUR-USD fell from just over 1.1900 at the open to 1.1800, while USD-JPY rallied from 103.70 to 104.64. USD-CAD headed from 1.3047 to 1.3113, while GBP-USDD pulled back from near three-month highs of 1.3398 to 1.3264.

 

EUR-USD printed a seven-session low of 1.1800 in N.Y. morning trade, down from 1.1906 seen at the open, and marking the pairing’s biggest down day in two-weeks. Better U.S. PMIs came to the Greenback’s aid, and USD short-covering was reportedly a factor across all the major USD pairings. Next EUR-USD support comes at the 20-day moving average, currently at 1.1792, then the 50-day moving average at 1.1775. Resistance is at the earlier 1.1906 peak, then the November 9 high of 1.1920.

Dollar gains drove Cable lower following strong U.S. data, which highlighted a notable growth advantage of the U.S. economy relative to the UK and European economies. Cable printed a near three-month high of 1.3398, later falling to 1.3264. Of note, the UK’s preliminary November services and manufacturing data produced a much less severe drop in the composite reading than had been expected, though still signaled a contraction in economic activity.

 

USD-JPY rallied to one-week highs of 104.64, up from early lows of 103.70. Better Markit PMI numbers helped, sd did firmer Treasury yields, while short-covering from what were seen as oversold conditions supported as well. The pairing has traded through its 20-day moving average, currently at 104.45, and will now eye the November 17 peak of 104.64.

 

USD-CAD rallied on Monday, as the USD made broad gains. After opening at 1.3047, the pairing made its way to 1.3113 highs. Oil price gains along with a broadly weaker Greenback overnight saw USD-CAD under modest pressure. WTI crude traded over the $43 mark, while the DXY hit near three-month lows of 92.02 before recovering. More good Covid vaccine news helped the CAD some early on, though a broad round of USD short-covering later took the pairing higher.