Original insights into market moving news

[PODCAST] European Open Rundown 17th November 2021

  • Asian equity markets traded mixed and struggled to sustain the positive lead from the US
  • The S&P 500 reclaimed the 4,700 level and briefly approached to within four points of its all-time high
  • In FX, the DXY has breached 96.00 to the upside, sending EUR/USD below 1.13 and USD/JPY to a four year high
  • US President Biden said that he will make a final decision about Fed Chair in about four days
  • Looking ahead, highlights include UK Inflation, Eurozone CPI (final), US Building Permits, Housing Starts, Canadian CPI, DoEs, ECB's Lagarde, Schnabel, Fed's Evans, Mester, Bostic, supply from Germany & the US


NIH's Dr. Fauci said it is conceivable that COVID-19 in the US gets downgraded to "endemic" level next year. (Newswires)

Pfizer (PFE) is expected to receive a 10mln COVID-19 pill purchase from the US government, while it was also reported that FDA is planning to authorise booster shots of the Pfizer COVID-19 vaccine for all adults in US as soon as Thursday. (Newswires/NYT)

New Zealand PM Ardern said the entire country is expected to end the lockdown and move to the new traffic light system after November 29th, while Auckland domestic borders will reopen from December 15th for the fully vaccinated and those with negative COVID-19 tests. (Newswires)


Asian equity markets traded mixed and struggled to sustain the positive lead from the US where better than expected Industrial Production and Retail Sales data spurred the major indices, in which the S&P 500 reclaimed the 4,700 level and briefly approached to within four points of its all-time high. ASX 200 (-0.7%) was led lower by underperformance in the top-weighted financials sector amid weakness in the largest lender CBA despite a 20% jump in quarterly cash profit, as operating income was steady and it noted that loan margins were significantly lower. Mining related stocks also lagged in Australia due to the recent declines in global commodity prices amid the stronger USD and higher US yields. Nikkei 225 (-0.4%) retraced its opening gains after disappointing Machinery Orders and miss on Exports which grew at the slowest pace in eight months, while the KOSPI (-1.2%) suffered due to virus concerns with daily infections at the second highest on record for South Korea. Hang Seng (-0.7%) and Shanghai Comp. (+0.4%) were varied with Hong Kong dragged lower by tech stocks including NetEase post-earnings, while the mainland was choppy as markets continued to digest the recent Biden-Xi meeting that was described by President Biden as a 'good meeting' and in which they discussed the need for nuclear “strategic stability” talks. US and China also agreed to provide access to each other’s journalists, although there were also comments from Commerce Secretary Raimondo that China is not living up to phase 1 trade commitments and it was reported that China is to speed up plans to replace US and foreign tech. Finally, 10yr JGBs were flat with demand hampered following the declines in T-notes, although downside was stemmed amid the flimsy sentiment across Asia-Pac trade and with the BoJ also in the market for JPY 925bln of JGBs mostly concentrated in 1-3yr and 5-10yr maturities.

PBoC injected CNY 50bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net daily drain. (Newswires) PBoC set USD/CNY mid-point at 6.3935 vs exp. 6.3919 (prev. 6.3924)

US President Biden said he had a 'good meeting' with Chinese President Xi, while he added that they have a lot to follow up on and aides will work together on a range of issues. There were also separate reports that US President Biden and China President Xi agreed to hold talks aimed at reducing tensions in which they discussed the need for nuclear “strategic stability” talks amid increasing concerns with China expanding its nuclear arsenal and its recent test of a hypersonic weapon. (Newswires/FT)

US Commerce Secretary Raimondo said China is not living up to phase 1 trade commitments, while she also stated that the US has options for expanding its Asia trade outside of the CPTPP and that supply chains must be strengthened beyond just in time. (Newswires)

Chinese Vice President Wang said the foundation of global economic recovery is not solid and suggested countries need to join hands on building the global economy and that they need to promote trade. (Newswires)

China is said to have relaxed funding restrictions in the asset backed securities market and some developers will be able to apply for funding as soon as this month. In other news, China is reportedly speeding up plans to replace US and foreign tech. (Newswires)

Japan's government and ruling party will consider debating revisions to capital gains tax in 2022 as part of effort to address income disparity. There were also reports that Japan is to earmark JPY 100bln for battery factory subsidies and the government is said to have proposed paying oil refiners to curb gasoline prices. (Newswires/Nikkei/Jiji)

  • Japanese Machinery Orders MM (Sep) 0.0% vs. Exp. 1.8% (Prev. -2.4%)
  • Japanese Machinery Orders YY (Sep) 12.5% vs. Exp. 17.4% (Prev. 17.0%)
  • Japanese Trade Balance Total Yen (Oct) -67.4B vs. Exp. -310.0B (Prev. -622.8B, Rev. -624.1B)
  • Japanese Exports YY (Oct) 9.4% vs. Exp. 9.9% (Prev. 13.0%)
  • Japanese Imports YY (Oct) 26.7% vs. Exp. 31.9% (Prev. 38.6%)


Italian PM Draghi and French President Macron will reportedly sign a deal next week to try shift the balance of power in Europe after the departure of German Chancellor Merkel, according to a government source. (Newswires)

ECB's Rehn says that inflation is accelerating on energy prices and the supply crunch but sees inflation easing in 2022. (Newswires)


In FX markets, the DXY was initially steady as it held on to the prior day’s gains at a fresh 16-month high, helped by encouraging data releases including better than expected Industrial Production and Retail Sales as well as hawkish remarks from Fed's Bullard. The DXY then jolted higher overnight on a break above the 96.00 level which coincided with a slip in EUR/USD beneath support at 1.1300 and GBP/USD also briefly tested 1.3400 to the downside, before most of the moves were eventually retraced. EUR/USD extended on its lowest levels since July last year after tripping through support at 1.1300. GBP/USD returned flat after yesterday’s initial support from encouraging jobs data eventually faded on the greenback’s advances and with the pair also managing to compose itself from the USD- and EUR-induced volatility. USD/JPY remained firm after benefitting from the dollar strength and widening yield differentials but with upside capped by resistance at 1.1500 and amid the mixed risk appetite in Asia, while antipodeans were lacklustre in which AUD/USD slipped beneath 0.7300 despite the firmer than previous wage growth in Australia and with NZD/USD at a sub-0.7000 status following recent commodity softness.

BoC Deputy Governor Schembri said assessing how labour market conditions impact inflation has become more difficult, especially in periods of excess demand and that more uncertainty exists around the timing of when the output gap will close and inflation will return sustainably to the 2% target. Schembri added that despite the recent spike in inflation, medium-term inflation expectations have remained relatively well anchored due to their past success in achieving the inflation objective. (Newswires)

  • Australian Wage Price Index QQ (Q3) 0.6% vs. Exp. 0.5% (Prev. 0.4%)
  • Australian Wage Price Index YY (Q3) 2.2% vs. Exp. 2.2% (Prev. 1.7%)


Commodities were lacklustre amid the mixed risk tone and firmer greenback in which WTI crude futures briefly retreated to beneath the USD 80/bbl level where it eventually found support near the prior day's lows. The recent price action in oil has been less than clear-cut amid several pertinent headlines including the latest IEA monthly oil report which maintained oil demand growth forecast largely unchanged although IEA Administrator Nalley later noted that he expected US crude output is to increase significantly next year and expects prices be lower by USD 10/bbl in 2022. There were also recent comments from OPEC Secretary General Barkindo who suggested OPEC has to be careful as he sees oversupply next year that will begin next month and US House majority leader Hoyer pushed back on calls for utilising the SPR, while on the geopolitical front, Iran reportedly removed IAEA cameras and resumed production at the Karaj facility in late August which could provide initial headwinds ahead of the resumption of nuclear deals talks later this month. Furthermore, the latest private sector inventory data had little impact on prices after printing at a mildly lower than expected build for headline crude prices and there were also reports that US asked China to release oil reserves as part of talks on economic cooperation. Gold was lacklustre after recent rise in yields and firmer greenback but with downside cushioned by support around USD 1850/oz and copper prices languished after yesterday's retreat and amid the tentative mood in Asia.

US Private Energy Inventories (bbls): Crude +0.7mln (exp. +1.4mln), Cushing -0.5mln, Gasoline -2.8mln (exp. -0.6mln), Distillate +0.1mln (exp. -1.2mln). (Newswires)

US asks China to release oil reserves as part of talks on economic cooperation, according to SCMP citing a source. (SCMP)

US House Majority Leader Hoyer said he is not in agreement with Senate Majority Leader Schumer's call for the Biden administration to tap the strategic oil reserve to lower gas prices. (Newswires)

Qatar reportedly sold January-loading Al-Shaheen crude at an average USD 3.45/bbl above Dubai quoted which was the highest premium in almost two years, according to sources. (Newswires)


Russian President Putin discussed the situation on Armenia-Azerbaijan border with Armenian PM Pashinyan, while it was also reported that the Armenian Defence Ministry announced a ceasefire on the Armenia-Azerbaijan border. (Interfax)


Treasuries ultimately bear-steepened, where concession ahead of Wednesday's 20yr bond sale and a busy IG supply slate offset the earlier bear-flattener induced by hawkish Bullard commentary. Futures volumes were below average across the curve. At settlement, 2s -0.2bps at 0.522%, 3s +0.5bps at 0.875%, 5s +1.2bps at 1.269%, 7s +1.6bps at 1.522%, 10s +1.4bps at 1.635%, 20s +1.9bps at 2.060%, 30s +1.2bps at 2.019%. 5yr TIPS +0.9bps at -1.928%, 10yr TIPS +3.5bps at -1.121%, 30yr TIPS +5.7bps at -0.425%. 5yr BEI +1.9bps at 3.270%, 10yr BEI -1.0bps at 2.714%, 30yr BEI -2.8bps at 2.460%. A bout of govvie weakness was led by UK Gilts in the European morning as the September employment report came in firmer than expected; T-Notes tested session lows of 130-07+, while cash 10s and 30s peaked at 1.620% and 1.996%. As the UK report faded, T-Notes pared losses to hit resistance at 130-14+, before bids were hit into the NY handover. The third consecutive M/M saw further downside in Treasuries, although the belly got hammered hardest not long after on comments from Fed's Bullard – who gave credence to hawkish leaning policy choices such as hiking before taper completion and/or balance sheet runoff after taper completion – seeing T-Notes hit session lows of 130-03+, while the 10yr cash yield hit highs of 1.635%; the 3yr and 5yr tenors were the weakest on the curve at that point. A deluge of IG issuance announcements had also added pressure along the curve, with particular eyes on Baxter's M&A bond. But note the selling did not sustain through into the NYSE open, with buyers nibbling at the yield highs; one desk noted algo buying triggered by cash 30s topping 2.00%; T-Notes then found interim highs at 130-14 not long after the NYSE stock open, before selling picked up again gradually into the NY afternoon, but not enough to retest earlier lows. On the curve, it was the long-end leading the selling into the afternoon, with eyes on the USD 7.8bln Baxter bond launch, as well as the 20yr bond auction from the Treasury on Wednesday. Cash 30s now sit above the 2.00% support level, while the 20s is the weakest curve tenor. T-note (Z1) futures settle 4 ticks lower at 130-05+.

Fed's Daly (2021, 2024 voter) said patience is the boldest and best action, while she added it is better to wait for greater clarity than raise rates pre-emptively and that the Fed is well-positioned to act if inflation begins to look more persistent. Daly stated that it is hard to unwind pre-emptive action that turns out to be wrong and that 'not now' on rate hikes does not mean 'not ever'. Daly also commented that they will watch to see if inflation eases and if workers come back over the coming quarters and as they get a clearer signal, they will be ready to act. Furthermore, she suggested there are good reasons to believe high inflation will not last beyond pandemic and that it is too early to count out the millions of people on the sidelines of the labour force, while she added that raising rates would not fix high inflation now, but would curb demand and slow recovery. (Newswires)

Fed's Barkin (2021, 2024 voter) said sentiment is taking a hit from the inflation surge and stated that they need a few additional months to evaluate inflationary pressure. (Newswires)

US President Biden said he is confident the House will pass his agenda bill and will get build back better passed within a week, while he also stated that he will make a final decision about Fed Chair in about four days. (Newswires)

US Treasury Secretary Yellen expects extraordinary measures to run out on December 15th which is the new deadline for the debt ceiling and with the revised date based on the latest information, while she added that it is critical that Congress raise or suspend the debt limit ASAP. (Newswires)

US Senate Majority Leader Schumer that the Senate aims to pass Biden's Build Back Better plan before Christmas, while there were comments from US Senator Manchin that he has a lot of concerns with Schumer's plan to have the Build Back Better bill on the floor before Christmas. (Newswires)

Fitch and Moody's said the President Biden's infrastructure and social spending legislation will not contribute to inflationary pressures, while Fitch also stated the US deficit will continue to shrink in FY22 and that the Build Back Better legislation does not sustainably fund all initiatives. (Newswires)