Citi
European Open
The morning saw some headlines from Bloomberg stating that Omicron is four times more transmissible than Delta according to a Japan study. This followed yesterday’s news from Pfizer and BioNTech that we covered. Shrugging the news off, however, markets remained sleepy, with G10 seeing no notable moves and USD ticking higher slightly. Over in Asia, CNH saw the PPI-CPI gap start to narrow today, and traded up 0.1% on the day.
On the data front, we will see Jobless & Continuing Claims (13:30 GMT) for USD and Germany CA Balance (07:00 GMT) for EUR. The EM region will welcome a series of rate decisions, starting with HUF (08:30 GMT) where the market expects a 20bps hike to 3.30. This is followed by a UAH decision (12:00 GMT) where the market expects 50bps hike to 9.00%, and PEN decision (23:00 GMT), where Citi Economics expect a 50bp hike to 2.50%. We also note that MXN CPI (12:00 GMT) will be sighted.
A lens on the US
USD ticked slightly higher on the day at +0.12%. UST were mostly flat, although they firmed up slightly, seeing yields drop by 1-2bps across the tenors.
Our UST trader Hideyuki Liu noted treasuries opened this morning trading softer, perhaps taking its cues from weakness also in Aussie rates (or vice versa), as the curve bear flattened on underperformance in the front-end. Desk flows were skewed to buying in 10y and 30y. Around noon, eMinis came off suddenly, with no obvious catalyst though some cited a Japan study of the Omnicron variant that we mentioned in the earlier section. As the London open approached, desk has now seen good buying in the front-end by RM.
G10 In Focus
CAD saw a muted market reaction to the BoC rate decision yesterday, which held policy rate and the forward guidance. The Bank acknowledged the Omicron variant as a source for renewed uncertainty while also highlighting the persistent supply bottlenecks as inhibiting growth.
EUR traded 0.1% in the red, and will see Germany Current Account Balance at 07:00 GMT for October. Citi Economics expects a below consensus print at -0.3%MoM vs 0.8%MoM market e. and -0.7%MoM p., sighting supply shortages as the culprit behind the figure.
Key Points To Consider
–Chinese CPI came in slightly under expectations, printing 2.3% vs 2.5% consensus, while PPI printed at 12.9%, vs 12.1% consensus. We note that the CPI print is the highest since Aug 2020. The PPI moderated, however, responding to government efforts to tame rising energy prices.
As we noted in FX tail risk hedges reduced, Aussie, Kiwi bond curves steepened earlier in the day, though most G-10 pairs were close to flat. After Wednesday’s risk-on session, our spot desk trader John Nihill in Singapore notes that we have seen tail risk hedges being reduced and a general bias to reduce risk. We note that AUDJPY 1m ATM volatility – one of the most liquid bellwethers of FX risk sentiment in options – is still proving stubborn, little changed so far after Wednesday’s slide.
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