MNI: Risk-on and inflation expectations driving core FI
risk ON (Omicron HOPES) and higher 'flation expectations (EZ gas prices remain close to yest highs) pressuring core FI...China liquidity index marginally TIGHTER
A few early thoughts from MNI’s US morning brief … Bullets and FI and equity thoughts,
EXECUTIVE SUMMARY:
U.K. TO SAY OMICRON CAUSES MILDER DISEASE THAN DELTA: POLITICO
U.S. AND U.K. PLAN MILLIONS OF COVID TREATMENTS
EUROPEAN GAS PRICES DROP AFTER SURGING ON CONSTRAINED RUSSIAN FLOWS
MNI CHINA LIQUIDITY INDEX: DEC CONDITIONS, POLICY SEEN STEADY
ECB'S HOLZMANN: RATES CAN BE RAISED NEXT YEAR IN EXTREME CASE
… FIXED INCOME: Risk-on and inflation expectations driving core FI
A combination of risk-on sentiment (on hopes of Omicron developments) and higher inflation expectations (with European gas prices still close to yesterdays highs - despite being lower intraday) have helped core fixed income lower.
Gilts are the biggest movers, with the curve moving in a fairly parallel fashion as yields rise around 4bp. SONIA futures have seen Whites move up to 4 ticks lower on the day (up to 10 tick 2-day move), Reds move 4.5-5.5 ticks lower on the day (11.5-15.0 tick 2-day move) and Greens/Reds 5.5-6.5 ticks lower on the day (16.5-19.5 tick 2-day move).
The German curve has bear steepened, with Euribor futures a little lower on the day (Greens/Blues down 8-10 ticks over 2 days now). 10-year yields are up 2.7bp while BTP-Bund 10-year spreads are 2.9bp wider on the day.
TY1 futures are little changed on yesterday's lows, having reversed some of the overnight move higher to not sit close to their lows of the day. The UST curve has bear steepened a little.
European gas prices will remain in focus, alongside any Omicron developments.
TY1 futures are up 0-1 today at 130-19 with 10y UST yields up 1.7bp at 1.480% and 2y yields up 0.9bp at 0.678%.
Bund futures are down -0.26 today at 173.05 with 10y Bund yields up 2.1bp at -0.288% and Schatz yields up 0.7bp at -0.714%.
Gilt futures are down -0.29 today at 125.53 with 10y yields up 3.4bp at 0.905% and 2y yields up 3.5bp at 0.639%.
… EQUITIES: U.S. Futures A Little Softer Overnight
Asian stocks closed mostly higher: Japan's NIKKEI closed up 44.62 pts or +0.16% at 28562.21 and the TOPIX ended 1.72 pts higher or +0.09% at 1971.51. China's SHANGHAI closed down 2.507 pts or -0.07% at 3622.618 and the HANG SENG ended 131 pts higher or +0.57% at 23102.33
European futures are flat/mixed, with the German Dax up 0.35 pts or +0% at 15446.74, FTSE 100 down 11.16 pts or -0.15% at 7286.26, CAC 40 up 11.44 pts or +0.16% at 6976.03 and Euro Stoxx 50 up 0.54 pts or +0.01% at 4175.39.
U.S. futures are a little weaker, with the Dow Jones mini down 47 pts or -0.13% at 35334, S&P 500 mini down 11.25 pts or -0.24% at 4629.5, NASDAQ mini down 66.5 pts or -0.42% at 15913.5.
And as far as the aforementioned China liquidity index,
MNI Nov China Liquidity Conditions Index 38.9 Vs 35.7 Oct
(MNI) Beijing - Liquidity conditions across China’s interbank market were little changed into the end of the calendar year, with markets seeing stable policy in coming weeks, the latest MNI Liquidity Conditions Index shows.
The Liquidity Condition Index picked up to 42.9 in December from the previous 38.9, with 64.3% of the traders reporting conditions little changed from November.
The higher the index reading, the tighter liquidity appears to survey participants.
And now you know … steady but marginally TIGHTER conditions which I’m sure are NOT helping the Evergrande situation in the slightest…