Citi

European Open

A mildly risk-off session saw USD trade flat. Overnight, German 30y bond yields saw the largest one-day drop since the events of March 2020. During the Asian hours, Chinese CPI and PPI were top of mind. CPI beat expectations at 1.5% YoY (vs 1.4% consensus), while PPI came in well above expectations at 13.5% YoY (vs 12.3% consensus). With the upside risk to the print well noted by the markets, however, CNH did not move on the data. NZD dropped 0.4% on the morning as it breached its 200d moving average, while SEK and AUD saw downticks. Gold saw a downtick of 0.3%, reversing a rally in the NY session.

Looking ahead, US CPI remains top of mind (13:30 GMT) with jobless claims printing at the same time. Germany, NOK & RON see CPI prints at (07:00 GMT) as well, followed by CZK CPI (08:00 GMT) and BRL inflation (12:00 GMT). Today we will see a BoT rate decision, where no change is expected (07:05 GMT).

An eye on the US

USD held flat, with no notable news on the day. Treasuries were calm through the Asian session as focus turns to the key CPI print followed by the new 30y sale for USD 25bn

–The NY session saw flattening in the US yield curve Tuesday had strengthened as real yields headed lower. Our futures trader Ben Parker thinks its CTA buying that's behind the price action. Note that flattening across curves held into market close. 2y notched down towards 41bps and 10y moved down to 1.43%, and CitiFX Technicals believes these moves will be short-lived, with upside potential likely in nominals. Real yields will likely push lower still.

  • October CPI is top of mind and into. Details of October PPI were more mixed Tuesday than another solid headline increase would suggest, but the report overall does not change our expectation for renewed upcoming strength in monthly inflation prints. We continue to expect a 0.46%MoM increase in core CPI in October released 13:30 GMT today, which overall will matter more for October core PCE inflation.

CIBC

FX Flows

Preliminary November reading for New Zealand’s business confidence fell to -18.1 from -13.4. Business activity outlook fell to +15.6 from +21.7. Little can be said about FX, NZD$ slipped from morning’s high 0.71315 to 0.7120, tracking the AUD$. Leveraged names have increased long position in NZD against the USD and AUD. NZD$ locked in 0.710.72 range for now, there should be some weak stops under 0.7075.

Commodity futures were weak this morning, iron ore futures -5.5% as steel demand outlook in China softens. Dalian iron ore futures also opened lower, -6.5%. Aussie dollar lower, intraday support at 0.7360. About A$635mio of 0.7375 option strikes mature today and near A$900mio of strikes 0.7340-50. October’s labour report will be released tomorrow.

There has been chatter of Japanese importers picking up $Yen, not too sure the level, one would suspect closed to 112.00-20. Early buying of US$ but offers met above 112.90. I heard offers surround 113.00-20, some linked to $900mio of 113.00 option strikes due today. It was left hand side over the Tokyo fix. The US$ stalled during the mid-morning – 112.80s.