Citi

European Open

It was a busier morning today, despite the US MLK holiday, with FX volumes up to 30% more than averages, according to our etraders. The highlight in the Asian session was the 10bps cut in the MLF rate by PBoC, alongside a mixed bag of data from China. FX markets, including CNH were little moved. In the rates space, treasury futures implied new YTD highs for 10y yields, while the JGB sell-off stalled. Equity markets sagged, while energy prices were slightly in the green

Looking ahead, we will watch out for two prints for CAD - the Business Outlook Survey and the Consumer Expectations Survey Q4 - at 15:30 GMT which are likely to be important inputs into the BoC’s next policy rate decision on January 26.

USD highlights

USD was seen flat in a session that did not see many moves in FX. G10 was largely range bound against the greenback. UST markets are closed for MLK day. CitiFX Wire’s Stephen Spratt writes in his note Treasury futures imply new YTD high for 10y yields:

–Sleepy start to the week for G-10 FX with all pairs close to New York closes on Friday, while a selloff in bond futures has provided modest boost for USDJPY (+0.2%), which is historically sensitive to changes in front-end rates. Though we note this has failed to provide a broader USD boost. Treasury futures have been very active. After being under modest pressure from the open, a break of January 10 lows in 10y notes saw a surge in volumes, likely stop outs, with bond yields now implied higher by 2-4bps across the curve. This marks a new high for the 10y yields this year, implied at over 1.80%.

Looking Ahead

CAD: Both the Q4 2021 Business Outlook Survey and the Consumer Expectations Survey will be important inputs into the BoC’s next policy rate decision on January 26:

–Business Outlook Survey at 15:30 GMT. Citi Economics flags that the survey responses will likely be better than they actually are, given that they will reflect the time-period before the spread of Omicron and the implementation of subsequent restrictions. As a result, our economists will be generally more focused on indications of economic slack in the survey, such as measures of labor shortages and the percent of firms experiencing difficulty meeting demand.

–Consumer Expectations Survey Q4 2021 at 15:30 GMT. Citi Economics says the most important factor to watch will be the 5-year inflation expectations. A notable increase in 5-year inflation expectations would be one of the clearest factors supporting a rate hike as early as January.