MNI ASIA MARKETS ANALYSIS: Geopol Risk-Off Evaporates Late

Tsy/Eurodollar Futures/Options Roundup

Strong, carry-over risk-off tone kicked off new week Mon, normally all about Wed's FOMC policy annc was overshadowed by growing Russia/Ukraine tension and what NATO, US and allies would do if Russia invades it's southern border. Risk off completely evaporated an hour after the FI close with Tsy curves bear steepening, equities trading higher (ESH2 +10.0 at 4400.0).

• NATO forces on standby "and sending additional ships and fighter jets to NATO deployments in eastern Europe”. Pentagon issued US troop standby alert ahead possible Russia/Ukraine action. Pentagon official, spokesman John Kirby added U.S. IS TAKING STEPS TO HEIGHTEN READINESS OF FORCES, 8,500 U.S. PERSONNEL READY TO BE ACTIVATED TO AID NATO.
• Risk-off actually scaled back late, bonds weaker but off lows, while equities rebounded but still traded in the lower after the FI close (ESH2 -4353.0 vs. 4212.75 low (mid-July '21 lows).
• Limited react to data: CHICAGO FED NATIONAL ACTIVITY INDEX AT -0.15 VS 0.44 PRIOR; US FLASH JAN SERVICES PMI 50.9; DEC 57.6.
• Decent 2Y sale, Tsy futures remain bid after $54B 2Y note auction (91282CDV0) stops through: 0.990% high yield vs. 1.002% WI; 2.81x bid-to-cover outpaces last moth's 2.55x, well over five auction avg: 2.51x.
• Short expiriy options continued to favor hedging for quarterly 25bp rate hikes starting in March, additional 2-3 hikes in 2023, policy path uncertainty around late 2024.
• Tues' data roundup: FHFA House Price Index, Consumer Confidence, Richmond Fed Mfg, $55B 5Y note sale (91282CDT5).
• The 2-Yr yield is down 4.5bps at 0.9566%, 5-Yr is down 3.5bps at 1.5223%, 10-Yr is down 1.6bps at 1.7422%, and 30-Yr is up 1.9bps at 2.0899%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00200 at 0.07671% (+0.00071 total last wk)
• 1 Month +0.00072 to 0.10843% (+0.00442 total last wk)
• 3 Month +0.00943 to 0.26714% (+0.01642 total last wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00414 to 0.44857% (+0.04943 total last wk)
• 1 Year -0.00500 to 0.79357% (+0.07286 total last wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $76B
• Daily Overnight Bank Funding Rate: 0.07% volume: $276B

• Secured Overnight Financing Rate (SOFR): 0.05%, $875B
• Broad General Collateral Rate (BGCR): 0.05%, $340B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $328B
• (rate, volume levels reflect prior session)

• No buy-op Monday, next scheduled purchases:
• Tue 01/25 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B vs. $1.525B prior
• Pause for FOMC policy annc on Jan 26
• Thu 01/27 1010-1030ET: Tsy 22.5Y-30Y, appr $1.825B steady
• Mon 01/31 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B vs. $6.325B prior
• Tue 02/01 1100-1120ET: TIPS 7.5Y-30Y, appr $1.225B vs. $0.925B prior
• Thu 02/03 1100-1120ET: Tsy 10Y-22.5Y, appr $1.625B steady
• Tue 02/08 1010-1030ET: Tsy 22.5Y-30Y, appr $1.825B steady
• Thu 02/10 1010-1030ET: Tsy 7Y-10Y, appr $3.225B vs. $2.425B prior

FED Reverse Repo Operation: Usage Recedes 

NY Fed reverse repo usage recedes to $1,614.002B w/81 counterparties today vs. last Friday's third consecutive high of 2022 of $1,706.127B -- still well off all-time high of $1,904.582B on Friday, December 31.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• Block, 10,000 Blue Jul 99.00/99.25 put spds, 23.5 ref: 98.045
• 7,000 Sep 99.37/99.62 call spds
• 1,500 Red Jun'23 98.75 calls, 20.0
• 1,800 Green Mar 97.75/97.87 put spds vs. 98.25/98.37 call spds

• +9,000 TYH 130.5 calls, 9
• -5,300 TYJ 126.5/130.5 strangles, 50
• +10,000 FVH 119 puts from 14.5 to 13.5
• +6,700 FVH 117/118.25/118.75/119.25 broken put condors 5 over FVH 120.75/121.5 call spds
• -5,000 TYJ 124.5/126/127.5 put flys, 12
• Overnight trade
• 23,600 TYH 127 puts, 15-23, 17 last
• 2,800 TYH 125/127.5/128.5 put flys
• 3,600 TYH 127/128 put spds vs. 129.25 calls
• 9,000 TYH 126/127.5 put spds
• 6,700 TYH 128 puts, 39

FOREX: Extension Of Weakness In Equities Weighs On AUD, Boosts USD

• Global equity indices continued their plunge on Monday as tensions surrounding Ukraine exacerbated the dampening risk sentiment. While volatility in global markets has remained high, intra-day ranges for G10 FX remains fairly contained in comparison.
• With that said, the greenback is higher with the dollar index rising 0.3% as investors sought a flight to quality and risk tied currencies did come under pressure.
• The Australian dollar is the standout, weakening 0.71% and briefly dipping back below the 0.71 handle for the first time in a month. The recent sell-off represents a concern for bulls and today’s move lower prompted a breach of 0.7130, Jan 7 low. The 0.7082 Low on Dec 20 is a key short-term support before the significant support residing just below the 0.70 mark.
• GBP, NZD, CAD and CHF all similarly came under pressure, falling by between 0.3-0.5% on Monday.
• Greater pressure was seen in emerging markets with the Russian Ruble extending its decline. USDRUB will likely end the day up 1.75% having risen above the 2021 highs around the 78.00 level. With risk on the backfoot, the South African rand also slumped to a 1.4% loss with the broad basket of emerging market currencies losing 0.66% to start the week.
• Australian CPI data will be published overnight before German IFO during the European session. All focus will be firmly on Wednesday’s central bank decisions from both the Fed and the BoC.

FX: Expiries for Jan25 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1300-10(E1.6bln), $1.1330-40(E703mln), $1.1450(E1.1bln)
• USDJPY: Y115.25-40($663mln)

EQUITIES: S&P 500 Enters Correction, Momentum Names Drop Hard

• Stocks across Wall Street sank sharply Monday, with evidence of programmatic selling from the opening bell. This swiftly saw prices sink further, resulting in the S&P 500 formally entering correction territory - a 10% decline from the early January high.
• At some points of the session, as many as half the 500 names in the S&P 500 were off by 3% or more, with momentum/growth/tech names leading the decline.
• The moves come as markets gear for further economic normalization - through both interest rate rises as well as a transition from the pandemic phase to the endemic phase of COVID-19.
• As a result, the worst performing sectors were tech, communication services and biotech names. The healthcare sector, which usually trades defensively on a down-day for the index, also sat lower, with jabmakers suffering, typified by the >10% drop in Moderna.

COMMODITIES: Oil Suffers On Tighter Monetary Policy Fears

• Crude oil prices are down heavily in a broad risk-off move with equities sliding, the dollar firming and core fixed income rallying . This seems likely on tighter monetary policy fears ahead of the Fed on Wed but intraday moves have also been complicated by increasing Russia-Ukraine tensions.
• WTI is -2.7% at $82.86 having recovered from an intraday low of $81.9 as it cleared the first support seen at $82.78 (Jan 24 low) before partially recovering. Next support is seen at $80.01, the 20-day EMA after which it could open $77.34 (Jan 10 low).
• Today’s most active strikes in the H2 contract have been $95/bbl calls, followed by $80/bbl puts and $75/bbl puts.
• Brent is -2.3% at $85.86. First support is of $85.71 (Jan 24 low) so cleared earlier which could open $83.37 next (20-day EMA).
• Gold meanwhile is up +0.2% at $1839.0 with attention on $1848, the 76.4% retracement of Nov 16 – Dec 15 downleg.

Tuesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
25/01/2022	0030/1130	***		AU	CPI inflation
25/01/2022	0700/0700	***		UK	Public Sector Finances
25/01/2022	0800/0900	**		ES	PPI
25/01/2022	0900/1000	***		DE	IFO Business Climate Index
25/01/2022	1100/1100	**		UK	CBI Industrial Trends
25/01/2022	1330/0830	**		US	Philadelphia Fed Nonmanufacturing Index
25/01/2022	1355/0855	**		US	Redbook Retail Sales Index
25/01/2022	1400/0900	**		US	S&P Case-Shiller Home Price Index
25/01/2022	1400/0900	**		US	FHFA Home Price Index
25/01/2022	1400/1500	**		BE	BNB Business Sentiment
25/01/2022	1500/1000	***		US	Conference Board Consumer Confidence
25/01/2022	1500/1000	**		US	Richmond Fed Survey
25/01/2022	1630/1130	**		US	NY Fed Weekly Economic Index
25/01/2022	1630/1130	**		US	US Treasury Auction Result for 52 Week Bill
25/01/2022	1800/1300	*		US	US Treasury Auction Result for 5 Year Note