MNI ASIA MARKETS ANALYSIS: Markets Coiling Ahead Wed FOMC

US TSYS Implications of Curve Flattening Ahead FOMC, Tsy Refunding

• Treasury futures running mixed after the bell, curves broadly flatter (2s10s -5.251 at -30.065) as bonds continue to outperform following US Tsy cut Q1 borrow est's from $816B to $760B late Monday with fcus on tomorrow's TBAC refunding annc at 0830ET.
• Tsys support evaporated, particularly in the short end, after higher than expected JOLTS job openings at 9.026m (cons 8.75m) in Dec after an upward revised 8.93m (initial 8.79m) in Nov. Meanwhile, the Conference Board consumer confidence figure may have been in line with expectations in January but the labor market differential increased strongly. It increased from 27.3 to 35.7 for its highest level since April, whilst the 8.4pt increase was the strongest monthly increase since May’21.
• Concerted tone change in the curve ahead of the Tsy refunding as well as tomorrow's FOMC policy annc. Steepener unwinds a contributing factor over the last 24 hours:
  • Flattener post at 1152:47ET Tuesday: -24,007 TUH4 102-17.88, sell through 102-18.62 post time bid, DV01 $917,000 vs. +9,846 UXYH4 115-29, post time bid, DV01 $901,800.
  • Large flattener posted at 1612:49ET late Monday: -21,742 FVH4 107-30, sell through 107-31.25 post time bid, DV01 $921,800 vs. +4,432 WNH4 126-30, post time offer, DV01 $909,800.
• As noted in the option summary, projected rate cuts have receded: January 2024 cumulative -.5bp at 5.324%, March 2024 chance of 25bp rate cut -40.7% vs. -46.5% this morning w/ cumulative of -10.7bp at 5.222%, May 2024 at -78.4% vs. -82.7% earlier w/ cumulative -30.3bp at 5.026%, June 2024 -94.6% vs. -98.1% earlier w/ cumulative -53.9bp at 4.790%. Fed terminal at 5.325% in Feb'24.

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00426 to 5.32834 (-0.00813/wk)
• 3M -0.00623 to 5.30643 (-0.01100/wk)
• 6M -0.00656 to 5.14613 (-0.01127/wk)
• 12M -0.00963 to 4.78940 (-0.00958/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (-0.01), volume: $1.598T
• Broad General Collateral Rate (BGCR): 5.30% (-0.01), volume: $671B
• Tri-Party General Collateral Rate (TGCR): 5.30% (-0.01), volume: $657B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $92B
• Daily Overnight Bank Funding Rate: 5.31% (+0.00), volume: $269B

FED Reverse Repo Operation

• RRP usage recedes to $577,755B vs. $581.410B yesterday. Compares to cycle low of $557.687B on Thursday, January 25 -- the lowest level since mid-June 2021.
• Meanwhile, the number of counterparties slips to 78 from 81 Monday (compares to 65 on January 16, the lowest since July 7, 2021).

SOFR/TREASURY OPTION SUMMARY

• Note, underlying futures are mixed after the close, short end weaker/curves flatter (2s10s -5.442 at -30.256). Flattening partly a function of ongoing long-end support after US Tsy cut Q1 borrow est's from $816B to $760B late Monday, and position squaring/unwinds of projected rate cuts in H1 2024.
  
• Projections have receded: January 2024 cumulative -.5bp at 5.324%, March 2024 chance of 25bp rate cut -40.7% vs. -46.5% this morning w/ cumulative of -10.7bp at 5.222%, May 2024 at -78.4% vs. -82.7% earlier w/ cumulative -30.3bp at 5.026%, June 2024 -94.6% vs. -98.1% earlier w/ cumulative -53.9bp at 4.790%. Fed terminal at 5.325% in Feb'24.
• SOFR Options:
  • Update, -16,500 SFRZ4 96.25/97.00/97.75 call flys vs. SFRZ4 94.87 puts from 3-2.25
  • +8,000 SFRG4 94.75/94.81 2x1 put spds 1.0 vs. 94.89/0.05%
  • +5,000 SFRM4 95.12/95.37/95.62 put trees, 5.25, 1.0 still bid
  • Block, 5,000 SFRG4 94.87/94.93 1x2 call spds, .25 net ref 94.87
  • 6,000 SFRH4 95.00/95.06/95.12 call flys ref 94.87
  • 2,000 0QG4 96.56/96.62 call spds ref 96.355
  • 2,000 SFRH4 94.75/94.93/95.12 put flys
  • 2,400 SFRM4 94.62/94.87/95.12 put flys
  • 8,800 SFRH4 94.75/94.87/95.00 call flys ref 94.87
  • 8,000 SFRM4 95.12/95.75/96.00 broken call flys ref 95.295
  • 2,000 SFRU4 96.00/96.50 call spds ref 95.705
  • 3,000 SFRG4 94.93/95.00 call spds, 1.5 ref 94.87
• Treasury Options:
  • 1,500 TYH4 110.25/111.25 put spds, 24 (adds to appr 55k on screen/50k Block earlier)
  • 5,000 FVH4 106.25 puts, 4
  • Block, 8,000 TYH4 109.5 puts, 9 vs. 111-14.5/0.14%
  • Block, 15,000 TYM4 109.5 puts, 43 ref 112-03
  • +15,000 TYM 109 puts, 36
  • 8,000 FVH4 108 puts ref 108-02.25
  • **Block +51,000 TYH4 110.25/111.25 put spds 21; traders +50,000 on screen at 20 just after
  • -4,500 TYH4 110.25 puts, 15 ref 111-22.5
  • over 10,800 TYH4 121 calls ref 111-19 to -20
  • over 6,200 TYH4 120 calls
  • 3,000 TYH4 109.5/111 2x1 put spds, 14 ref 111-21
  • 3,000 TYH4 109 puts, 5 last
  • over 5,200 TYH4 110 puts, 13 last
  • 10,000 FVH4 107.25/107.5 put spds

EGBs-GILTS CASH CLOSE: Bear Flattening Ahead Of French/German Inflation

The UK and German curves bear flattened Tuesday with Gilts underperforming, ahead of multiple

• After a positive overnight session for global core FI, in part following Monday's late announcement of a lower-than-expected US Treasury borrowing requirement, EGBs reversed lower after Spanish flash Jan inflation came in firmer than expected. (Eurozone Q4 GDP wasn't as bad as feared.)
• Gilts would hit higher levels in the session but Bunds didn't recover, with both dragged down by Treasuries in early afternoon after data showed a surprising rise in US job vacancies - a key metric eyed by the Fed, ahead their decision tomorrow. Higher oil prices kept the pressure on.
• Periphery EGB spreads finished wider, with BTPs cheapening after the announcement of a 15Y syndication. (Today also saw BTP auctions, plus German/Greek bond syndications.)
• The highlight early Wednesday will be French and German state-level inflation data - our Eurozone inflation preview was published today and is available here.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.1bps at 2.5154%, 5-Yr is up 3.8bps at 2.164%, 10-Yr is up 3.3bps at 2.268%, and 30-Yr is up 2.6bps at 2.496%.
• UK: The 2-Yr yield is up 7.1bps at 4.339%, 5-Yr is up 5bps at 3.857%, 10-Yr is up 2.5bps at 3.901%, and 30-Yr is up 2.4bps at 4.53%.
• Italian BTP spread up 3bps at 152.9bps / Spanish up 1bps at 90.3bps

EGB Options: Mixed Rates Trade Ahead Of Wednesday Event Risk

Tuesday's Europe rates / bond options flow included:

• SFIK4 95.25/95.45/95.65c fly, bought for 3.75 in 20k
• ERU4 96.625/97.00/97.375c fly vs 96.25p, bought the fly for 6.25 in 5k
• ERU4 97.00^ vs ERU4 97.50c x4, sold the call at 6 in 2.5k (10k call)
• ERZ4 97.50/97.25/96.75p ladder, bought for 2 in 7k
• 2RH4 97.12/97.50cs sold at 34.50 and 34.75 in 12.5k

FOREX G10 Ranges Contained As Key Event Risk Approaches

• Moderate greenback weakness reversed following an above estimate reading for US JOLTS Job Openings on Tuesday. However intra-day currency ranges remain narrow and the USD index remains little changed on the week as we approach tomorrow's FOMC decision/press conference.
• The greenback bounce was once again best reflected by the rally for USDJPY, which rose to a session high of 147.93 after printing as low as 147.10 overnight. However, the USD index failed to escape out of its 30 pip range, with G10 currency adjustments on the day kept to minimal sizes.
• The Australian dollar has moderately weakened on Tuesday, giving back some of the prior day’s advance ahead of both the key domestic inflation data and the FOMC meeting. EURAUD stands around 0.20% higher, giving up a portion of the move lower at the start of the week. Q4 CPI figures will be a crucial input into deliberations at next week's RBA meeting.
• In emerging markets, the Hungarian Forint outperformed following a below consensus rate cut of just 75bps from the NBH, who cited deteriorating risk sentiment as the primary reason behind the smaller than expected move. USDHUF is 0.90% lower on the session.
• As mentioned, Australia CPI kicks off Wednesday’s calendar before China PMI data is released. Eurozone inflation data is scheduled across the European morning. US ADP and ECI will cross alongside Canadian GDP before the MNI Chicago PMI rounds off the data docket. Focus then swiftly turns to the Jan FOMC decision. While no change is expected on rates, there is a good chance that the forward guidance will be amended to remove the tightening bias in favour of a more neutral stance, in light of recent disinflationary progress.

Late Equities Roundup: DJIA Extends Gains, Banks & Miners Leading

• Stocks remain mixed late Tuesday, while the SPX Eminis remain inside narrow session range, the Dow continues to outperform at the start of the two day FOMC meeting. Currently, the DJIA is up 126.91 points (0.33%) at 38460.29, S&P E-Mini futures down 1 points (-0.02%) at 4953.5, Nasdaq down 109.9 points (-0.7%) at 15517.94.
• Leading gainers: Financials and Material sector shares outperform late Tuesday, banks supporting the former: Citigroup +5.23%, Bank of America +3.67%, JP Morgan +2.12%. Shares of mining companies buoyed the Materials sector: Nucor gained +6.82% after beating 4Q earnings est's late Monday, while Steel Dynamics gained +4.49%.
• Laggers: Information Technology and Communication Services sectors led laggers in the second half, hardware and equipment makers weighing on the former: Western Digital -2.88%, Apple -2.01%, Zebra -1.57%. Notable mention: Corning surged 6.58% after beating Q4 earnings est's this morning. Meanwhile, interactive media and entertainment shares weighed on communication services in late trade: Warner Brothers -2.81%, Netflix -2.07%, Match Group -1.50%.
• Looking ahead: corporate earnings docket after the close: Microsoft, AMD, Alphabet, Electronic Arts, Starbucks, Stryker and Teradyne. Already annc's: Sysco, UPS, JetBlue, PulteGroup, GM, Marathon Petroleum, Pfizer, Johnson Controls, Corning and FCA Healthcare.

E-MINI S&P TECHS: (H4) Northbound

• RES 4: 5012.80 1.618 proj of Nov 10 - Dec 1 - 7 price swing
• RES 3: 5000.00 Psychological round number
• RES 2: 4982.62 1.50 proj of Nov 10 - Dec 1 - 7 price swing
• RES 1: 4957.25 Intraday high
• PRICE: 4954.75 @ 1500 ET Jan 30
• SUP 1: 4844.18/4744.97 20- and 50-day EMA values
• SUP 2: 4702.00 Low Jan 5
• SUP 3: 4594.00 Low Nov 30
• SUP 4: 4550.75 Low Nov 16

The uptrend in S&P E-Minis remains intact and Monday’s rally reinforces current conditions. Resistance at 4841.50, the Dec 28 high, has recently been cleared, confirming an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition too, highlighting positive market sentiment. Sights are on 4982.62 next, a Fibonacci projection. Key support lies at 4744.97, the 50-day EMA.

COMMODITIES WTI Resumes Increase As Data Strength Adds To Supply Concerns

• WTI has climbed through the second half of the session, supported by continued geopolitical tensions which would hit supply, positive economic data, and fears that Venezuelan barrels will see sanctions resume from April.
• The US government will not renew the sanctions relief on Venezuela unless there is progress on allowing all presidential candidates to compete in this year’s election. according to Matthew Miller, US State Department Spokesperson.
• The number of tankers diverting on longer voyages around the Cape of Good Hope has risen to 100 from 69 the previous week, according to OB.
• The 590kbpd Trans Mountain Pipeline expansion will now be completed in Q2 at the earliest due to complications while pulling a pipe through a tunnel section according to the company.
• WTI is +1.25% at $77.74 having lifted almost 3% intraday at one point. It sits off a key short-term resistance at $79.56 (Nov 30 high).
• Brent is +0.6% at $82.87, off resistance at $84.16 (Jan 29 high) after which lies $86.03 (76.4% retrace of Sep 15 – Dec 13 bear cycle).
• Gold is +0.15% at $2036.17, with earlier, strong gains to a high of $2048.63 slashed by surprisingly strong US job openings and details within the Conference Board consumer survey.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
31/01/2024	0030/1130	***		AU	CPI inflation
31/01/2024	0030/1130	***		AU	CPI Inflation Monthly
31/01/2024	0130/0930	***		CN	CFLP Manufacturing PMI
31/01/2024	0130/0930	**		CN	CFLP Non-Manufacturing PMI
31/01/2024	0700/0800	**		DE	Import/Export Prices
31/01/2024	0700/0800	**		DE	Retail Sales
31/01/2024	0700/1500	**		CN	MNI China Liquidity Index (CLI)
31/01/2024	0730/0830	**		CH	Retail Sales
31/01/2024	0745/0845	***		FR	HICP (p)
31/01/2024	0745/0845	**		FR	PPI
31/01/2024	0855/0955	**		DE	Unemployment
31/01/2024	0900/1000	***		DE	North Rhine Westphalia CPI
31/01/2024	0900/1000	***		DE	Bavaria CPI
31/01/2024	1200/0700	**		US	MBA Weekly Applications Index
31/01/2024	1300/1400	***		DE	HICP (p)
31/01/2024	1315/0815	***		US	ADP Employment Report
31/01/2024	1330/0830	***		CA	Gross Domestic Product by Industry
31/01/2024	1330/0830	**		US	Employment Cost Index
31/01/2024	1330/0830	**		US	Treasury Quarterly Refunding
31/01/2024	1445/0945	***		US	MNI Chicago PMI
31/01/2024	1530/1030	**		US	DOE Weekly Crude Oil Stocks
31/01/2024	1900/1400	***		US	FOMC Statement
01/02/2024	2200/0900	**		AU	IHS Markit Manufacturing PMI (f)