MNI ASIA MARKETS ANALYSIS: Narrow Ranges With Presidents Day But Crude Firms

US TSYS: Firmly Within Friday’s Range Amid Holiday Thinned Trade

• Cash Tsys were closed and TYH3 sees an early close at joint session lows of 111-24+. The latter cheapened overnight in a modest push back of Friday’s bid before a very tight range on unsurprisingly minimal volumes with the US out for Presidents’ Day.
• In doing so it remained well within Friday’s range and off its low of 111-08+ that saw it briefly clear support at 111-10 (lower 2.0% Bollinger Band) before quickly retracing. To the upside sits resistance at the 50-day EMA of 114-00+.
• Tomorrow sees notable second tier data with the preliminary February manufacturing and service PMIs plus existing home sales for January, before perhaps greater focus on Wednesday’s FOMC Minutes.

EGBs-GILTS CASH CLOSE: Gilts Outperform With ECB Hawkishness In Focus

GIlts easily outperformed Bunds to start the week, with EGB periphery spreads trading mixed.

• With US markets closed for a holiday, and limited European data and central bank speakers, volumes were subdued.
• After trading steadily for most of the session, Bunds weakened in mid-afternoon into the close, following some moderately hawkish comments by ECB's Rehn.
• ECB hike expectations edged a few basis points higher, with the terminal rate seen above 3.7% by September (Of note, Goldman upped their peak call 25bp to 3.50% today as well.)
• Conversely, Gilts held up well with bull steepening in the curve, amid a strong APF sales operation with high bid-to-cover.
• February Flash PMIs are the expected highlight Tuesday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.1bps at 2.898%, 5-Yr is up 3bps at 2.538%, 10-Yr is up 2.4bps at 2.464%, and 30-Yr is up 1.4bps at 2.409%.
• UK: The 2-Yr yield is down 4.8bps at 3.746%, 5-Yr is down 4.9bps at 3.384%, 10-Yr is down 4.4bps at 3.471%, and 30-Yr is down 3.8bps at 3.898%.
• Italian BTP spread up 0.9bps at 186.9bps / Spanish down 0.5bps at 96.4bps

OPTIONS: Calls / Midcurves The Theme Monday

Monday's Europe rates / bond options flow included:

• 0RU3 97.75 call bought for 5.5 in 2k
• 2RJ3 97.375/97.50 call spread bought for 3.25 in 3k
• SFIM3 95.75/96.00/96.25c fly, vs 95.05p, bought the c fly for half in 3k

FOREX: G10 Ranges Contained Amid US Holiday, AUD Outperforms

• G10 FX traded within very narrow ranges throughout the US session on Monday with U.S. markets closed due to the observance of the Presidents Day holiday. The USD index remains close to unchanged levels approaching Tuesday’s APAC crossover after paring some moderate gains in Asia.
• AUD remains the strongest performer major at the margins, rising ~0.5%, last printing at $0.6915 having slowly edged above the 0.6900 mark. Firmer Iron Ore and Copper are aiding the Aussie at the margins. AUD/NZD rose to a best level of 1.1088, the highest level for the pair since October last year with the RBA minutes first up on the Tuesday docket.
• With the focus turning to tomorrow’s Eurozone flash PMI’s, EURUSD found supply above the 1.0700 handle and the pair continues to threaten a sustained break below the 50-day EMA, which intersects today around 1.0680. A clear break of this average would strengthen the bearish cycle and initially expose 1.0484, the Jan 6 low.
• Another main data point on Tuesday will be the release of January CPI in Canada, where annual headline inflation is expected to dip to 6.1% Y/y. USDCAD looks set to snap a four day winning streak, however medium term parameters appear well established at 1.3705, the bull trigger and 1.3262, the 2023 lows.
• German ZEW sentiment data and US PMI’s are also scheduled on Tuesday before the FOMC minutes release the following day.

US STOCKS: Holding Off Bullish Trend Near Last Week’s Lows

• S&P e-minis closed early at 4075.75 (-0.3%) at the low end of a narrow 16 point range on Presidents’ Day, against a backdrop of a minor cheapening in Treasury futures. There were similar moves for Nasdaq (-0.2%) and Dow (-0.3%) futures.
• In doing so it only unwound half of Friday’s intraday recovery and kept off its low of 4055.75, otherwise at levels last seen briefly on Feb 10 and before that Feb 1.
• The trend condition is bullish and the latest pullback is considered corrective. The contract has pierced initial support at 4069.52, the 20-day EMA. Firmer support lies at the 50-day EMA, at 4006.63 whilst key resistance and the bull trigger intersect at 4208.50 (Feb 2 high) with a breach resuming the uptrend.

COMMODITIES: Oil Bounces With Demand Optimism

• Crude oil has trended higher through the day amidst some volatility with US holiday thinned volumes, with gains attributed to China re-opening demand optimism.
• On the supply side, Kazakhstan has separated its oil exports from those of Russian crude by launching its own KEBCO brand, but sanctions against Moscow are still putting pressure on the price of Kazakh oil pumped through Russian pipelines, Reuters data show.
• WTI is +1.1% at $77.19. Resistance seen at $80.62 (Feb 13 high) and support at $75.06 (Feb 17 low).
• Brent is +1.2% at $84.02. Resistance seen at $86.95 (Feb 14 high) and support at $81.80 (Feb 17 low).
• Gold is -0.1% at $1841.05 with little impetus from the USD today. Resistance is seen at $1892.1 (20-day EMA) and support at $1819.0 (Feb 17 low).

CANADA: USDCAD Sees Minor Trimming Of Last Week’s Gain Pre CPI

• USDCAD holds near the low end of the day’s limited 53 pip range with both sides on holiday.
• Currently ~1.345 (-0.15%) off a low of 1.3442, it holds most of last week’s 1% climb higher and sits closer to resistance at 1.3537 (Feb 17 high) than support at 1.3275 (Feb 14 low).
• CAD CPI is in focus tomorrow following an already far stronger than expected labour report since the BoC’s conditional pause last month. Consensus has headline inflation easing two tenths to 6.1% Y/Y in Jan and the two core measures another tenth to 5.05% Y/Y [further detail below].
• Landing at the same time as CAD retail sales, it will then be followed by US data including prelim Feb PMIs plus existing home sales.

CANADA: CPI Previews, Feb 21 0830ET

• The median Bloomberg estimate see headline easing 0.2pts to 6.1% Y/Y although 2 of 13 see it holding steady (CIBC and Capital Economics).
• The bulk of estimates between 6.0-6.3% Y/Y is relatively tight compared to recent months although there is one standout forecast of 5.5% (S&P Global).
• Selection of local analysts from across the forecast range:

• CIBC above consensus: Headline of 6.3% Y/Y from 0.8% M/M, driven by a slight rebound in gasoline prices and a further rapid increase in mortgage interest costs. However, further moderation in imported goods prices should mean that core inflation excluding food, energy and mortgage interest likely rose at a monthly pace broadly consistent with a 2% inflation target. Headline CPI seen falling 3% by June but with the final leg back to 2% dragging into 2024.
• RBC in line with consensus: See both headline and CPI ex food & energy dipping 0.2pts to 6.1% and 5.1% Y/Y respectively. Mortgage interest costs have continued to accelerate as previous rate hikes pass through but shelter inflation likely slowed with lower home buying costs. CPI-trim/median should tick lower along with a further gradual narrowing in the breadth of inflation pressures.
• TD below consensus: Headline seen slowing 0.3pts to 6.0% Y/Y. Mortgage interest costs and rents will remain a key driver for shelter, while household furnishings and clothing should weigh on headline. CPI-trim/median seen edging 0.2pp lower to 4.95% Y/Y (vs limited consensus -0.1pps).