MNI ASIA MARKETS ANALYSIS: Normalizing Post-Jobs

HIGHLIGHTS

• FED'S COOK: APPROPRIATE TO MOVE IN SMALLER STEPS
• MNI BRIEF: Uncertainty Over ECB Tightening Effects - Knot
• ECB KNOT: MAY NEED 50BP HIKE IN MAY IF UNDERLYING PRICES DON'T SLOW, Bbg

Key links: MNI: MNI: Fed Must Do More, Tighten Financial Conditions-Waller / Cook Says Soft Landing Is Possible, Fed Not Done Hiking / MNI INTERVIEW: US Recession To Be Shallow, Can Be Avoided -S&P / MNI INTERVIEW: BOC Has Strong Case to Cut This Year-Ex Adviser / MNI: EU Officials Doubt Gentiloni's Fiscal Rules "Consensus"

Tsys Hold Range After Strong 10Y Sale

Tsys trading firmer -- near middle session range by the bell. Tsys scaled off highs after strong $35B 10Y Tsy note auction stopped 2.9bp through w/ 3.613% high yield (3.642%WI going into the auction cutoff). Yield curves flatter, but still off Mon's 40 year inverted lows (2s10s currently -1.022 at -80.528 vs. -84.734 late Monday).

• Tsys and EGBs traded weaker in the first half amid ongoing central bank telegraphing further (and larger if necessary) rate hikes needed to tamp down inflation.
• NY Fed Pres Williams economic outlook at WSJ live event cited a "lot of uncertainty around inflation" specifically services sector prices that may necessitate more hikes, adding "peak rate of 5-5.25% .. still a reasonable view."
• Earlier ECB commentary highlighted by MNI's event with Klaas Knot who said a 50bp hike was possible in May (as well as March) pending inflation developments. Kazaks called for "significantly" restrictive rates while de Guindos wouldn't rule out further hikes past March.
• Fed funds implied hike for Mar'23 at 26.1bp (+.7), May'23 cumulative 44.9bp to 5.031%, Jun'23 55.5bp (+1.2) to 5.137%, terminal at 5.145% in Aug'23.
• Tsy futures rally after strong $35B 10Y note auction (91282CGM7) stops through w/ 3.613% high yield vs. 3.642% WI; 2.66x bid-to-cover vs. 2.53x prior. Indirect take-up surges to new high of 79.45% vs. 67.02% prior; direct bidder take-up 15.19% from 17.92% prior; new low primary dealer take-up 5.36% vs. 15.06%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00185 to 4.55514% (+0.00243/wk)
• 1M -0.00571 to 4.57500% (+0.00314/wk)
• 3M +0.01429 to 4.85929% (+0.02515/wk)*/**
• 6M +0.01600 to 5.15100% (+0.09357/wk)
• 12M +0.02829 to 5.46829% (+0.21715/wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.85929% on 2/8/23

• Daily Effective Fed Funds Rate: 4.58% volume: $103B
• Daily Overnight Bank Funding Rate: 4.57% volume: $271B

• Secured Overnight Financing Rate (SOFR): 4.55%, $1.208T
• Broad General Collateral Rate (BGCR): 4.52%, $474B
• Tri-Party General Collateral Rate (TGCR): 4.52%, $461B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $2,059.604B w/ 103 counterparties vs. prior session's $2,057.958B. Compares to Friday, Dec 30 record/year-end high of $2,553.716B (prior record high was $2,425.910B on Friday, September 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • Block, 20,000 SFRU3 94.68/95.18 put spds, 25.75 on splits ref 94.925
  • Block, 10,000 SFRU3 94.37/94.50/94.62/94.75 put condors, 2.0 ref 94.92
  • +18,600 ERH4 97.75 calls, 6.5 ref 96.74
  • +5,000 SFRK3 94.56/94.68/94.75/94.87 put condors, 3.5 ref 94.85
  • Block, 40,000 SFRU 94.12/94.62 put spds, 8.5 ref 94.95
  • Block, update +20,000 SFRZ3 93.75/94.25 put spds, 3.5 ref 95.265 -.245
  • Block, 12,000 SFRU3 94.00/94.50 put spds 5.75 on splits vs. 94.97/0.14%
  • 5,000 SFRK 95.12/95.50 call spds
  • Block, 5,000 SFRM3 94.62/94.75 put spds, 3.25 ref 94.86
  • 8,000 SFRN3 94.50/94.75/95.00 put flys, ref 94.955
  • Block, 8,000 OQH3 95.12/95.31/95.43/95.62 put condors, 4.5 ref 95.75
  • 11,000 SFRH3 95.00/95.06/95.18/95.25 put condors ref 95.09
• Treasury Options:
  • 10,000 TYH3 112.5/113.5 2x1 put spds, 2 net ref 113-11.5
  • over 7,700 TYH3 112.5 puts, 23 ref 94.95
  • over 3,000 TYH3 113.25 puts, 36 ref 113-16
  • Block, 2,500 TYH3 114.5/115 put spds, 25 ref 113-14

EGBs-GILTS CASH CLOSE: Terminal ECB Pricing Ticks Higher On Knot

European curves steepened Wednesday with Gilts outperforming Bunds.

• Fair bit of ECB commentary today, highlighted by MNI's event with Klaas Knot who said a 50bp hike was possible in May (as well as March) pending inflation developments. Kazaks called for "significantly" restrictive rates while de Guindos wouldn't rule out further hikes past March.
• ECB cumulative hike pricing picked up about 3bp following the release of Knot's prepared text, though that faded; ECB and BoE terminal rates are now seen about 1bp higher than they began the day.
• Eurozone swap spreads continued to tighten following yesterday's ECB sovereign deposit renumeration announcement.
• Limited data out today, with more attention on the delayed German CPI readings out Thursday: see MNI's analysis here (1), here (2), and here (3)).
• Thu morning also sees the Riksbank decision and comments from BoE's Bailey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.8bps at 2.717%, 5-Yr is down 0.6bps at 2.368%, 10-Yr is up 1.4bps at 2.363%, and 30-Yr is up 1.9bps at 2.334%.
• UK: The 2-Yr yield is down 4.4bps at 3.468%, 5-Yr is down 3.2bps at 3.185%, 10-Yr is down 0.4bps at 3.313%, and 30-Yr is up 1.8bps at 3.769%.
• Italian BTP spread down 1.3bps at 186.7bps / Spanish up 0.6bps at 94.1bps

EGB Options: Long-Dated Euribor Call Buying Continues To Feature

Wednesday's Europe rates / bond options flow included:

• OEJ3 117.50/115.50 ps sold at 63 in 4.7k
• ERH4 97.75c, bought for 6.5 18.6k, around 50k bought since yesterday.

FOREX: Mixed G10 Performance As Markets Pause For Breath

• Following the volatile price action in the aftermath of Chair Powell’s remarks late Tuesday, currency markets traded in more subdued fashion today, remaining close to the prior day’s close approaching the APAC crossover.
• A slew of Fed speakers prompted no market reactions and as such, the USD index sits just moderately lower on the session.
• Underperforming is AUD, falling 0.4%, which is largely a reversal of the post-RBA optimism which underpinned the firmer price action on Tuesday.
• Outperforming at the margin are GBP and CHF. For GBPUSD, today’s extension of the bounce stresses the importance of the 200-dma as support, which has successfully contained the most recent slip lower. The level crosses at 1.1948.
• In emerging markets, the was divergent flows across CEEMEA, with USDZAR (+1.14%) printing fresh two-month highs ahead of President Cyril Ramaphosa’s State of the Nation Address on Thursday. Conversely, the Hungarian Forint outperformed, rising 1.2% and cementing the bearish technical trend for EURHUF that is currently in place.
• Tomorrow there will be a lot of focus on the German prelim CPI print for January (due at 0700 GMT). This will likely garner market interest because it has direct implications for the Eurozone aggregate print, which was released last week with a Eurostat estimate for Germany. Additionally, the BOE Governor and MPC members will testify in front of Parliament’s Treasury Committee.

FX: Expiries for Feb09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700-06(E719mln), $1.0760-80(E2.2bln), $1.0800(E1.8bln), $1.0840-50(E1.7bln), $1.0885-00(E1.1bln)
• USD/JPY: Y128.00($1.3bln), Y129.00($645mln), Y130.45($500mln), Y131.25-30($727mln), Y131.45-55($821mln), Y133.00($718mln)
• GBP/USD: $1.1950(Gbp581mln), $1.2145-50(Gbp533mln)
• EUR/GBP: Gbp0.8835-50(E599mln), Gbp0.8925-50(E1.4bln)
• EUR/JPY: Y141.00(E519mln)
• AUD/USD: $0.6955(A$581mln), $0.7000($707mln), $0.7025-30(A$643mln)
• NZD/USD: $0.6375-90(N$510mln)
• USD/CAD: C$1.3350($647mln), C$1.3395($711mln)

Late Equity Roundup: Alphabet Spells Weakness

Major indexes holding near midday lows in late trade, Communication Services sector still weighing on broader mkt. SPX eminis currently trades -45 (-1.08%) at 4130.5; DJIA -196.47 (-0.58%) at 33960.51; Nasdaq -193.6 (-1.6%) at 11919.87.

• SPX leading/lagging sectors: Communication Services (-4.05%) underperforming particularly interactive media and services w/ Alphabet shares, formerly Google (GOOG) trading -7.38%, apparently in negative reaction to AI "Bard" presentation in Paris this morning in comparison to Microsoft's BING AI. Other shares in the sector META -3.23%, MTCH -2.27%. Utilities (-1.63%) and Information Technology (-1.08%) hardware and chip makers weighing on the latter (JKHY -9.42%, PAYC -7.04%, TRMB -5.25%) with Fortinet surging 10.38%.
• Leaders: Health Care (-0.12%) lead by equipment/services shares (CVS +4.52%, HUM +2.28%, CNC +3.25%), Real Estate (-0.21%) and Financials (-0.37%) followed, insurance shares leading the former.
• Dow Industrials Leaders/Laggers: Pulling ahead late, United Health (UNH) +5.74 at 482.62, Goldman Sachs (GS) +1.20 at 375.60, Merck (MRK) +0.96 at 106.64. Laggers: Home Depot (HD) -4.91 at 320.29, McDonalds (MCD) -4.07 at 263.27, Chevron (CVX) -4.01 at 170.08, Honeywell (HON) -3.92 at 201.55.

E-MINI S&P (H3): Bullish Outlook

• RES 4: 4361.00 High Aug 16
• RES 3: 4300.00 Round number resistance
• RES 2: 4250.00 High Aug 26, 2022
• RES 1: 4208.50 High Feb 2
• PRICE: 4155.00 @ 14:24 GMT Feb 8
• SUP 1: 4060.52 20-day EMA
• SUP 2: 4007.50/3990.47 Low Jan 31 / 50-day EMA
• SUP 3: 3901.75 Low Jan 19
• SUP 4: 3788.50 Low Dec 22 and a key support

The S&P E-Minis trend condition remains bullish. The contract traded higher last week and confirmed a resumption of the bull cycle that started Dec 22. A key resistance and a bull trigger at 4180.00, the Dec 13 high, has been pierced. A clear break of this level would confirm a resumption of a broader uptrend and open 4250.00, the Aug 26 2022 high. Initial firm support to watch lies at 4007.50, Jan 31 low. The latest pullback is considered corrective.

COMMODITIES: Crude Sees Third Straight Gain Despite Inventory Build, Equities Sliding

• Crude oil sees solid gains to mark the third consecutive increase this week. It reverses an earlier decline seen after EIA showed a build in crude and a larger than expected recovery in refinery utilisation leading to higher product inventories, despite US equities sliding today (SPX -1%).
• In geopolitics, US Assistant Secretary for Energy Pyatt said the US is comfortable with India's approach to Russian energy, adding that the price cap coalition is working and that the US not looking to sanction India on Russian energy purchases.
• WTI is +1.8% at $78.49, clearing the 50-day EMA of $78.34 to open $80.49 (Jan 30 high).
• Brent is +1.7% at $85.09, clearing the 50-day EMA of $84.04 to open $86.21 (Feb 1 high).
• Gold is +0.1% at $1875.32 in another relatively calm session after prior swings linked to the US and yields. Resistance remains at $1897.4 (20-day EMA) and support at $1861.4 (Feb 3 low).

Thursday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
09/02/2023	0700/0800	***		DE	HICP (p)
09/02/2023	0830/0930	**		SE	Riksbank Interest Rate
09/02/2023	0945/0945			UK	BOE Bailey, Pill, Tenreyro & Haskel at Treasury Select Committee Hearing
09/02/2023	1330/0830	**		US	Jobless Claims
09/02/2023	1330/0830	**		US	WASDE Weekly Import/Export
09/02/2023	1530/1030	**		US	Natural Gas Stocks
09/02/2023	1630/1130	**		US	US Bill 04 Week Treasury Auction Result
09/02/2023	1630/1130	*		US	US Bill 08 Week Treasury Auction Result
09/02/2023	1800/1900			EU	ECB de Guindos Speech at Foro Economia y Humanismo
09/02/2023	1800/1300	***		US	US Treasury Auction Result for 30 Year Bond
09/02/2023	1900/1400	***		MX	Mexico Interest Rate