MNI ASIA MARKETS ANALYSIS - Stocks Absorb Fed Neutrality

US TSYS SUMMARY: Curve Lower, Flatter as Yields Reverse Off Cycle Highs

Treasuries were sold in response to the better-than-expected jobs report, with yields boosted smartly in the 10y sector of the curve. Benchmark 10y yields rose above the 1.6% mark to print 1.6238% - a new cycle high - before reversing on profit-taking flow as well as residual demand from foreign real money accounts and central banks across 5 - 10yr sector of the curve.

• The curve itself traded lower and flatter into the close. A lot of focus was paid to the sharp rise in real yields post-payrolls, with inflation breakevens initially making up lost ground following Powell's comments Thursday.
• Shortly after the data, real yields fully reversed the knee-jerk move (bringing nominal yields back below 1.60%) though breakevens are held gains.
• The Fed blackout kicks off Saturday, leaving markets to parse data due in the coming week. US CPI/PPI crosses as well as prelim Uni. of Michigan confidence.

RATES UPDATE

US DOLLAR LIBOR: Latest settles:
O/N -0.00050 at 0.07763% (-0.00637/wk)
1 Month -0.00025 to 0.10325% (-0.01525/wk)
3 Month +0.00988 to 0.18538% (-0.00300/wk) (Just above Record Low of 0.17525% on 2/19/21)
6 Month -0.00737 to 0.19577% (-0.00712/wk)
1 Year -0.00600 to 0.27775% (-0.00600/wk)

STIR: FRBNY EFFR for prior session:
Daily Effective Fed Funds Rate: 0.07% volume: $69B
Daily Overnight Bank Funding Rate: 0.07%, volume: $224B

US TSYS: Repo Reference Rates
Secured Overnight Financing Rate (SOFR): 0.02%, $936B
Broad General Collateral Rate (BGCR): 0.01%, $375B
Tri-Party General Collateral Rate (TGCR): 0.01%, $343B
(rate, volume levels reflect prior session)

FED: NY Fed Operational Purchase
* Tsy 2.25Y-4.5Y, $8.801B accepted vs. $25.845B submission
* Next scheduled purchase:
* Mon 3/8 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
* Tue 3/9 1010-1030ET: Tsy 7Y-20Y, appr $3.625B
* Wed 3/10 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
*Thu 3/11 1500 Next scheduled release schedule

EGBs-GILTS CASH CLOSE: Following The US's Lead Again

Bund and Gilt yields spiked to/near session highs following a much stronger-than-expected US employment report, but finished toward the middle/bottom of the day's range after settling down over the course of the afternoon.

• Gilts once again underperformed; periphery spreads ended a little wider.
• The morning was quiet, apart from European cash FI catching up with the overnight bearish moves in Tsys following Fed Chair Powell's not-dovish-enough comments.
• In data, German Jan factory orders came in stronger than expected.
• Next week's highlight is the ECB monetary policy decision on Thursday.

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is down 0.4bps at -0.69%, 5-Yr is up 0.5bps at -0.615%, 10-Yr is up 0.9bps at -0.302%, and 30-Yr is up 0.7bps at 0.209%.
• UK: The 2-Yr yield is up 2bps at 0.1%, 5-Yr is up 2.4bps at 0.366%, 10-Yr is up 2.5bps at 0.756%, and 30-Yr is up 0.4bps at 1.287%.
• Italian BTP spread up 0.5bps at 105.6bps / Spanish spread up 0.5bps at 69.5bps

EUROPE SUMMARY: German Steepeners, Sterling Upside

Friday's options flow included:

• OEM1 134.00/133.75 put spread bought for 5 in 1k vs DUM1 111.90/111.80 put spreads sold at 1.5 in 2.5k
• RXJ1 168.00 put bought for 13 in 20k. Hearing short cover
• 0LM1 99.75/99.625 put spread v 99.875 call, bought for 0.75 in 4.8k (+put spread)
• 0LZ1 99.75/99.87/100.00c fly, bought for 2.5 in 25k
• 0LZ1 99.75/99.87 1x2 call spread, pays -0.5 for the 1 in 4k (v 99.66)
• 2LJ1 99.50^, sold at 15.5 in 1k
• 2LZ1 98.87/99.87 RR, sold the put at 3 in 3k (ref 99.355)
• 2LZ1 98.75/100.00 combo, sells the put at 2.5 in 3k (vs 99.355, -17d)
• 3LJ1 99.25/99.12/99.00p ladder, sold at half in 4k
• 3LM1 99.00/98.75 put spread bought for 5 in 4.2k
• 3LU1 99.375/99.125 put spread sold at 12.75 in 5k

FOREX: Greenback Buoyed By Stellar Jobs Report, Neutral Fed

• The greenback outperformed most others in G10 Friday, following a better-than-expected jobs report. The US added 379k jobs vs. Exp. 200k and the unemployment rate unexpectedly dropped. This firmed the dollar across the board, prompting the USD index to rally to the best levels since late November last year.
• The greenback was further firmed by more less-than-dovish commentary from the Fed. Both Bullard and Kashkari appeared unperturbed by the recent volatility in US real yields, forcing markets to further accept that the Fed may not provide further monetary accommodation as soon as March's Fed meeting. The media blackout period begins Saturday evening.
• Elsewhere, commodity-tied FX traded particularly well, with NOK and CAD firmer after WTI and Brent crude futures extended their OPEC+ inspired rally. NOK/SEK traded above parity for the first time since early 2020.
• Focus in the coming week turns to US CPI / PPI metrics, the Canadian jobs report and the ECB rate decision.

FX OPTIONS: Expiries for Mar08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2000-05(E852mln), $1.2090-00(E676mln)
• USD/JPY: Y104.25-40($2.8bln), Y105.50-55($1.7bln), Y106.00-20($614mln), Y107.00($570mln)
• EUR/GBP: Gbp0.8690-00(E508mln)
• AUD/USD: $0.7680-85(A$554mln), $0.7820-25(A$737mln)
• USD/CAD: C$1.2490-00($730mln), C$1.2780-90($638mln)
• USD/CNY: Cny6.45($1.5bln)

EQUITIES: Stocks Absorb Fed Neutrality, Finish Higher

• A solid nonfarm payrolls report provided some decent support for equity markets at the open, buoying the e-mini S&P further off the Thursday lows and eye a broadly unchanged performance for the week.
• Stocks looked lower mid-Friday trade as a few more Fed speakers made their final comments ahead of the pre-FOMC meeting media blackout. Both Bullard and Kashkari shrugged off recent volatility in real yields in the US, further pressuring markets to price-out the likelihood of imminent policy easing from the Fed as soon as March.
• Energy and materials named led gains Friday, with consumer staples and industrials not far behind. Consumer discretionary names were the only sector in the red.
• Across the European continent, stocks finished lower with losses of 0.3-1.0%. Germany's DAX was among the biggest decliners, with the UK's FTSE-100 still lower, but only posting a 0.3% fall.

COMMODITIES: Oil Shines In Stellar 7.5% Week

• Crude oil prices continued Thursday's impressive rally with Brent and Wti futures gaining ~3.5% on the session to post extremely bullish weekly closes. Markets largely ignored bouts of volatility following the US employment report and focused on the prior day's message from the Opec+ meeting. WTI bullish trend continues, reaching levels not seen since April 2019.
• Precious metals echoed US dollar flows which struggled to gain momentum in either direction to end the week. Spot gold posted small gains (0.35%), however extended the decline that began February 23^rd and lost 1.5% on the week. A very similar theme in Silver, retreating roughly 5.5% since the week's open.
• Copper staged a recovery Friday, rallying 2.5% after plummeting 7% at it's worst point on Thursday. Analysts continue to revise their forecasts higher for the bellwether metal, citing an increasing divergence between supply and demand. A Jefferies analyst noted that copper production from existing mines is poised to fall by more than 20% over the next decade due to declining metal grades and with demand growing, a "squeeze higher" in prices is coming.