MNI ASIA OPEN: Atlanta Fed Bostic: March 50Bp Hike Possible

EXECUTIVE SUMMARY

• ATL FED BOSTIC: Bostic Says Fed Could Do Half-Point March Hike If Needed, Financial Times
• MN FED Kashkari: March Hike Likely, Could Pause After Spring; Watch Yield Curve
• U.S. MAY BAN TRADE OF NEW RUSSIA SOVEREIGN DEBT OVER UKRAINE: DJ

US

FED: Atlanta Fed Bostic late Friday: “Every option is on the table for every meeting. If the data say that things have evolved in a way that a 50-basis-point move is required or be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that,” he told the newspaper." Financial Times.

• On rate hike path: Thinks the FOMC will likely hike at the March meeting; then will "see where the data goes". Says there is some value in adjusting rates in the near future; conceivable FOMC could move in the spring and then pause. He doesn't want to use terms like "gradual" or "deliberate" for the path ahead, as "too much is outside our control", and the Fed needs more information before deciding what they'll do a few months from now.
  
• On the yield curve: Says he is paying attention to the yield curve. Notes the Fed influences the short end, and the long end is indicating the US economy is probably headed to a more moderate growth and inflation regime in the future. Says that long-term structural factors are still in play, including demographics. And if they reassert themselves, then the Fed probably doesn't need to act too "hard" now. Says the yield curve provides information about where we are relative to neutral; the fact that it's flattened over the past 6 months that we're probably not that far away from neutral.
  
• On balance sheet runoff: Says he doesn't have a strong view of starting time, pace; but doesn't think the Fed needs to wait as long as in the last recovery. Notes the balance sheet holds a lot of short-term assets that will run off very quickly... having experience doing it last time, we have a lot more confidence doing it this time.

US TSYS: Market Roundup, Aggressive Hike Estimates Cools Slightly

Both FI and equity markets finished higher Friday as expectations of more aggressive rate hikes for the year cooled somewhat after MN Fed Pres Kashkari (dove, non-voter) spoke.

• First out of Blackout, Kashkari said while a "March hike is likely" .. the Fed "could pause after spring."
• In a second appearance on Yahoo finance, Kashkari said there is some value in adjusting rates in the near future; conceivable FOMC could move in the spring and then pause.
• Kashkari doesn't want to use terms like "gradual" or "deliberate" for the path ahead, as "too much is outside our control", and the Fed needs more information before deciding what they'll do a few months from now.
• Tsys see-sawed higher across the board, 30YY -.0196 to 2.0733%, 2s10s yield curve gained .628 to 90.695, and 7s10s remains above inversion at 2.659.
• Equities finished near highs, SPX eminis +105.5 at 4423.25.
• Short end: Eurodollar lead quarterly EDH2 remains under pressure (-0.035 at 99.455) after latest 3M LIBOR set' surged +0.01757 to 0.31657% (+0.05886/wk) -- new highest level since May 2020.
• Debate over size and speed of liftoff: some dealers, Nomura for example, expect a 50bp hike in March, while Wells Fargo sees 25bp hike in May adding to four quarterly hikes (+125bp/yr).
• Policy uncertainty/inflection point remains Green Dec'24 (97.910) inverted vs. most of the Blues (EDH5-EDU5) -- steady vs. Blue Dec'25.
• The 2-Yr yield is down 2.6bps at 1.1623%, 5-Yr is down 4.6bps at 1.6127%, 10-Yr is down 3bps at 1.7695%, and 30-Yr is down 2bps at 2.0733%.

OVERNIGHT DATA

• US Q4 EMPL COST INDEX 1% V Q3 1%
  
• US Q4 EMPL COST INDEX Y/Y 4% V Q3 3.7%
• US Q4 BENEFIT PAYMNTS 0.9% V Q3 0.9%;Q4 Y/Y 2.8%(Q3 2.5%)

• US DEC PERSONAL INCOME +0.3%; NOM PCE -0.6%
• US DEC PCE PRICE INDEX +0.4%; +5.8% Y/Y
• US DEC CORE PCE PRICE INDEX +0.5%; +4.9% Y/Y
• US DEC UNROUNDED PCE PRICE INDEX +0.448%; CORE +0.498%

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 226.8 points (0.66%) at 34375.38
• S&P E-Mini Future up 52.25 points (1.21%) at 4367.5
• Nasdaq up 212.3 points (1.6%) at 13558.16
• US 10-Yr yield is down 2.3 bps at 1.7766%
• US Mar 10Y are up 10/32 at 127-31
• EURUSD down 0 (0%) at 1.1144
• USDJPY down 0.14 (-0.12%) at 115.23
• WTI Crude Oil (front-month) up $0.19 (0.22%) at $86.83
• Gold is down $9.49 (-0.53%) at $1787.81

• EuroStoxx 50 down 48.06 points (-1.15%) at 4136.91
• FTSE 100 down 88.24 points (-1.17%) at 7466.07
• German DAX down 205.32 points (-1.32%) at 15318.95
• French CAC 40 down 57.92 points (-0.82%) at 6965.88

US TSY FUTURES CLOSE

• 3M10Y -2.161, 157.419 (L: 156.458 / H: 163.91)
• 2Y10Y -0.59, 60.314 (L: 60.115 / H: 65.073)
• 2Y30Y +0.628, 90.695 (L: 89.562 / H: 95.746)
• 5Y30Y +2.679, 45.969 (L: 42.525 / H: 48.136)
• Current futures levels:
• Mar 2Y up 1.25/32 at 108-10.125 (L: 108-06.375 / H: 108-11)
• Mar 5Y up 6.5/32 at 119-5.25 (L: 118-24.5 / H: 119-07)
• Mar 10Y up 9.5/32 at 127-30.5 (L: 127-10.5 / H: 128-01)
• Mar 30Y up 11/32 at 155-24 (L: 154-15 / H: 155-30)
• Mar Ultra 30Y up 10/32 at 189-17 (L: 187-10 /H: 189-28)

‌‌US TREASURY TECHNICALS: (H2)‌‌ Remains Vulnerable

• RES 4: 129-31 Low Dec 8
• RES 3: 129-11+ 50-day EMA
• RES 2: 129.14 High Jan 5
• RES 1: 128-16/27 20-day EMA / High Jan 13
• PRICE: 127-31+ @ 16:32 GMT Jan 28
• SUP 1: 127-06+/02 Low Jan 26 / Low Jan 19 and the bear trigger
• SUP 2: 127-00+ Low Jul 31, 2019 (cont)
• SUP 3: 126-23 Low Jul 17, 2019 (cont)
• SUP 4: 126-10+ 61.8% retracement of the 2018 - 2020 bull cycle

Treasuries are just above the week’s lows into the Friday close and remain vulnerable with the broader downtrend intact. A bearish theme follows the recent break of support at 127-30, Jan 10 low. This maintains the price sequence of lower lows and lower highs and note that moving average studies are still in a bear mode. 127-02, Jan 19 low, is the trigger for a resumption of the downtrend. Key short-term resistance is at 128-27, Jan 13 high.

US EURODOLLAR FUTURES CLOSE

• Mar 22 -0.005 at 99.485
• Jun 22 steady at 99.110
• Sep 22 -0.005 at 98.805
• Dec 22 steady at 98.535
• Red Pack (Mar 23-Dec 23) +0.010 to +0.040
• Green Pack (Mar 24-Dec 24) +0.040 to +0.055
• Blue Pack (Mar 25-Dec 25) +0.050 to +0.055
• Gold Pack (Mar 26-Dec 26) +0.045 to +0.050

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00071 at 0.07814% (+0.00343/wk)
• 1 Month +0.00129 to 0.10629% (-0.00142/wk)
• 3 Month +0.01757 to 0.31657% (+0.05886/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.01572 to 0.53443% (+0.09000/wk)
• 1 Year +0.02629 to 0.94786% (+0.14929/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $80B
• Daily Overnight Bank Funding Rate: 0.07% volume: $274B

• Secured Overnight Financing Rate (SOFR): 0.04%, $913B
• Broad General Collateral Rate (BGCR): 0.05%, $345B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $333B
• (rate, volume levels reflect prior session)

• 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

NY Fed reverse repo usage bounced to week high Friday: $1,615.021B w/81 counterparties vs. $1,583.895B prior session -- remains well off all-time high of $1,904.582B on Friday, December 31.

PIPELINE: Total Corporate Debt Issuance Over $200B for January

• No new issuance Friday, slowing down into month end more tied to combination of latest earnings cycle and FOMC policy announcement for keeping issuers sidelined.
• That said, January saw $201.75B high grade US$ issuance mostly from domestic but including foreign companies and supra-sovereigns. In comparison, January 2021 total: $227.55B;; January 2020 total: $165.18B.

EGBs-GILTS CASH CLOSE: UK Short-End Shows Pre-BoE Jitters

Bund and Gilt yields retraced their intraday highs to close fairly flat by the close, with some modest bear steepening in both curves.

• Ahead of next week's BoE meeting (a 25bp hike is nearly fully priced), UK short-end yields hit fresh 11-year highs (2Y > 1.00%) before pulling back.
• Eurozone GDP data was mixed (German miss stood out). Attention also turns to the ECB meeting next week.
• BTP spreads continued to compress amid yet another day of impasse in the presidential elections. Italian political sources told MNI Draghi's chances are improving ahead of a weekend showdown vote. Elsewhere, periphery EGB spreads were mixed; Spain underperformed.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.4bps at -0.607%, 5-Yr is up 1.4bps at -0.305%, 10-Yr is up 1.4bps at -0.045%, and 30-Yr is up 1.1bps at 0.239%.
• UK: The 2-Yr yield is up 0.7bps at 0.968%, 5-Yr is up 0.5bps at 1.07%, 10-Yr is up 1.6bps at 1.244%, and 30-Yr is up 1.9bps at 1.37%.
• Italian BTP spread down 1.7bps at 132.8bps / Spanish up 1.5bps at 74.3bps

FOREX: AUDUSD Breaches Key Support As Antipodean FX Extends Weakness

• Both the Australian and New Zealand dollars were the clear standouts on Friday, extending on the prior sessions significant sell-off.
• Despite the dollar index trading close to unchanged amid volatile two-way price action in equity benchmarks, AUD and NZD retreated a further 0.6%, bringing losses comfortably over 2% since Wednesday.
• AUDUSD’s clear break of 0.7069 reinforced bearish conditions and cleared the way for an extension towards the key support at 0.6993/91, the Dec 3 and Nov 2, 2020 lows. The support was broken during the European session and market participants will pay attention to the potential for a weekly close below the technical point. Moving average conditions remain in a bear mode, highlighting current sentiment.
• The dollar index caps off a stellar week, likely to register gains of around 1.65% and sitting at 18-month highs.
• Worth noting China will be out all of next week, however, Chinese PMI’s to be released Sunday before Monday’s data focus in the form of the MNI Chicago Business Barometer™.
• The week ahead will be highlighted by central bank policy decisions from the RBA, BOE and the ECB.

Data Calendar for Monday

Date	GMT/Local	Impact	Flag	Country	Event
30/01/2022	0145/0945	**		CN	IHS Markit Final China Manufacturing PMI
31/01/2022	0800/0900	***		ES	HICP (p)
31/01/2022	0900/1000	***		IT	GDP (p)
31/01/2022	1000/1100	***		EU	GDP preliminary flash est.
31/01/2022	1300/1400	***		DE	HICP (p)
31/01/2022	1330/0830	*		CA	Industrial Product and Raw Material Price Index
31/01/2022	1445/0945	**		US	MNI Chicago PMI
31/01/2022	1530/1030	**		US	Dallas Fed manufacturing survey
31/01/2022	1630/1130			US	San Francisco Fed's Mary Daly
31/01/2022	1630/1130	*		US	US Treasury Auction Result for 26 Week Bill
31/01/2022	1630/1130	*		US	US Treasury Auction Result for 13 Week Bill
31/01/2022	1740/1240			US	Kansas City Fed's Esther George
01/02/2022	2200/0900	**		AU	IHS Markit Manufacturing PMI (f)