MNI ASIA OPEN: Shorts Pricing In Chance of 50Bp Liftoff Again

EXECUTIVE SUMMARY

• MNI BRIEF: Powell Says Ukraine To Boost Inflation For a While
• MNI INTERVIEW: US Services Resilient To Ukraine War Effects-ISM
• POWELL: TOO EARLY TO SAY IF RUSSIA CHANGES FED RATES PATH, Bbg
• RUSSIA, UKRAINE AGREED TO HOLD THIRD ROUND OF TALKS SOON - UKRAINIAN NEGOTIATOR; UKRAINIAN NEGOTIATOR SAYS AGREEMENT INVOLVED A POSSIBLE TEMPORARY CEASEFIRE DURING EVACUATIONS, Reuters

US

US: The U.S. service sector will likely remain shielded from any major effects from the war in Ukraine and the accompanying surge in commodities prices despite a softening of growth in February, ISM services survey chair Anthony Nieves told MNI Thursday, adding supply constraints from the pandemic continue to ease and have likely peaked.

• "It's a risk that can be mitigated in the sense that things have to come through mostly on the manufacturing side before it trickles down and impacts the services sector," he said about Ukraine and increased commodities prices. "There's a bit of absorption that happens when things move through the supply chain like that and we'll have to see what happens in the next few weeks."
• Despite the price index increasing in February 0.8ppts to 83.1 and the Ukraine crisis, the ISM services chief did not seem open to shifting his outlook for services prices, still seeing them fall later this year. "There'll be some workarounds, although I think it's going to affect certain businesses more than others," he said. For more see MNI Policy main wire at 1355ET.

US TSYS: Focus On Friday's Feb Jobs Data

• Tsys holding modest gains across most of the curve, short end weaker as prospect of rate hikes revitalized following Fed Chairman Powell's two-day policy testimony on the Hill. Note, lead Eurodollar futures EDH2 under heavy pressure late: -.0975 to 99.2575 as prospect of 50bp liftoff climbed ahead Fri's Feb employ data.
• Stocks gapped off lows early in the second half amid headlines over third round of peace talks between Russia and Ukraine with the possibility of a cease fire. Russian officials expressed "support for humanitarian corridors for civilians" and agreeing on "possible ceasefire around those corridors".
• Crude oil prices fell back after reports that the return of Iranian supplies to an extremely tight market is near, after the Brent 1st future earlier stopped just short of hitting $120/bbl.
• Policy tie-in: Fed Chairman Powell at Senate testimony: "WHAT MATTERS FOR INFLATION IS HOW LONG OIL PRICE RISE LASTS ... $10 RISE IN OIL IS ABOUT 2 TENTHS ON INFLATION AS A RULE OF THUMB" Bbg. This yet again brings up potential of stagflation as inflation soars but the Fed does not raise rates as economy growth slows. Stay tuned.

OVERNIGHT DATA

• US JOBLESS CLAIMS -18K TO 215K IN FEB 26 WK
  
• US PREV JOBLESS CLAIMS REVISED TO 233K IN FEB 19 WK
• US CONTINUING CLAIMS +0.002M to 1.476M IN FEB 19 WK

• US Q4 REV NONFARM PRODUCTIVITY +6.6%; Y/Y +1.9%
• US Q4 UNIT LABOR COSTS +0.9%; Y/Y +3.5%

• U.S. IHS MARKIT FEB. SERVICES PMI AT 56.5 VS 51.2 LAST MONTH

• US JAN FACTORY ORDERS +1.4%; EX-TRANSPORT NEW ORDERS +1.0%
• US JAN DURABLE ORDERS +1.6%
• US JAN NONDEFENSE CAP GOODS ORDERS EX AIRCRAFT +1.0%

MARKETS SNAPSHOT

Key late session market levels:

• DJIA down 108.95 points (-0.32%) at 33777.55
• S&P E-Mini Future down 27.75 points (-0.63%) at 4353.75
• Nasdaq down 248.8 points (-1.8%) at 13502.75
• US 10-Yr yield is down 2.8 bps at 1.8491%
• US Jun 10Y are up 7.5/32 at 127-16.5
• EURUSD down 0.0057 (-0.51%) at 1.1062
• USDJPY down 0.09 (-0.08%) at 115.43
• WTI Crude Oil (front-month) down $1.91 (-1.73%) at $108.68
• Gold is up $12.13 (0.63%) at $1941.06

US TSY FUTURES CLOSE

• 3M10Y -6.063, 147.104 (L: 134.004 / H: 152.385)
• 2Y10Y -3.164, 32.709 (L: 31.274 / H: 42.485)
• 2Y30Y -2.412, 70.646 (L: 66.049 / H: 82.109)
• 5Y30Y -0.04, 48.971 (L: 43.661 / H: 56.369)
• Current futures levels:
• Jun 2Y down 0.375/32 at 107-14 (L: 107-14.125 / H: 107-15.125)
• Jun 5Y up 2.25/32 at 118-6.75 (L: 118-02.5 / H: 118-05)
• Jun 10Y up 7.5/32 at 127-16.5 (L: 127-05.5 / H: 128-29.5)
• Jun 30Y up 8/32 at 156-24 (L: 155-31 / H: 159-05)
• Jun Ultra 30Y up 5/32 at 184-9 (L: 183-01 / H: 188-28)

US 10Y FUTURES TECH: (M2)‌‌ Off Recent Highs But Remains Bullish

• RES 4: 129-31 Low Dec 8 (cont)
• RES 3: 129-13 3.00 proj of the Feb 10 - 14 - 15 price swing
• RES 2: 129-00 Round number resistance
• RES 1: 128-31+ High Mar 1
• PRICE: 127-16.5 @ 1543ET Mar 3
• SUP 1: 126-31 20-day EMA
• SUP 2: 125-29 Low Feb 25
• SUP 3: 125-14+ Low Feb 10 and the bear trigger
• SUP 4: 125-06+ Low May 30 2019 (cont)

Treasuries edged lower throughout the Wednesday session, undoing all of the Tuesday rally. The short-term outlook remains bullish though. This week’s gains have resulted in a break of both the 20- and 50-day EMAs, strengthening the current bullish theme. Resistance at 128-17, Jan 24 high was breached Tuesday. This opens the 129-00 handle next. The 20-day EMA is seen as an initial firm support. It intersects at 126-31.

US EURODOLLAR FUTURES CLOSE

• Mar 22 -0.095 at 99.260
• Jun 22 -0.065 at 98.795
• Sep 22 -0.060 at 98.465
• Dec 22 -0.065 at 98.150
• Red Pack (Mar 23-Dec 23) -0.055 to -0.02
• Green Pack (Mar 24-Dec 24) -0.005 to +0.030
• Blue Pack (Mar 25-Dec 25) +0.035 to +0.050
• Gold Pack (Mar 26-Dec 26) +0.045 to +0.055

Short Term Rates

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00043 at 0.07900% (+0.00186/wk)
• 1 Month +0.04671 to 0.28914% (+0.05857/wk)
• 3 Month +0.06100 to 0.58314% (+0.06014/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.09414 to 0.89000% (+0.06129/wk)
• 1 Year +0.11357 to 1.33186% (+0.00115/wk)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.08% volume: $70B
• Daily Overnight Bank Funding Rate: 0.07% volume: $258B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.05%, $1.023T
• Broad General Collateral Rate (BGCR): 0.05%, $367B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $355B
• (rate, volume levels reflect prior session)

NY Fed Purchase Operation: The Desk plans to purchase approximately $20 billion, ending Thu, March 9.

• Tsy 7Y-10Y, $1.599B accepted vs. $5.794B submission
• Next scheduled purchases
• Tue 03/08 1010-1030ET: Tsy 22.5Y-30Y, appr $1.825B steady
• Thu 03/09 1010-1030ET: Tsy 2.25Y-4.5Y, appr $4.025B

FED Reverse Repo Operation

NY Fed reverse repo usage bounces to $1,533.992B w/ 78 counterparties vs. $1,526.211B prior session -- remains well off all-time high of $1,904.582B on Friday, December 31.

PIPELINE: Late Issuance Summary: Roche, CBA, BMO Lions Share of $25.75B Total

• Date $MM Issuer (Priced *, Launch #)
• 03/03 $5B #Roche $750M 1.5Y FRN/SOFR+33, $1.25B 2Y +35, $1B 3Y +45, $750M 3Y FRN/SOFR+56, $1.25B 5Y +58
• 03/03 $4.5B #Commonwealth Bnk of Australia #1.25B 3Y +65, $650M 3Y FRN/SOFR+74, $1B 5Y +83, $350M 5Y FRN/SOFR+97, $1.25B 10Y +195
• 03/03 $3B #Bank of Montreal $1.25B 2Y +65, $500M 2Y FRN/SOFR+71, $1.25B 5Y +95
• 03/03 $2.75B *Honda $1B 3Y +60, $1B 5Y +80, $750M 10Y +112
• 03/03 $2.5B *Bank of America 15NC10 +200
• 03/03 $2.25B *HSBC $1.75B 4NC3 +133, $500M 4NC3 FRN/SOFR+143
• 03/03 $2B *Mondelez $500M 2Y +70, $750M 5Y +93, $750M 10Y +123
• 03/03 $1B #Sumitomo Mitsui Trust $500M 3Y +90, $500M 5Y +108
• 03/03 $750M *Diamondback 30Y +200

FOREX: Dollar Index Maintains Ascent, EURAUD Breaches 1.5275 Support

• The dollar index continued its supportive price action, making a fresh 21-month high of 97.95. The greenback strength was best reflected by weakness in EUR and CAD. With a more mixed session for commodities and major US equity benchmarks close to unchanged, JPY and CHF also remained close to Wednesday’s closing levels.
• The break lower in EURUSD confirms a resumption of the broader bearish sequence of lower lows and lower highs, in line with a bearish moving average set-up. Having briefly tested 1.1040, a Fibonacci retracement, the next support level to focus on is 1.0976, 2.00 projection of the Jan - Jun - May ‘21 price swing.
• AUD is a notable standout, continuing the recent streak of outperformance and threatening to close above key resistance at the 200-dma. 0.7326 marked the bull trigger, and further progress should bring attention to 0.7365, 2.0% 10-dma envelope.
• EURAUD fell just shy of 1%, which completes a 10th consecutive losing session for the pair, reaching the lowest levels since 2017. Losses were exacerbated below 1.5275 which represented the lows in 2018 and 2021, an important technical development.
• Aussie and Eurozone retail sales are on Friday’s data docket, however, clear focus is on the US employment report. Consensus is for another strong report including rapid wage growth and falling unemployment as participation remains steady, whilst hours worked are expected to bounce after taking most of the Omicron hit last month.

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
04/03/2022	0700/0800	**		DE	trade balance
04/03/2022	0745/0845	*		FR	industrial production
04/03/2022	0830/0930	**		EU	IHS Markit Final Eurozone Construction PMI
04/03/2022	0900/1000	***		IT	GDP (f)
04/03/2022	0930/0930	**		UK	IHS Markit/CIPS Construction PMI
04/03/2022	1000/1100	**		EU	retail sales
04/03/2022	1330/0830	***		US	Employment Report
04/03/2022	1500/1000	*		CA	Ivey PMI