MNI EUROPEAN MARKETS ANALYSIS: Someone Needs A Dollar

US TSYS: Cheaper In Asia As Thursday's Forces Spill Over

TYH3 deals at 111-17+, -0-11, a touch off the base of its 0-08 range on volume of 128K.

• Cash Tsys sit ~2-3bps richer across the major benchmarks.
• Tsys were cheaper in early Asian dealing as local participants yesterday’s stronger than expected PPI data and Fedspeak.
• Sell side calls from Goldman Sachs and Bank of America, with both now looking for a terminal Fed Funds target range of 5.25-5.50%, also weighed on the space.
• The weakness extended a touch with 5-10 year zone printing fresh year to date peaks in yield terms.
• Highlight flow-wise was TY block sellers (-3K & -2.25K) with a TU block seller also noted (-1.6K).
• The USD erased its 2023 losses, aided by the move in Tsy yields, BBDXY is ~0.4% firmer.
• In Europe today we have PPI from Germany and French CPI. Further out US terms of trade and Fedspeak from Richmond Fed President Barkin and Fed Gov Bowman will cross.

JGBS: Off Cheaps As We Wind Into The Weekend

Weakness in core global FI markets biased JGB futures a touch cheaper ahead of the weekend, although the contract stuck to a contained range and recovered from session lows, sitting -9 ahead of the closing bell.

• Yesterday’s after-hours tweak to BoJ fees for borrowing three on-the-run 10-Year JGBs (making shorting those lines more expensive) probably provided some counter t the cheapening (albeit not as forceful as some believed may be seen).
• Cash JGBs run 1.5bp cheaper to 1.5bp richer, with a lack of uniform direction noted.
• Swap rates are 0.5-1.5bp higher, meaning swap spreads are biased a little wider on the day.
• Local headline flow remains limited, with focus squarely on the BoJ leadership plans and related knock-on impact on monetary policy.
• BoJ speculation continues to dominate after the recent Bank leadership nominations from the government, with the latest BBG survey seeing 70% of the respondents looking for a tightening move by the end of July (up from the 54% in last month’s survey).
• We also saw Finance Minister Suzuki reaffirm the government perception re: Ueda’s suitability to head up the Bank, with his communication skills once again highlighted.
• The latest batch of BoJ Rinban operations headline on Monday.

AUSSIE BONDS: Weakness Develops In Afternoon

Weakness developed in the afternoon after a contained two-way start, with YM -4.0 and XM -6.0 at the close. Weaker Asian trading for U.S. Tsys was the dominant driver, with RBA Governor Lowe’s testimony generally viewed as having covered familiar ground. Lowe did however conclude the Q&A session by suggesting it was plausible that rate cuts could be in play in ’24, although noted that a lot “has to go right” for that to be realised.

• Cash ACGB yields were 5-9bp higher across the curve, steepening. The AU-US 10-year cash bond yield differential narrowed to -6bp.
• Swaps generally tracked bonds with rates 6-8bp higher.
• Morning resilience in Bills gave way to weakness with the strip 3-5bp weaker, led by the reds.
• March meeting RBA-dated OIS continues to show an 88% chance of a 25bp hike. Terminal rate expectations firmed by 5bp to ~4.17%.
• The AOFM successfully sold A$500mn of the 4.25% April 2026 ACGB with a cover ratio over 4.00x and very firm pricing, while outlining a two ACGB auction schedule for next week, covering the familiar A$1.5bn in issuance.
• Looking ahead, the highlights for next week’s calendar will be Wednesday’s release of Q4 WPI, with the latest RBNZ decision due on the same day.

FOREX: Greenback Erases 2023 Losses, As Softer Equities Hurt Risk Appetite

Softer US equity futures and regional equities have pressured risk appetite in Asia. BBDXY is firmer and has erased its 2023 year to date losses.

• AUD/USD is ~0.5% lower, last printing $0.6840/45. The pair has tested short term resistance at $0.6840, yesterday's low, bears next target is $0.6781 38.2% retracement of Oct-Feb downleg. A lack of fresh hawkish surprises from Gov Lowe at a parliamentary committee weighed at the margins. AUD has looked through stronger Iron Ore futures which are up ~0.7% as PBoC pumps record amounts of cash into the economy sparking optimism over the recovery. Other China assets are less positive though, with equities tracking lower (CSI 300 off 0.50%).
• NZD/USD is down ~0.5%, last printing at $0.6220/25. Finance Minister Robertson spoke, noting that there may be initial inflationary pressure from cyclone Gabrielle however the rebuilding may boost H2 GDP. He also said that there is evidence inflation has peaked.
• Yen continues to weaken, USD/JPY is up ~0.6%. US yield momentum continues to point to further upside in the pair. USD/JPY last printed at ¥134.70/80, and is currently testing its 100-Day EMA (¥134.77).
• Broad based USD strength has weighed on CHF, EUR and GBP, which are down ~0.4%.
• Cross asset wise; S&P500 futures are ~0.4% lower and the Hang Seng is down ~0.6%. BBDXY is up ~0.4% and 10 Year US Treasury Yields are ~2bps firmer.
• In Europe today we have PPI from Germany and French CPI. Further out US terms of trade and Fedspeak from Richmond Fed President Barkin and Fed Gov Bowman will cross.

Source: MNI - Market News/Bloomberg

FX OPTIONS: Expiries for Feb17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600(E1.4bln), $1.0665-80(E2.0bln), $1.0695-00(E623mln), $1.0710-20(E542mln), $1.0795-05(E1.1bln), $1.0850-55(E1.4bln)
• USD/JPY: Y133.50($1.9bln), Y134.30-40($1.2bln), Y135.00($3.5bln)
• EUR/JPY: Y142.25(951mln), Y147.00(E1.1bln)
• GBP/USD: $1.2000-20(Gbp692mln), $1.2110-25(Gbp571mln)$1.2400-15(Gbp1.4bln)
• AUD/USD: $0.6800(A$784mln), $0.6870-75($625mln), $0.7000(A$1.2bln), $0.7100(A1.2bln)
• USD/CAD: C$1.3500($651mln)
• USD/CNY: Cny6.7400($1.7bln), Cny6.7590($1.4bln), Cny6.8500($1.1bln), Cny6.8670($1.3bln), Cny7.0000($2.0bln)

ASIA FX: USD Uptrend Persists

The continued pusher in US yields has aided the USD against the G10, while also weighing on equity risk appetite. This have been enough to keep USD/Asia pairs on the front foot, which are uniformly higher across the board today. The size of USD gains has been mixed, with the won being the weakest performer, along with MYR and THB. CNH and PHP have outperformed somewhat. Next week on Mon, China's 5yr and 1yr LPR rates are expected to remain unchanged. Taiwan export orders and Malaysian trade figures are also due, along with Indonesia's BoP.

• USD/CNH got above 6.8900, but now sits back closer to 6.8850/60. Onshore equities are weaker, as the market keeps one eye on US-China relations. The CNY fixing isn't pushing back against the weaker yuan trend either yet. We had a big liquidity injection as well, as the authorities looked to keep the domestic system flush with cash. CNH has outperformed most of the G10 and some higher beta plays within the region.
• 1 month USD/KRW got to a fresh high of 1302, which prompted the Finance Ministry to state won volatility was excessive and there was evidence of herd behaviour in FX markets. The pair is back to 1297/98 now. Such commentary won't change the won trend, but is something to be mindful of in terms of potential further jaw boning/intervention.
• USD/SGD is back towards 1.3400 (+0.30%), although is still outperforming on a cross basis. The SGD NEER is drifting higher per Goldman Sachs estimates. Weaker export growth figures did little to weigh on sentiment, with the market likely awaiting next week's CPI data as the next guide post for the April MAS decision.
• USD/THB got close to 34.60 post an unexpected Q4 GDP contraction. We now sit slightly lower, back to 34.50. Whilst the Q4 data is backward looking, it may leave sensitivity around baht levels higher, given weakness was reflected in exports for the final quarter last year.
• Elsewhere, USD/MYR is back to 4.4300, levels last seen at the turn of the year. The pair is +0.60% higher for the session. USD/PHP remains around 55.25 currently, firmer for the session but sub yesterday's highs. Hawkish rhetoric from the BSP is likely helping at the margins.

EQUITIES: Weaker As Cross Asset Headwinds Weigh

Regional equities are on the back foot to end the week. Cross asset headwinds are evident, with a firmer UST cash Tsy yield backdrop (1.9-2.7bps higher across the curve), boosting the USD and weighing on broader risk appetite in the equity space. US futures are also tracking lower (-0.48% for Eminis, -0.65% for the Nasdaq).

• The HSI is off by 0.75% at this stage, with the underlying tech index down 2%, unwinding all of yesterday's bounce. Both indices are tracking lower for the week, the third straight week of losses, albeit down from the prior two weeks.
• China equities are also lower, the CSI 300 off by 0.50% at this stage. Some other China related assets (such as iron ore) have firmed post a large liquidity injection today, amid hopes of further efforts to boost the growth backdrop. This hasn't materially boosted the equity space though. US-China relations are also likely to remain a focus point.
• The Nikkei 225 is off by 0.75%, the Kospi -1.00% and Taiex -0.50%, as tech related sentiment suffers amidst the push higher in core yields.
• Other SEA markets are mostly lower, with only the Singapore index managing to post a gain at this stage.

GOLD: Fresh Lows Back To Early January Amid Continued USD Rebound

Gold continues to trend lower. The precious metal is back to early Jan lows, last around $1826.25. This is off a further 0.55% so far today, while for the week we are tracking 2.1% lower. To date in February we have lost around 5.25%. Gold hasn't enjoyed the USD/yield resurgence.

• From a technical standpoint, the 100-day EMA sits near $1818, while further below is the 200-day close to $1802.
• The inverse correlation with the USD index remains, although visually gold losses are still tracking ahead of USD gains at this stage.
• Gold ETF holdings continue to drift lower.

OIL: Tracking Lower For The Week, But Respecting Recent Ranges

Brent crude has remained on the back foot through the session, in line with a firmer USD backdrop and risk aversion in the equity space. We last tracked around the $84.25/30bbl level, down close to 1% for the session so far. At this stage we are tracking 2.37% lower for the week. Overall, though Brent remains within well established ranges. WTI is last under $78/bbl, off by a similar amount to Brent today.

• The combination of the more hawkish Fed backdrop and rising inventory levels in the US have helped soften the oil backdrop in the past week. Headlines also crossed earlier that Russia will keep March export volumes.
• Still, optimism remains around the China outlook, with other commodities such as iron ore and copper looking better through the tail end of this week. Prompt spreads are also not too far off recent highs, suggesting some degree of tightness in terms of supply.
• Looking ahead, next week is fairly quiet in terms of oil specific event risks, other than the usual weekly inventory reports.