MNI US MARKETS ANALYSIS - Bond Supply in Focus, With UST 10y On Tap

US TSYS: Modestly Richer With 10Y Supply And Williams In Focus

• Cash Tsys trade circa 2bp richer, outperforming European FI at the front end but with little by way of headline drivers at work.
• TYH4 at 112-02+ is off a high of 112-07 seen after rounds of screen lifts which cleared yesterday’s high, but it's remained below month-to-date best levels which mark resistance at 112-19 (Jan 4 high) after which sits the bull trigger at 113-12 (Dec 27 high).
• 10Y supply headlines the docket after yesterday’s well-received 3Y issuance before attention turns to NY Fed’s Williams (permanent voter) speaking for the first time since pushing back on March rate cut expectations shortly after the December FOMC decision. US CPI tomorrow lurks on the horizon.
• Fedspeak: NY Fed Williams (voter) at 1515ET incl text
• Data: Weekly MBA mortgage data Jan 5 (0700ET), Wholesale sales/inventories Nov/Nov final (1000ET)
• Note/bond issuance: US Tsy $37B 10Y Note re-open auction (1300ET)
• Bill issuance: US Tsy $56B 17W Bill auction (1130ET)

STIR: Fed Rates Nudge Lower, Williams To Reiterate Rate Cut Pushback?

• Fed Funds implied rates for 2024 meetings have nudged up to 2bps lower overnight in an extension of yesterday’s move.
• Pertinent cumulative cut pricing: 17.5bp for March, 64bp for June and 125bp for Nov and 140bp for year-end. The latter is 5bps below levels shortly before Friday’s NFP report despite the net hawkish report.
• NY Fed’s Williams (voter) speaks late on at 1515ET on the economic outlook, including text and with both moderated and media Q&A. It will mark his first public remarks since leading the charge shortly after the Dec FOMC decision in noting the market is reacting more strongly than the forecasts show and that it’s “premature” to be thinking about a March rate cut.

TSYS: OI Points To Notable Short Setting Across The Curve On Tuesday

• Apparent short setting in TY futures presented the largest DV01 equivalent net OI swing.
• EGB gyrations surrounding heavy EUR IG supply and a well-received 3-Year Tsy auction provided the most meaningful driving factors on Tuesday.

STIR: OI Points To Mix Of SOFR Short Setting & Long Cover On Tuesday

The combination of yesterday's slight net softening on the SOFR strip and preliminary OI data points to the following positioning swings on Tuesday:

• Whites: An apparent mix of short setting and long cover, with the former dominating the pack in net terms.
• Reds: An apparent mix of short setting and long cover, with the former dominating the pack in net terms. Note that the net pack OI swing was driven by short setting in only one contract (SFRZ4).
• Greens: Apparent net short setting was seen through the pack, driving the biggest net OI swing in pack terms.
• Blues: An apparent mix of short setting and long cover, with the latter dominating in net pack terms (driven solely by SFRH7)

EUROPE ISSUANCE UPDATE:

Gilt auction result:

• A strong launch of the new long 3-year 3.75% Mar-27 gilt with a tight tail of 0.2bp.
• We had expected a wider tail in line with short-dated gilt auctions seen in Q4-23 but this surprised us positively. The price of the 3.75% Mar-27 gilt moved above the non-competitive average price on the results while gilt futures equalled their high of the day post-results at 100.59.
• GBP4bln of the 3.75% Mar-27 Gilt. Avg yield 3.887% (bid-to-cover 3.44x, tail 0.2bp).

• E5bln (E4.043bln allotted) of the 2.20% Feb-34 Bund. Avg yield 2.19% (bid-to-cover 1.41x)

• E15bln of the new Apr-34 Obli. Books in excess of E137bln. Spread set at 3.55% Oct-33 Obli (mid) + 9bps.

• E1bln of the new Jan-34 Estonia. Books in excess of E7.5bln. Spread set at MS+70bps.

FOREX: USD/JPY Extending Bounce Off 200-dma Support

• AUD is furtively the strongest performer in G10, reverting off yesterday's lows to recoup an iron-ore inspired pullback in the currency. Nonetheless, AUD/USD remains within the broader downtrend drawn off the December high, but progress through 0.6718 could counter this bearish sentiment to return focus to formation of a golden cross pattern in DMA space: the 50-dma rose above the 200-dma for the first time since January last year last week.
• JPY is trading softer against all others, with USD/JPY extending the bounce off the 200-dma at 143.49 at the beginning of the week. Progress remains shallow, however, with prices holding below resistance at both 145.97 and the 50-dma of 146.27.
• The USD Index remains rangebound, trading inside the weekly range, with few cues to trigger a breakout in either direction. Technically speaking, the imminent formation of a death cross between the 50- and 200-dma in the coming sessions should enforce the downward momentum in the currency, but 101.908 remains support ahead of any notable weakness.
• Focus for the Wednesday session ahead turns to central bank speak, with a number of key appearances due Wednesday. BoE's Bailey is set to testify in front of the Treasury Select Committee, covering off the Financial Stability Report released in December of last year. ECB's Schnabel, de Cos and Fed's Williams are also due to be speaking.

NOK/JPY Gains Put Cross in Range of Key Resistance Band

• NOK strength persists as markets shrug off the softer-than-expected CPI data from this morning, which has done little to tilt expectations for the NB easing cycle to commence in H2 this year. NOK strength is meeting JPY weakness by pushing the cross to again test a key band of resistance.
• The cross tested, but failed to meaningfully break, the 76.4% retracement for the 2022 - 2023 downleg on a handful of occasions last year at 14.0555. A clean and full break of the mark would be a bullish development, and a close above the Aug'23 high at 14.2122 would mark the best levels since late '22.
• The Jan23 BoJ decision will be key for the cross, but the trajectory of near-term risk sentiment will likely play a larger part - the correlation between NOK/JPY and the e-mini S&P is well observed, for example. A strong earnings season (big banks begin the quarter from Friday) and a push higher for US stock indices could be the catalyst for a firm break of the key level.

FX OPTIONS: Expiries for Jan10 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0890-00(E889mln), $1.0915-25(E1.4bln), $1.0970-71(E972mln), $1.0985(E2.3bln)
• USD/JPY: Y143.50-55($831mln), Y144.00-05($1.7bln), Y144.50($622mln), Y145.00($1.9bln)
• EUR/JPY: Y156.00(E720mln)
• USD/CAD: C$1.3400($646mln), C$1.3435($556mln)
• USD/CNY: Cny7.1713($530mln)

EGBS: Peripheries Outperform as Spanish Syndication Shows Strong Demand

Peripheries are outperforming Bunds this morning following indications of strong demand at today's Spanish 10Y Obli syndication.

• Bunds are 18 ticks higher at 135.64 but BTPs outperform, up 42 ticks at 118.29 at typing. Firmness in US Tsys and Brent crude's move away from yesterday's highs will also be providing support to the space.
• Spain has received a record E130bln of bids for the 10Y Obli on offer at today's syndication, and comes following similarly strong demand-dynamics at yesterday's dual BTP syndication. The 10Y Obli/Bund spread is 2.0bps tighter at 95.2bps today, while the 10Y BTP/Bund spread trades 2.6bps tighter at 163.6bps, down from around 170bps last week.
• German and French cash curves have bear flattened on the day.
• Otherwise, headline flow has generally been light. Comments from ECB's de Guindos r.e. uncertainty around the future inflation path did not move the needle much, nor did today's French/German data.
• The remainder of today's docket is light, with main focus on ECB speak from Executive Board member Schnabel at 1400GMT/1500CET.

EQUITIES: E-Mini S&P Holds Onto This Week's Earlier Gains

• The primary trend direction in Eurostoxx 50 futures remains up and the recent move lower appears to be a correction. MA studies are in a bull-mode position, signalling a rising trend cycle. Key short-term support to watch lies at 4444.00, the 50-day EMA. A break of it would signal scope for a deeper retracement and open 4370.00, the Nov 28 low. For bulls, a reversal higher would refocus attention on 4634.00, the Dec 14 high and bull trigger.
• S&P E-Minis have recovered from last Friday’s low. Support at the 20-day EMA of 4754.67 has recently been pierced. A clear break of this average would strengthen a short-term bearish threat and open 4694.47, the lower band of a MA envelope. A move through this support would expose the 50-day EMA, at 4661.92. Key resistance and the bull trigger is at 4841.50, the Dec 28 high. Clearance of this level would resume the uptrend.

COMMODITIES: Bearish Conditions in WTI Futures Remains Intact

• Bearish conditions in WTI futures remain intact and Monday’s sell-off reinforces the bear theme. Resistance to watch is $74.75, the 50-day EMA. The average was briefly pierced late December. A clear break of it would strengthen a bullish theme and highlight a stronger reversal. For bears, moving average studies remain in a bear-mode position, highlighting a downtrend. The trigger for a resumption of the trend is $67.98, Dec 13 low.
• Gold traded lower Monday, extending the pullback from $2088.5, the Dec 28 high. Price is trading ahead of the next key support at $2012.8, the 50-day EMA. A break of this level, if seen, would expose key support at $1973.2, the Dec 13 low. For bulls, clearance of $2088.5 would reinstate the bull cycle that started Dec 13. This would open $2097.1, 76.4% of the Dec 4 - 13 bear leg, ahead of key resistance and the Dec 4 all-time high of $2135.4.