MNI US MARKETS ANALYSIS - China Holidays Sap Volumes, Making for Quiet Start to the Week

US TSYS: Modestly Richer After Lunar New Year Thinned Volumes

• Cash Tsys trade 1.5-2bp richer, pushing back towards the middle of Friday’s wide range seen around CPI revisions-induced volatility. With US CPI in the spotlight tomorrow, Treasuries underperform EGBs/Gilts, where the larger rally appears have few macro catalysts.
• TYH4 at 110-24+ trades 6+ ticks higher, well within Friday’s range, with volumes are just 230k after Lunar New Year proceedings curtailed volumes overnight. A bear threat remains present, with support at 1110-16 (Dec 13 & Feb 9 low) after which lies 109-31+ (Dec 11 low).
• Data: NY Fed Inflation Expectations Jan (1100ET), Mthly budget statement Jan (1400ET)
• Fedspeak: Bowman (0920ET), Barkin (1200ET), Kashkari (1300ET) – see STIR bullet for details.
• Bill issuance: US Tsy $79B 13W, $70B 26W bill auctions (1130ET)

STIR: Fed Path Sits Close To Post-Dec FOMC Highs, "Patient" Fedspeakers Ahead

• Fed Funds implied rates are marginally lower overnight, chipping away at Friday’s push higher but still close to post-Dec FOMC highs.
• Cumulative cuts: 5bp for Mar, 19bp for May, 40bp for June and 114bp for Dec.
• CPI lands tomorrow whilst today’s Fedspeak is from those who have all spoken since Feb 2 payrolls and called for patience, with Gov. Bowman (permanent voter), Barkin (’24) and Kashkari (non-voter).
• Recall, Bowman said on Feb 2 we’re not yet at a point where rate cuts are appropriate with an easing in financial conditions risking fueling inflation; Barkin said on Feb 8 that he wants conviction the inflation pullback is broadening and sustained (whilst also warning on the risk from conditions loosening); and Kashkari said on Feb 7 the Fed can take time to assess the data and saw 2-3 cuts this year as appropriate right now.

Downshift in CoT Data Puts EUR Net Position at Lowest Since '22

• The EUR net position deteriorated further in the latest week, with markets trimming a net 27k contracts to shrink the net long to 8.5% of open interest, the lowest level in 15 months (since October ’22). This pressed the positioning Z-score to -2.47, the lowest among all currencies surveyed.
• AUD and NZD saw the biggest one-week swings in positioning, with AUD net dropping by 4.5% of open interest, while NZD rose by 4.9% on the week. The shifts in positioning (accurate as of the Tuesday 6th February close) came just ahead of last week’s ~100 pip slide in AUD/NZD.
• This leaves markets with the largest net long MXN (33.2% of open interest), and the largest net short AUD (39.7%).

Full CFTC update here:

FOREX: USD Mid-Range as Focus Narrows in on ECB, Fed & BoE Speakers

• The USD is mid-range Monday, with newsflow and market price action relatively scant so far in Europe. Lighter volumes aided by the formal beginning of the Chinese Lunar New Year holidays has muted price action, with the US 10y yield still yet to challenge last week's highs and make any material test on the key 4.20% mark. NOK and SEK are modestly the best performers so far Monday, with NZD the weakest as markets trim the solid gains posted last week on the back of renewed hiking expectations from the RBNZ.
• EUR is weaker Monday, slipping against most others in G10 as EUR/USD slippage extends into NY hours. EUR/USD is now well within range of the Friday low and initial intraday weak support at 1.0762, and 1.0742 below. As mentioned above, small bid tone in the greenback is aiding the move.
• Despite stabilising off the late January lows, EUR/GBP has struggled to build any bounce off lows, and the sell-on-rallies theme remains dominant - particularly evident in the reversal of the Feb 5 high of 0.8572. Sights are on 0.8493, the Aug 23 '23 low and a key support - and could come into play on a firm UK inflation release on Wednesday (consensus already looks for services CPI to tick up to 6.8% from 6.4% prior).
• In typical Monday fashion, datapoints are few and far between, although the NY Fed 1-yr inflation expectations release should see some focus at 1600GMT/1100ET. The central bank speaker slate is busier, with ECB's Lane & Cipollone, Fed's Bowman, Barkin & Kashkari and BoE's Bailey all on the docket.

FX OPTIONS: Expiries for Feb12 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0725(E2.7bln), $1.0800(E655mln)
• USD/JPY: Y149.00-15($1.1bln)

BONDS: Curves See Light Bull Steepening

Core/semi-core EGBs and Gilts sit slightly firmer to start the week, but remain comfortably within Friday's range with few macro catalysts thus far.

• Bunds are +32 ticks at 133.62, toward the top end of today's 30 tick range. Technical studies remain bearish after the contract fell -160 ticks last week.
• Weekend headline flow saw comments from dovish-leaning ECB members Panetta, Centeno and de Cos, where the former two expressed a preference for gradual easing of policy once rate cuts begin, rather than rapid adjustments. Elsewhere, Moody's affirmed Germany's sovereign rating at Aaa; Outlook Stable.
• The German and French cash curves have lightly bull steepened, while 10-year periphery spreads to Bunds are tighter, aided by the uptick in European equities. The 10-year BTP/Bund spread is -2.6bps narrower at 155.8bps, still around 5bps wider than January's tightest levels.
• Gilt futures are last +37 at 97.87, with the curve having lightly bull steepened. News-flow over the weekend was largely political/fiscal-centric, with Labour's decision to reduce the size of their green investment pledge still in focus.
• Today's data docket is light, though there are scheduled remarks from ECB Chief Economist Lane at 1315GMT and Executive Board member Cipollone at 1550GMT (though the latter is unlikely to be monetary policy-related). In the UK, Governor Bailey speaks at 1800GMT, for which text will be released.

EQUITIES: Trend Condition in E-Mini S&P Unchanged and Bullish

• Eurostoxx 50 futures traded higher again Friday delivering another fresh cycle high that confirms a resumption of the current uptrend. This reinforces bullish conditions and the importance of the recent break of a key resistance at the Dec 14 high of 4634.00. The clear breach of the 4700.00 handle paves the way for a climb towards 4753.50, a Fibonacci projection. Initial firm support lies at 4629.10, the 20-day EMA.
• The trend condition in S&P E-Minis is unchanged and remains bullish - last week’s gains reinforce current conditions. The contract traded to a fresh cycle high again on Friday, confirming a resumption of the uptrend. Recent corrections have been shallow - this highlights a strong uptrend. The focus is on 5050.14, a Fibonacci projection. On the downside, initial key short-term support has been defined at 4866.00, the Jan 31 low.

COMMODITIES: Recent Recovery in WTI Futures Still Deemed Corrective, For Now

• The recent recovery in WTI futures appears to be a correction - for now. Key short-term resistance has been defined at $79.29, the Jan 29 high. Clearance of this level would be a bullish development. On the downside, support to watch lies at $71.41, the Feb 5 low. A break of this level would reinstate the recent bearish theme and pave the way for a move towards $69.56, the Jan 3 low.
• Gold continues to trade above the Jan 17 low of $2001.9. Recent short-term gains improved a bullish condition and a resumption of the bull cycle would signal scope for a climb towards $2088.5, the Dec 28 high and a key resistance. For bears, a stronger reversal lower would instead refocus attention on $2001.9, where a break is required to reinstate the recent bearish theme.