MNI US MARKETS ANALYSIS - CNH Rally Triggers Broader Dollar Pullback

US TSYS: Bonds Lead Rebound After BOE Bailey Comments

• Balanced comments not overtly dovish but contrast to more hawkish stance from other central banks: "At this stage, I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more. Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided."
• Jun'23 Tsy 30Y futures, USM3 trades 125-12, +5 (30YY 3.8995%), TYM3 111-19 -2 (10YY 3.9123%). TUM3 lagging -1.38 at 101-26.25 (2YY 4.8160%).
• STIR: Fed funds implied hike for Mar'23 at 30.1bp, May'23 cumulative 56.1bp to 5.138%, Jun'23 74.5bp to 5.321%, terminal at 5.415% in Aug-23-Oct'23 off 5.43% highs.
• Data ahead: S&P Global US Manufacturing PMI (47.8, 47.8) at 0945ET; Construction Spending MoM (-0.4%, 0.2%) and ISMs at 1000ET: Mfg (47.4, 48.0), Prices Paid (44.5, 46.5).
  
• Fed speak: MN Fed Kashkari, moderated discussion, MN Fed livestream at 0900ET
• US Tsy auction: $36B 17W bill auction at 1130ET

EUROPE ISSUANCE UPDATE:

• It was a relatively strong 3.75% Jan-38 gilt auction with the LAP above the pre-auction mid-price even when taking into account the move lower into the auction cutoff time. The tail of 0.4bp was tight - we have only seen a tighter tail once in 2023 at a gilt auction while the last gilt auction with a maturity in excess of 10-years with a tail of 0.4bp was on 1 September, before the government-induced market turmoil.
• Despite the relatively strong auction, the market price of the 3.75% Jan-38 gilt moved lower post-auction.
• GBP2.5bln of the 3.75% Jan-38 Gilt. Avg yield 4.142% (bid-to-cover 2.41x, tail 0.4bp).

• Poor auction results from the German 15y auction. The results for the on-the-run 1.00% May-38 Bund are ok - the LAP was below the pre-auction bid-price but there was a strong volume of bids, and the size of the auction was increased from E1.50bln to E1.75bln due to the very weak demand for the 4.25% Jul-39 Bund. For the latter, even the average price was below the pre-auction mid-price, and there were only E627mln of bids - so it was technically uncovered even with the reduction in the auction size from E1.00bln to E750mln.
• E1.75bln (E1.551bln allotted) of the 1.00% May-38 Bund. Avg yield 2.79% (bid-to-cover 1.83x).
• E750mln (E540mln allotted) of the 4.25% Jul-39 Bund. Avg yield 2.76% (bid-to-cover 0.84x).

• IGCP buys back E322mln of the 4.95% Oct-23 OT
• IGCP buys back E792mln of the 5.65% Feb-24 OT.

ECB: Passive Phase of ECB QT Gets Underway Today

• As a side note for markets and macro, with today marking the 1st of March, the ECB's quantitative tightening plans get underway. The initial average pace of QT will be EUR 15bln (on average) per month across March - June. The pace for H2 this year remains up for review.
• This quantitative tightening phase is passive, not active, meaning the bank end the reinvestment of 100% of the proceeds of maturing bonds, and are not at this stage conducting outright sales.
• February's policy statement outlined their intention to initially tilt partial reinvestment toward corporate bonds, particularly toward issuers with better climate performance - full modalities statement found at this link.

FOREX: Chinese Currency Surges as PMI Tops Forecast

• The USD is fading early Wednesday, with the USD Index slipping through yesterday's lows well ahead of the NY crossover. Much of the price action has been driven by a solid beat for Chinese PMI data overnight, underpinning a CNH rally.
• USD/CNH has shown below 6.90, having taken out support at the 200-dma of 6.9145. Downside moves initially target 6.8781 for direction, marking the 38.2% retracement for the Jan - Feb upleg. Moves follow better-than-expected PMI data overnight from China, with both the manufacturing and non-manufacturing PMI data topping forecast.
• The non-manufacturing print at 56.3 was the strongest since the recovery from the initial waves of the pandemic in 2020, with 2020's 56.4 print the highest in 8 years.
• The Chinese currency rally is also lending a helping hand to NZD, which outstrips all others in G10 and reflects the bounce in equity markets off the late Tuesday pullback lows.
• Lastly, the single currency trades to the better following regional German CPI data, which could pose an upside risk to the February Eurozone revisions. North-Rhine Westphalia was a particular hotspot, with monthly prices rising 1.0%.
• Wednesday focus turns to the ISM Manufacturing release for February, with January construction spending also on the docket. The data will be carefully eyed for any clues ahead of next Friday's Nonfarm payrolls release - due March 10th. Final February Manufacturing PMI data is also scheduled from the US and Canada.

FX OPTIONS: Expiries for Mar01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0425-35(E1.7bln), $1.0450(E793mln), $1.0495-10(E1.8bln), $1.0590-00(E1.2bln), $1.0690-05(E1.4bln), $1.0725(E913mln), $1.0850(E704mln)
• USD/JPY: Y134.85-00($1.2bln)
• EUR/GBP: Gbp0.8850(E1.2bln)
• AUD/USD: $0.6776-90(A$1.3bln)
• NZD/USD: $0.6165(N$640mln), $0.6250(N$1.2bln)
• USD/CAD: C$1.3580($500mln), C$1.3600-20($859mln)
• USD/CNY: Cny6.9000($637mln), Cny7.2500($2.0bln)

EQUITIES: E-Mini S&P Stages Shallow Bounce After Tuesday Dip

• Eurostoxx 50 futures remain above Friday’s low of 4175.00. Key support to watch is 4183.90, the base of a bull channel drawn from the Oct 13 low. While channel support holds, the broader uptrend remains intact and a continuation higher near-term would expose the bull trigger at 4323.00, Feb 16 high. A break of this hurdle would resume the broader uptrend. On the downside, a breach of the channel base would alter the picture.
• S&P E-Minis trend conditions remain bearish and short-term signals suggest scope for an extension lower near-term. The contract continues to trade below the 50-day EMA, at 4023.15 and sights are set on 3901.75, the Jan 19 low and 3887.62, the 76.4% retracement of the Dec 22 - Feb 2 bull cycle. Resistance to watch is 4047.25, the 20-day EMA. Note that a clear break of both the 50- and 20-day EMAs would signal a possible reversal.

COMMODITIES: WTI Futures Target $77.93 50-Day EMA Resistance

• WTI futures remain above last week’s lows and key short-term support has been defined at $73.80, the Feb 22 low. Moving average studies are in a bear-mode position and for now, this continues to highlight a downtrend. A break of the $73.80, would open $72.64, the Feb 6 low. Initial resistance to watch is at $77.93, the 50-day EMA. A clear break of this EMA would be a bullish development.
• Trend conditions in Gold remain bearish and price is trading below the 50-day EMA, at $1846.8 - current gains are considered corrective. The break of the 50-day EMA, in mid-February, strengthened the case for bears. Sights are on $1800.0 and $1787.3, the 50.0% retracement of the uptrend between Sep 28 and Feb 2. On the upside, the 50-day EMA marks the first key short-term resistance. A clear breach of this average would ease bearish pressure.