MNI US MARKETS ANALYSIS - EGB Yields Climb Further Still as Inflation Pressure Pervades

US TSYS: Weaker After EGB Inflation Metrics; Jun'23 Takes Lead Quarterly

Tsys trading modestly weaker - followed EGBs lower in early London trade following higher than forecasted French and Spanish inflation data. Off initial lows, futures at lower half overnight range, 2s10s yield curve mildly steeper (+1.039 at -86.002).

• Jun'23 futures take lead quarterly: TYM3 currently -5 at 111-14.5, above first support 110-21 (Feb 24 low); TUM3 -1.12 at 101-26.88 (42YY 4.7950 +.0167).
• STIR: Fed funds implied hike for Mar'23 at 29.8bp, May'23 cumulative 55.2bp to 5.132%, Jun'23 73.7bp to 5.317%, terminal at 5.41 in Oct'23 (Mon highs) as markets unwind rate cut pricing.
• Pick-up in data after slow start to the week
• 0830ET: Advance Goods Trade Balance (-$89.7B rev, -$91.0B); Wholesale Inventories MoM (0.1%, 0.2%); Retail MoM (0.5%, 0.1%)
  
• 0900ET: House Price Purchase Index QoQ (0.1%, --); FHFA House Price Index MoM (-0.1%, -0.2%); S&P CoreLogic CS 20-City MoM SA (-0.54%, -0.40%); S&P CoreLogic CS 20-City YoY NSA (6.77%, 4.75%)
  
• 0945ET: MNI Chicago PMI (44.3, 45.5)
• 1000ET: Richmond Fed Mfg. Index (-11, -5), Business Cond (-10, --); Conf. Board Consumer Confidence (107.1, 108.5); Dallas Fed Services Activity (-15, --) at 1030ET
  
• Fed Speak: Chicago Fed Goolsbee, Ivy Tech Comm College, text, no Q&A 1430ET

FOREX: Strong French Inflation Data Prompts EUR/USD to Reverse Overnight Losses

• The EUR is on the front foot early Tuesday, reversing overnight losses posted against the USD on the back of higher-than-expected French CPI for February. The data came alongside a solid bounce for consumer spending covering the same month, helping prompt markets to price in tighter policy and a higher peak rate for the ECB later this year.
• EUR/USD rallied to touch 1.0625 on the move, extending the recovery off yesterday's lows to just under a point. The move in USD/JPY was similarly notable, with spillover buying in EUR/JPY helping put the pair at the best levels since mid-December.
• A stronger retail sales release for Australia did little to prop up antipodean currencies which clearly continue to be sold in this environment as front-end rates march higher. AUD and NZD are again among the poorest performers in G10.
• The MNI Chicago Business Barometer marks the calendar highlight Tuesday, with Richmond Fed and February consumer confidence also on the docket. The speaker slate sees an appearance from Fed's Goolsbee, with text set to be released.

FX OPTIONS: Expiries for Feb28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E1.3bln), $1.0520-30(E656mln), $1.0625-35(E559mln),
• USD/JPY: Y134.50-60($600mln), Y136.00($592mln), Y137.50($850mln)
• GBP/USD: $1.1850(Gbp854mln)
• AUD/USD: $0.7000-05(A$1.1bln)
• USD/CAD: C$1.3250($830mln), C$1.3415-25($650mln)

HKD: Building HK IPO Pipeline Makes Waves in HKD Forwards

• Overnight rates in Hong Kong rose further overnight, with the O/N HIBOR hitting 3.85% - the highest rate since early December. Move coincides with fresh extremes for HKD forwards, as the forward point discount hits 632 points Monday, the largest discount since 2019.
• What is driving these moves? HKMA intervention to buy HKD is certainly partially responsible, but contracting interbank liquidity in Hong Kong is often also correlated with demand for sizeable IPOs.
• China's steps in recent weeks to loosen the regulations around Chinese firms listing overseas could juice the IPO pipeline for March in HK. Authorities will be considering new overseas IPO applications from March 3rd.
• Chinese firms including WeDoctor and Black Sesame Technologies are already reportedly considering an HK listing, with other sizable deal announcements including Taishan Brewery ($300mln) and Merck's Kelun-Biotech (another $300mln) in recent sessions.

Figure 1: HKD Forward Point Discount Extends as IPO Pipeline Builds

EQUITIES: Eurostoxx Futures Trade Higher Monday, Though Remain Below Friday Highs

• Eurostoxx 50 futures traded higher Monday and price remains above Friday’s low of 4175.00. Key support to watch is 4174.50, 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. 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 4025.09 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. On the upside, resistance to watch is 4054.80, the 20-day EMA. Note that a clear break of the 50- and 20-day EMAs would signal a possible reversal.

WTI Futures Target $78.06 50-day EMA

• 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 suggests potential for a continuation lower near-term. A break of the $73.80, would open $72.64, the Feb 6 low. Initial resistance to watch is at $78.06, 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 $1847.6. The break of this EMA, in mid-February, strengthened the case for bears. Sights are set on the $1800.0 handle 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 the EMA would ease bearish pressure.