MNI US MARKETS ANALYSIS - EUR/GBP Extends Losing Streak

US TSYS: Modestly Bear Steeper With 3Y Supply Headlining

• Cash Tsys trade 0-1.5bp cheaper, bear steepening with 2s10s at -33bps (+1bp) nudging towards recent highs, with the sell-off generally a modest extension of yesterday’s second half move off highs.
• The sizeable level of global sovereign & IG duration on offer today is garnering most of the focus during early London trade, with little in the way of meaningful headline flow observed and with Tsys shrugging off softer than expected German industrial production for its sixth consecutive monthly decline.
• TYH4 at 111-24+ is off earlier lows of 111-22+ but still firmly within yesterday’s range, whilst volumes are on the subdued side at 260k. The corrective cycle is seen remaining in play, with support at 111-06+ (Jan 5 low) and resistance at 112-19 (Jan 4 high).
• Data: Trade balance Nov (0830ET)
• Fedspeak: Fed VC Barr discussion on bank regulation, no text (1200ET)
• Note/bond issuance: US Tsy $52B 3Y Note auction (91282CJT9) (1300ET)
• Bill issuance: US Tsy $70B 42 Day CMB auction (1130ET)

STIR FUTURES: Fed Rate Path Consolidates Recent Climb Higher

• Fed Funds implied rates sit between unchanged and marginally higher on the day for mid-2024 meetings.
• The move helped consolidate yesterday’s further lift for March implied rates to now imply 15.5bp of cumulative cuts as they continue to pull back from 25bps in late Dec. Another pertinent points include the implied 4.96% for May being the highest since the Dec FOMC plus 137bp of cuts for 2024 – see table.
• Late yesterday, Gov. Bowman (voter), recently the most hawkish member of the FOMC, said it will become appropriate to begin the process of lowering the policy rate to prevent policy from becoming overly restrictive should inflation continue to fall closer to 2%, but “we are not yet at that point”.
• Ahead, VC Supervision Barr speaks on bank regulation in the sole scheduled Fedspeak for the day.

TSYS: OI Points To Light Net Long Adding On Monday

The combination of yesterday’s rally (drivers have been heavily detailed elsewhere) and preliminary OI data point to net longs being added across most of the curve on Monday, with UXY futures providing the only apparent exception to the rule. Still, net DV01 equivalent moves were limited in both contract and curve terms.

STIR: OI Points To Mixed SOFR Positioning Swings On Monday

The combination of preliminary OI data and Monday's twisting of the SOFR strip points to the following positioning swings to start the week:

• Whites: A mix of long cover (SFRH4), long setting (SFRM4) and short cover (SFRU4). It is hard to be certain when it comes to SFRZ3 positioning movement given the unchanged price status on the day.
• Reds: A mix of long setting and short cover, with the former slightly more pronounced in net pack terms.
• Greens: A mix of long setting and short cover, with the former once again dominating in net pack terms.
• Blues: A mix of long setting and short cover, with the latter slightly more pronounced in net pack terms

FRANCE: Macron Confirms Education Min Attal As New PM

As had been widely expected, President Emmanuel Macron has appointed Education Minister Gabriel Attal as France's new prime minister following the resignation of Elisabeth Borne on 8 Jan. Attal is 34 years old, but has had a relatively lengthy political career. Having been a member of the centre-left Socialist Party (PS) during his student days he joined Macron's En Marche in 2016. He won a seat in the National Assembly for the Hauts-de-Seine's 10th constituency, an area covering Paris' wealthy western suburbs, in the 2017 legislative election.

• During much of his tenure in the assembly he also served as a spokesman for En Marche. He resigned from the legislature in Oct 2018 to serve as Secretary of State to the Minister of National Education and Youth.
• Attal held this post until 2020 when he was appointed Gov't Spokesperson, the minister in charge of public affairs. Then in May 2022, following his re-election to the Hauts-de-Seine's 10th constituency, he was appointed Minister of Public Action and Accounts (Budget Minister) in the Borne gov't, before being promoted to Minister of National Education and Youth in July 2023. As Education Minister, Attal announcedthe controversial ban on Islamic dress in schools, seen by observers as an attempt to outflank parties on the right.
• It remains to be seen the extent of Macron's wider Cabinet reshuffle, as to whether he will simply seek to replace Attal as Education Minister or enact a wider shift in ministerial positions in an effort to reinvigorate his gov't.

EUROPE ISSUANCE UPDATE:

• The first 20-year gilt auction in quite some time saw a very strong bid-to-cover of 3.62x with a tight tail of 0.2bp while the lowest accepted price of 104.688 was at a decent premium to the 104.581 secondary market price. This saw the price of the 4.75% Oct-43 gilt move to levels last seen around 9:30GMT. Gilt futures also jumped 10-15 ticks on the auction results.
• GBP2.25bln of the 4.75% Oct-43 Gilt. Avg yield 4.391% (bid-to-cover 3.62x, tail 0.2bp).

• E2.075bln of the 2.50% Jan-30 DSL. Avg yield 2.334%.

• E1.265bln (E1.1bln allotted) of the 2.90% Feb-33 RAGB. Avg yield 2.729% (bid-to-cover 1.94x)
• E748mln (E650mln allotted) of the 3.15% Oct-53 RAGB. Avg yield 3.096% (bid-to-cover 1.74x).

• E7bln of the new 10-year Oct-34 OLO. Spread set at MS+24bps, books closed in excess of E72bln.

• E10bln of the new Feb-31 BTP. Spread set at 4.00% Nov-30 BTP +6bps, books closed in excess of E73bln.
• E5bln of the 4.50% Oct-53 BTP. Spread set at 2.15% Sep-52 BTP +21bps, books closed in excess of E91bln.

Estonia syndication mandate:

• 10-year RegS EUR benchmark in the "near future". MNI expects the transaction to take place tomorrow and pencils in a size of E1bln.

Big Banks Kick Off Q1 Earnings, With Mixed Performance Expected

• Big banks kick off quarterly earnings cycle, with Bank of America, JP Morgan, Wells Fargo and Citigroup due Friday
• Goldman Sachs, Morgan Stanley follow in the following week
• Mixed performance expected among financials, with volatile markets countered by slowing interest income growth

Full schedule including EPS, revenue expectations and timings found here: https://roar-assets-auto.rbl.ms/files/59406/MNIUSE...

FOREX: Markets Patchy in Response to Monday Risk-On

• The ability for markets to hold the late Monday risk-on rally has varied, with GBP/USD remaining firm, but EUR reversing the move to keep the weekly EUR/USD lows within range on any further fade. This keeps the trend outlook in GBPUSD bullish, with resistance at 1.2827, the Dec 28 high and bull trigger, well within range. Clearance of this level would confirm a resumption of the uptrend and open 1.2881, a Fibonacci retracement point.
• CHF populates the bottom-end of the G10 table, with the persistent slide in EUR/CHF and USD/CHF stalling at the beginning of 2024. Weakness in CHF comes despite the firmer-than-expected Dec CPI release earlier this week.
• The USD Index trades modestly higher, but still below the Monday/Friday highs - risk and positioning headed into the Tuesday session is likely to dominate, with CPI and earnings risks taking up the focus for the tail-end of the week.
• AUDUSD is consolidating despite the bounce and recovery in crude prices, and trading closer to its recent lows. The recent move lower is considered corrective and the medium-term trend direction remains up. Moving average studies highlight an uptrend and trendline support drawn from the late October low remains intact.
• Trade balance data takes focus going forward, with both Canadian and US trade numbers on the docket. The US trade deficit is expected to widen to $64.9bln from October's $64.3bln. The central bank speaker slate picks up slightly, with Fed's Barr and ECB's Villeroy both set to make appearances after the European close.

EUR/GBP Extends Losing Streak, Despite Intraday Bounce

• Having traded generally well across the European morning to hold the bulk of the late Monday rally, GBP/USD is ebbing into the NY crossover, printing 1.2708 to show below both the 50% and 61.8% retracements for the Monday leg higher.
• The 15min candle chart shows an uptick in downward momentum on the break of the Friday close, making 1.2673 and 1.2612 the next levels of support.
• UK specific newsflow has been light outside of a 20y Gilt auction earlier this morning that drew strong investor interest, but had little read through for the currency.
• Perhaps more notably, despite the bounce during Tuesday, the streak of lower lows for EUR/GBP has extended to seven consecutive sessions, further reversing the late Dec leg higher and narrowing the gap with 0.8549 mid-December lows.
• Activity data due later in the week is the near-term focus, with markets expecting November industrial production to recover after a weak October showing.

EGBS: Dovish Centeno Unable to Help EGBs Off Lows

Core/semi-core EGBs are weaker once again, with Bunds and OATs down around 60 ticks each at typing. Bunds are over 300 ticks lower than 138.84 high seen on Dec 27.

• The latest comments from leaning ECB dove Centeno (r.e. not having to wait till May to make a decision on easing policy) provided a brief layer of support in Schatz futures. However, the move quick faded as Centeno had already expressed his views on rate cut timing with MNI before the Christmas break, stating that the discussion on when to ease policy may be held as early as January.
• Otherwise, headline flow has generally been light, with today's heavy slate of sovereign/IG issuance weighing. Lower-than-expected unemployment figures out of the Eurozone and Italy will have provided an additional layer of downside momentum.
• The German cash curve has bear steepened, with yields 3.5 - 6.0bps higher on the day. Periphery spreads to Bunds are a touch wider with the exception of Greece, with the GGB/Bund spread 0.4bps tighter at 113.8bps.
• The remainder of today's local data docket is light, while comments from BdF's Villeroy are scheduled for 1730GMT/1830CET.

EQUITIES: Move Lower in E-Mini S&P Last Week Considered Technically Corrective

• 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 4441.90, the 50-day EMA. A break of this level 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.
• The recent move lower in S&P E-Minis appears to have been a correction. Support at the 20-day EMA of 4750.67 has been pierced. A clear break of this average would strengthen a short-term bearish threat and expose 4695.69, the lower band of a MA envelope. A move through this support would expose the 50-day EMA, at 4656.58. For bulls, a continuation higher would expose key resistance and the bull trigger at 4841.50, the Dec 28 high.

COMMODITIES: Bearish Threat in WTI Futures Remains Present

• Bearish conditions in WTI futures remain intact and Monday’s sell-off reinforces the bear theme. Resistance to watch is $74.85, 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 are in a bear-mode position too, 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. The next support to watch is $2012.0, 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 on 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.