MNI US MARKETS ANALYSIS - European Banks Sap Sentiment, EUR Spirals

US TSYS: Treasuries Surge As Credit Suisse, European Banks Under Pressure

• Cash Tsys have reversed earlier session cheapening with a significant 35bp intraday rally in 2Y yields for now down -18bps at 4.07% as Fed pricing continues to slide (now just 21bps of cumulative hikes priced for May peak). Moves are seen across the curve though, with 13-18bps rallies across benchmarks in spillover from European banks sliding, with CS earlier down 21% for its most on record with BNP and SocGen also under pressure. There’s still a heavy US data docket to come.
• 2YY -18.4bps at 4.062%, 5YY -17.7bps at 3.678%, 10YY -15.4bps at 3.535% and 30YY -12.5bps at 3.679%.
• TYM3 trades 23+ ticks higher at 114-19 (session high 114-20+) as volumes surge, moving closer to Monday’s high of 115-13. A sustained push higher could open the round 116-00.
• Data: PPI Feb (0830ET), Retail sales Feb (0830ET), Empire mfg index Mar (0830ET), NAHB housing index Mar (1000ET), business inventories Jan (1000ET) and TIC flows Jan (1600ET) plus usual weekly MBA mortgage data (0700ET).
• Bill issuance: US Tsy $36B 17W bill auction – 1130ET

STIR FUTURES: Fed Rate Path Sliding With European Banks Under Pressure

• After pushing higher earlier in the European session with a terminal briefly tipping into the June FOMC decision just above 5%, the terminal is back circa 4.85% in May and potentially heading lower as Fed Funds implied hikes are cut in spillover from lower ECB rate hike pricing.
• Pricing 15-16bps for next week’s FOMC, a cumulative 26-27bps for May and a larger intraday retracement further out back to 70bps of cuts to 4.17% year-end (similar to -72bps at yesterday’s close).

FOMC-dated Fed Funds futures implied ratesSource: Bloomberg

EUROPE ISSUANCE UPDATE

German auction results
Another disappointing 30-year German auction. For the 0% Aug-50 Bund the bid-to-cover and bid-to-cover looked ok, but the average priced of 54.55 was below the pre-auction mid-price of 54.574 and there was also a fairly wide tail with the lowest accepted price of 54.45. The 1.80% Aug-53 Bund auction was the weaker of the two with the auction technically not fully covered (less bids than E1.5bln). There was also a similar sized tail.

Last month's 30-year auction was also disappointing but in the interim we saw the 1.80% Aug-53 syndication on 23 February which saw a book size of E41bln and was very strong. Despite the weak auction today, both the 0% Aug-50 and the 1.80% Aug-53 Bunds have seen prices moved higher in post-auction trading in line with the broader fixed income rally.

• E1bln (E754mln allotted) of the 0% Aug-50 Bund. Avg yield 2.24% (bid-to-cover 1.62x).
• E1.5bln (E1.232bln allotted) of the 1.80% Aug-53 Bund. Avg yield 2.32% (bid-to-cover 0.87x).

FOREX: EUR Fades Gains Based Off ECB Report

• EUR trades under modest pressure ahead of the NY crossover as markets look to fade a Reuters ECB report suggesting that policymakers will stick to a 50bps rate rise this week in order to reinforce credibility and live up to the bank's communication strategy. The report was largely inline with the MNI Exclusive run on Monday evening, citing sources in seeing the bank sticking to their 50bps hike strategy despite the uncertainty surrounding the US banking sector.
• EUR/USD traded through the overnight lows shortly after the London open and within range of the late NY Tuesday lows of 1.0711. 1.0704 marks next support, the 23.6% retracement of the Weds - Weds upleg.
• NZD is the poorest performer in G10, flagging against most others as prices in NZD/USD oscillate either side of the 100-dma at 0.6254. Equities are modestly weaker across futures space in both the US and Europe, however the e-mini S&P holds well within range of yesterday's late recovery high at 3972.50.
• Eurozone industrial production data the next highlight, with markets expecting produtin to have risen 0.3% on both the month and the year. US PPI is due to follow, with February retail sales also on the docket.
• Outside of data, the UK Chancellor is set to present his latest Spring Budget, at which the UK government are expected to outline plans to return workers to the labour market and incentivise sluggish business investment.

FX OPTIONS: Expiries for Mar15 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E1.7bln), $1.0696-00(E1.8bln), $1.0730-50(E3.5bln), $1.0800-10(E932mln), $1.0830-50(E1.8bln)
• USD/JPY: Y126.00($2.5bln), Y130.00($1.0bln), Y133.00($1.6bln), Y134.00($541mln), Y135.00($668mln)
• GBP/USD: $1.1895-00(Gbp1.0bln)
• AUD/USD: $0.6675(A$502mln), $0.6720(A$926mln)
• USD/CAD: C$1.3500($744mln), C$1.3575-00($1.5bln), C$1.3725($837mln), C$1.3930-45($1.1bln)
• USD/CNY: Cny6.8600($1.2bln), Cny6.9500($1.9bln)

EQUITIES: Tuesday's Move Higher in E-Mini S&P Considered Technically Corrective

• Eurostoxx 50 futures started this week on a bearish note with price trading lower Monday. This reinforces last week’s breach of a key support at the base of a bull channel drawn from the Oct 13 low. The break highlights a reversal of the uptrend that has been in place since late September 2022. The 50-day EMA has also been breached and this opens the 4000.00 handle next. On the upside, initial firm resistance is seen at 4232.10, the 20-day EMA.
• The short-term condition in S&P E-Minis remains bearish and Tuesday’s move higher is considered corrective. Price last week cleared key short-term support at 3960.75, Mar 2 low to confirm a resumption of the bear cycle that has been in place since Feb 2. The move lower signals scope for an extension towards 3822.00 next, the Dec 22 low. Initial firm resistance is seen at 4035.81, the 50-day EMA.

COMMODITIES: WTI Sell Off Yesterday Reinforces Strong Bearish Theme

• WTI futures remain vulnerable and yesterday’s strong sell-off reinforces the current bearish theme. The contract has tested key support at $70.86, the Dec 9 low. A clear break of this level would highlight an important bearish development and confirm a resumption of the medium-term downtrend. This would open the psychological $70.00 handle and levels below it. Initial firm resistance is at $78.06, the Mar 9 high.
• Gold remains bullish and the metal is holding on to its recent gains. Resistance at $1858.3, the Mar 6 high has been cleared and the recent rally signals scope for an extension towards $1923.2, a Fibonacci retracement point and a key near-term resistance. On the downside, initial firm support is seen at $1849.2, the 50-day EMA. A break of this level is required to signal a top - this would expose the bear trigger at $1804.9, the Feb 28 low.