MNI US MARKETS ANALYSIS - Fed Rate Pricing Extends Patience Theme

US TSYS: A Touch Cheaper With CPI Revisions Eyed, Fresh 10Y YtD Yield High Denied

• Cash Tsys trade little changed ahead of US CPI revisions, sitting just 0.5-1.5bp cheaper as they modestly extend Thursday’s further sell-off.
• 10Y yields topped out at 4.1734% in European hours, failing to breach their early '24 highs (4.1957%), despite fresh YtD highs in German & UK equivalents.
• TYH4 earlier nudged to new recent lows of 110-22 before lifting a couple ticks, with relatively low volumes of 245k with the Chinese New Year holidays and a related half day closure in HK curtailing activity. The bearish threat remains present, with the earlier low marking tentative support after which lies 110-16 (Dec 13 low).
• Data: US CPI revisions from 0830ET – Preview here
• Fedspeak: Logan (non-voter) in Q&A at 1330ET
• No issuance.

STIR: Fed Rates Continue Rate Cut Patience Theme

• Fed Funds implied rates have pushed up to 2bps higher overnight, continuing a theme of greater patience over the starting point of rate cuts.
• Cumulative cuts: 5bp Mar, 18.5bp May, 40bp Jun and 115bp Dec. The 4.18% implied effective rate for Dec’24 is broadly back to levels before the Dec FOMC perceived pivot.
• Ahead, CPI revisions headline today’s docket before Dallas Fed’s Logan (non-voter) speaks in Q&A at 1330ET.
• One of the more hawkish FOMC members, Logan last spoke Jan 6 noting a lot of the effects of higher rates are behind us and inflation risks a pickup if financial conditions loosen, but also that the Fed should begin the discussion on slowing its asset runoff.

OI Points To Light Net Short Setting Bias On Thursday

The combination of yesterday's weakness across the Tsy futures curve and preliminary OI data points to a mix of net short setting (TU, TY, US & WN) & net long cover (FV & UXY), with the former dominating in net DV01 equivalent OI curve terms.

• A reminder that U.S. weekly jobless claims data, wider central bank speak and an uptick in oil futures factored into yesterday's weakness in Tsys.

OI Suggests Short setting Dominated In SOFR Futures On Thursday

The combination of yesterday's move lower in SOFR futures and preliminary OI data points to net short setting as the dominant factor in all packs through the blues.

• Pockets of apparent net long cover were seen in different areas of the strip, most notably in the blues, but that failed to break the overarching trend.
• Note that the unchanged price status of SFRZ3 come settlement means that it hard to be certain when it comes to positioning movement on the day, but the OI change in that contract was only very modest.
• A reminder that weekly jobless claims data and global central bank rhetoric factored into the move in SOFR futures on Thursday.

Re-Upping US CPI Revisions Preview

• Re-upping our preview for the day's main risk event, US CPI seasonal revisions: https://roar-assets-auto.rbl.ms/files/59883/USCPIPrevFeb2024_seasonals.pdf
• The BLS will update seasonal factors affecting CPI inflation through 2019-23 “from 0830ET”.
• This won’t impact the underlying NSA data, but will sway near-term SA trends.
• Analysts are mixed, seeing either very little impact or modest uplift in recent trend rates.

FOREX: NZD on the Up as ANZ Juice RBNZ Expectations

• NZD is Friday's best performing currency, pushing NZD/USD to a one-week high, briefing touching 0.6150 and topping resistance at the 0.6125 20-day EMA. A hold above here could see another attempt at 0.6150. Moves follow ANZ's view change that it sees 25bps hikes for the RBNZ across the February and April meetings this year.
• AUD/NZD is making fresh lows, hovering around 1.0600 breaking through the lows from Oct, next target would be May lows of 1.0560. Note, a cumulative 63bps of easing is priced by year-end versus 69bps yesterday. However, this is measured from a terminal OCR of 5.71% versus 5.58% yesterday.
• Weakness across the CHF has continued, with the currency the weakest again in G10. USD/CHF has again cleared to a new YTD high, printing higher highs for a seventh consecutive session.
• Some attention paid to the pick-up in Swiss FX reserves data earlier this week, and while FX revaluation and equity volatility since the December release may be flattering the headline – markets are wary of the currency after Jordan’s intervention in Davos (“strong CHF hurting Swiss companies”) and the more balanced currency language at the December decision (removing the phrase "the focus is on selling foreign currency.")
• CPI revisions data could take focus in the upcoming session, with Canadian jobs data also on the docket. Markets expect Canada to have added 15.0k jobs over the month of January, with an uptick in the unemployment rate to 5.9%. ECB's Nagel, Cipollone and Fed's Logan are also set to be making appearances.

FX OPTIONS: Expiries for Feb09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700(E1.0bln), $1.0725(E745mln), $1.0750(E716mln), $1.0800-10(E1.2bln), $1.0850(E2.8bln), $1.0900(E2.1bln)
• USD/JPY: Y147.50($1.4bln), Y148.50-65($2.1bln), Y149.00($647mln)
• EUR/JPY: Y157.65-75(E812mln)
• AUD/USD: $0.6500-10(A$1.2bln), $0.6525(A$551mln)
• USD/CAD: C$1.3300($1.1bln), C$1.3340-50($1.9bln), C$1.3400($736mln), C$1.3545-55($1.1bln)
• USD/CNY: Cny7.2115($1.3bln)

EQUITIES: This Week's Gains Reinforce Bullish Conditions in E-Mini S&P

• Eurostoxx 50 futures traded higher again yesterday delivering another fresh cycle high that confirms a resumption of the current uptrend. This reinforces the bullish 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 4618.30, the 20-day EMA.
• The trend condition in S&P E-Minis is unchanged and remains bullish - this week’s gains reinforce current conditions. The contract has traded to a fresh cycle high, confirming a resumption of the uptrend. Recent corrections have been shallow - this also 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: Recovery in WTI Futures Still Considered Technically Corrective Despite Thursday's Gains

• WTI futures traded higher Thursday. The recovery - for now - appears to be a correction. 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 is unchanged and the metal 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.