MNI US MARKETS ANALYSIS - German CPI Points to Slowing Price Pressures

US TSYS: Holding Sharply Richer After Late Open

• Cash Tsys trade sharply richer from Friday levels, clawing back Friday’s holiday thinned sell-off by rallying almost continuously from the late open (Tokyo holiday) aside from a most recent small cheapening. Spillover from lower German regional CPI readings might have helped extend the rally but details indicate this was led by household energy with a chance that core inflation firmed.
• 2YY -7bp at 4.355%, 5YY -11.2bp at 3.892%, 10YY -12.3bp at 3.752% and 30YY -10.6bp at 3.857%, with the result flattening in 2s10s to lows since Dec 20 at -60bps.
• TYH3 trades 20 ticks higher at 112-29+ off a session high of 113-02, coming close to fully unwinding the post-Christmas cheapening.
• Data: S&P Global Mfg PMI, Dec final (0945ET), Construction spending, Nov (1000ET)
• Bill issuance: US Tsy $54B 13W, $45B 26W bill auctions (1130ET)

STIR FUTURES: Fed Rate Path Unwinds Festive Increase

• Fed Funds implied hikes have stepped lower through London hours, more notably so beyond the mid-year terminal as it unwinds a large part of the intra Christmas-NY increases.
• Sitting at 32.5bps for Feb (-0.5bp from Fri), cumulative 50.5bp to 4.84% for Mar (-2bp), terminal 4.93% May/Jun (-3bp) and 4.50% for Dec (-9bp).
• Minimal scheduled Fedspeak this week: FOMC minutes tomorrow with Barkin (’24) next on Fri.

FOMC-dated Fed Funds futures implied ratesSource: Bloomberg

FOREX: New Year Trade Starts in Earnest, Tips USD Higher

• Markets have resumed trade for 2023 in earnest, with markets seeking USD from the European open onwards. This leaves the greenback among the strongest currencies in G10 early Tuesday, with the JPY similarly strong. The firmer USD Index and JPY backdrop comes despite a better session for equity futures, as the EuroStoxx50 tops mid-December resistance on the way higher.
• AUD, NZD and EUR are among the poorest performers, with AUD/USD below the Dec29 low to near the 50-dma of 0.6662. Weakness through here opens 0.6629 and levels not seen since mid-November. Similarly, NZD/USD is through the 200-dma of 0.6232 to near first support of 0.6156.
• Regional Germany CPI releases continue, with the national inflation figure due at 1300GMT. Inflation is seen slowing to 10.2% for the Y/Y EU-harmonized release. There are no central bank speakers of note across G10, with the FOMC minutes from their December meeting not due until Wednesday.

BONDS: Soft German CPI Figures Set Bullish Tone

Softer-than-expected German state CPI data have helped set a positive tone for Bunds and global FI more broadly in Tuesday's European morning session.

• With states representing just under 90% of the national weighting of CPI having reported, MNI estimates the national German reading to come in at 8.55% Y/Y, below the 9.0% consensus coming into the session.
• Accordingly, Gilt and US Treasury yields have fallen sharply in their first trading day of 2023.
• Curves have bull flattened.
• Fairly limited data left in the rest of the session beyond German CPI, with final Dec US PMI and Nov Construction spending on the docket.

Latest levels:

• Mar 10-Yr futures (TY) up 23/32 at 113-0.5 (L: 112-12.5 / H: 113-02)
• Mar Bund futures (RX) up 106 ticks at 135.38 (L: 133.79 / H: 135.55)
• Mar Gilt futures (G) up 160 ticks at 101.5 (L: 99.97 / H: 101.63)
• Italy / German 10-Yr spread 2.2bps tighter at 209.8bps

EQUITIES: Eurostoxx Futures Trade Through 3857.60 Key Short-Term Resistance

EUROSTOXX 50 futures remain above the December lows. The contract has topped resistance at the 20-day EMA which intersects at 3857.60 and marks a key short-term hurdle. A clear breach of this level would suggest potential for a stronger recovery. Gains are considered corrective - for now. A resumption of weakness and a break of 3753.00, the Dec 20 low, would resume the recent downtrend. The key bull trigger is 4043.00, Dec 13 high. S&P E-Minis trend signals remain bearish and the contract is trading closer to its recent lows. Short-term gains are considered corrective with resistance at 3926.25, the 50-day EMA. A clear break of this hurdle is required to suggest potential for a stronger recovery. On the downside, a break lower would confirm a resumption of the downtrend and open 3778.45, a Fibonacci retracement.

• In China the SHANGHAI closed higher by 27.254 pts or +0.88% at 3116.512 and the HANG SENG ended 363.88 pts higher or +1.84% at 20145.29.
• Across Europe, Germany's DAX trades higher by 168.69 pts or +1.2% at 14237.27, FTSE 100 higher by 151.07 pts or +2.03% at 7602.58, CAC 40 up 69.33 pts or +1.05% at 6664.09 and Euro Stoxx 50 up 48.64 pts or +1.26% at 3905.11.
• Dow Jones mini up 312 pts or +0.94% at 33602, S&P 500 mini up 39.25 pts or +1.02% at 3900.75, NASDAQ mini up 121.25 pts or +1.1% at 11143.75.

COMMODITIES: Gold Touches 1850.0 Handle, Targets 1856.6 June 2022 High Next

The short-term trend conditions in WTI futures are bullish. The contract has traded above both the 20- and 50-day EMA points and this suggests scope for a stronger short-term recovery. The focus is on the next key resistance at $83.27, the Dec 1 high. Clearance of this level, if seen, would strengthen bullish conditions. On the downside, key short-term support has been defined at $76.79, the Dec 29 low where a break would signal a top. Trend conditions in Gold remain bullish and the yellow metal has started the year on a firm note, clearing resistance and resuming its uptrend. The break higher signals scope for gains towards $1857.6 next, the Jun 16 high and $1896.5, the 61.8% retracement of the Mar - Sep bear leg. Moving average studies are in a bull mode position, highlighting current sentiment. Initial firm support is seen at $1795.00, the 20-day EMA.

• WTI Crude up $0.2 or +0.25% at $80.45
• Natural Gas down $0.38 or -8.54% at $4.091
• Gold spot up $15.61 or +0.86% at $1839.18
• Copper up $1.4 or +0.37% at $381.75
• Silver up $0.42 or +1.73% at $24.346
• Platinum up $11.34 or +1.06% at $1083.75