MNI US MARKETS ANALYSIS - PPI, UMich Round Off Price-Heavy Data Week

US TSYS: Tsys Off Lows Ahead PPI, UofM Expectations, Fed Speakers

• Cash Tsys looking weaker but are inching off London morning lows, curves largely steady to late Thursday levels ahead of this morning's headline PPI data at 0830ET.
• Tsys mirrored weakness in EGBs after better then expected UK retail sales overnight, as well as more cautious comments from ECB Schnabel re: inflation, tempering dovish tone from ECB council member Scicluna late Thursday.
• TYH4 currently -6.5 at 109-31 vs. 109-28 low on moderate volumes of 270k. Nearing initial technical support at 109-17/16+ (50.0% of Oct 19 - Dec 27 climb / Low Feb 14). Resistance above at 110-17.5 (Feb 15 high).
• Additional data ahead: Housing Starts/Building Permits and NY Fed Services Business Activity at 0830ET. U. of Mich. Sentiment/Inflation Expectations wraps things up at 1000ET.
• Scheduled Fed speakers include Richmond Fed Barkin Q&A on inflation (no text) at 0800ET, Fed VC Barr on bank supervision (text, Q&A, livestreamed) at 0910ET, and SF Fed Daly NABE Conference (text) at 1210.
• Late add to the speaker line-up: Atlanta Fed Bostic on CNBC at 1100ET.

Bostic Helps Remove Small Amount Of Fed Rate Cut Pricing

Late Thursday comments from Atlanta Fed President Bostic (’24 voter) have helped remove a modest amount of the rate cut pricing embedded into U.S. STIR markets.

• A reminder that Bostic noted that he isn’t thoroughly convinced inflation is on track to meeting target & will need to see continuing evidence of ebbing price pressures.
• Some spill-over from firmer-than-expected UK retail sales data will have had a very modest impact in pre-NY trade.
• Still, the major FOMC-dated OIS markers remain within their recent ranges.
• Mar ’24 FOMC: ~1.5bp of cuts, little changed on the day.
• Jun ’24 FOMC: ~26.0bp of cuts vs. 27.5bp at yesterday’s close.
• Dec ’24 FOMC: ~91.5bp of cuts vs 94.0bp at yesterday’s close.
• PPI, UoM sentiment survey (watch inflation expectations), building permits and housing starts will cross in NY hours.
• We will also get Fedspeak from Barr (permanent voter), Daly (’24 voter) & Barkin (’24 voter).

OI Points To Short Cover Across Most Of Curve On Thursday

The combination of yesterday's uptick in Tsy futures and preliminary OI data points to net short cover across most of the curve.

• Only what seemed to be a round of net long setting in FV futures interrupted the broader theme.
• Wednesday seemed to see a more prominent round of short cover in net curve terms.
• A reminder that U.S. retail sales and broader macro data inputs provided most of the (limited) upward impetus on Thursday.

OI Points To Mix Of Positioning Swings In SOFR Futures On Thursday

The combination of preliminary OI data and yesterday's twist flattening of the SOFR futures strip points to the following positioning swings on Thursday:

• Whites: A mix of net long cover and net short setting, with the latter dominating in net pack OI terms.
• Reds through Greens: Net long setting was seemingly seen in all contracts, although it hard to be certain when it comes to SFRZ4 given its unchanged price status come settlement.

RATINGS: Friday’s Slate

Potential sovereign rating reviews of note scheduled for after hours on Friday include:

• Fitch on Belgium (current rating: AA-; Outlook Negative)
• Fitch on the Netherlands (current rating: AAA; Outlook Stable)
• Moody’s on Ireland (current rating: Aa3; Outlook Stable)
• Moody’s on Switzerland (current rating: Aaa; Outlook Stable)
• S&P on Estonia (current rating: AA-; Outlook Negative)
• Scope Ratings on Portugal (current rating: A-; Outlook Stable)

FOREX: Stronger Equity Markets Hold Little Sway Over Dollar

• The greenback holds the bulk of the Thursday losses, with the softer-than-expected January retail sales release still holding sway on currency markets. The JPY is the poorest performer in G10, while NZD and SEK are among the strongest on the day.
• GBP's poor performance this week continues, with GBP among the poorest performers again in G10 despite a generally firmer January retail sales release. This keeps GBP/USD within range of the week's lows - and further reinforces the gravity of the 200-dma - crossing at 1.2566 today.
• Stronger equity markets have had little impact on currency markets so far Friday, with markets particularly wary of the stacked option expiry slate for the Friday cut - interest has been building sharply in option strikes layered between $1.07 to $1.08 as the week progressed - we note E9.6bln notional is set to roll-off between $1.0725 and $1.0800 today - interest that has doubled since Monday of this week.
• US data rounds off the week, with building permits and housing starts numbers crossing alongside the January US PPI. The prelim UMich sentiment data is set to follow, with markets expecting 1yr inflation expectations unchanged, and a 0.1ppt step lower for the 5-10yr metric. Fedspeak due includes Barr, Daly and Barkin.

Markets Wary of Sizeable Build in EUR Options Interest for Friday Cut

• Little directional read-through for the USD on the move in stocks, with markets particularly wary of the stacked option expiry slate for the Friday cut - interest has been building sharply in option strikes layered between $1.07 to $1.08 as the week progressed - we note E9.6bln notional is set to roll-off between $1.0725 and $1.0800 today - interest that has doubled since Monday of this week.
• Such a sizeable options pipeline could contain and define the spot range across the Friday session - with just US PPI and speeches from Fed's Barkin & Barr to influence prices.

FX OPTIONS: Expiries for Feb16 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0615(E1.65bln), $1.0670-75(E1.9bln), $1.0700(E2.5bln), $1.0715-25(E1.9bln), $1.0750-55(E2.5bln), $1.0800(E3.6bln), $1.0820-25(E1.4bln), $1.0850(E1.2bln), $1.0870-80(E2.0bln), $1.0900-05(E2.6bln), $1.0925(E1.1bln)
• GBP/USD: $1.2280-90(Gbp1.1bln), $1.2650-60(Gbp1.9bln), $1.2685-90(Gbp716mln)
• USD/JPY: Y148.90-00($1.8bln), Y150.00($1.7bln), Y150.15-25($947mln), Y150.40-50($1.1bln), Y151.95-00($1.0bln)
• EUR/GBP: Gbp0.8575-80(E842mln)
• AUD/USD: $0.6350(A$1.6bln), $0.6475(A$625mln), $0.6495-00(A$715mln), $0.6535-41(A$1.2bln), $0.6600-10(A$1.1bln)
• AUD/NZD: N$1.0610(A$591mln)
• USD/CAD: C$1.3485-95($1.1bln), C$1.3500-05($1.9bln)
• USD/CNY: Cny7.2000($1.2bln)

EQUITIES: E-Mini S&P Returns Back Towards This Week's Highs

• Eurostoxx 50 futures remain in a bull cycle. The contract has resumed its uptrend and traded to a fresh cycle high. This reinforces current conditions and the importance of the recent break of resistance at 4634.00, the Dec 14 high. Moving average studies are in a bull-mode position, highlighting positive market sentiment. Sights are on 4788.10, a Fibonacci projection. Initial firm support lies at 4664.80, the 20-day EMA.
• The trend condition in S&P E-Minis is unchanged and remains bullish. The pullback from Monday’s 5066.50 high is considered corrective and support to watch lies at 4957.27, the 20-day EMA. A clear break of this average would suggest potential for a deeper retracement, possibly towards the 4866.00 key support, the Jan 31 low. The trigger for a resumption of gains is 5066.50, the Feb 12 high.

COMMODITIES: Gold Trades Back Above Key Short-Term Support at $2001.9

• Recent gains in WTI futures, since Feb 5, still appear 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 has traded lower this week and the sell-off resulted in a break of $2001.9, the Jan 17 low and a key short-term support. The breach highlights a resumption of the bear leg that started Dec 28. A continuation lower would open $1973.2, the Dec 13 low and the next key support. On the upside, the yellow metal needs to clear resistance at $2065.5, the Feb 1 high, to reinstate a bullish theme.