MNI US MARKETS ANALYSIS: Stocks Softer, Led Lower by Tech

US TSYS SUMMARY: Trading Heavy Ahead Of Light Schedule

Treasuries are trading heavy ahead of a light schedule Monday.

• Jun 10-Yr futures (TY) down 12.5/32 at 131-30.5 (L: 131-25 / H: 132-05), so still within ranges, remaining slightly above the 131-23+ low set Friday.
• Most notable quirk in the curve is that the 30-Yr is defying the broader sell-off. 10s30s touched 69.9bps, lowest since late Nov (which was 68.9bps low).
• The 2-Yr yield is up 1.2bps at 0.1488%, 5-Yr is up 2.8bps at 0.826%, 10-Yr is up 2.3bps at 1.5889%, and 30-Yr is down 0.2bps at 2.2952%.
• Overnight price action in tech (Nasdaq fading Friday's bounce) has caught the eye, as has renewed USD strength.
• Only data is wholesale inventories / trade sales at 1000ET.
• And no Fed speakers of course: pre-FOMC blackout period is underway.
• In supply, $105B of 13-/26-week bill auctions at 1130ET. NY Fed buys ~$1.225B of 7.5-30Y TIPS.

EGB/GILT SUMMARY - Focus On ECB This Week

European bonds have started the week on a soft note, alongside modest upside for equities.

• Gilts opened lower and have gradually reclaimed the early losses to trade close to unchanged on the day.
• Bunds similarly opened on a weak footing, before grinding higher through the morning. Cash yields are within 1bp of the Friday close.
• OATs have steadily firmed through the morning and now trade higher on the day. Last yields: 2-year -0.6126%, 5-year -0.5535%, 10-year -0.0559% 30-year 0.7419%.
• BTPs have rallied and the curve has bull flattened. Yields are 1-3bp lower on the day.
• German industrial production data for January came in lower than expected at -3.9% Y/Y vs -3.7% survey. Similarly, Spanish industrial output missed expectations: -2.2% Y/Y vs -0.6% consensus.
• Supply this morning came from Germany (Bubills, EUR3.859bn allotted).
• Focus this week is on the Thursday ECB meeting. Although no substantial changes to monetary policy are expected, markets will be paying attention to the ECB's interpretation of the recent bond market sell off and whether there will be any further details on how the GC defines 'favourable financing conditions'.

ISSUANCE UPDATE: ESM Syndication

ESM ISSUANCE: New Dec-26 benchmark to be launched

• "The European Stability Mechanism has mandated BNP, Citi and HSBC to joint lead manage its upcoming new EUR December 2026 benchmark"
• As we noted earlier we expect the ESM to raise E2bln through today's transaction (it's Q1 issuance target).
• We expect the transaction to take place today.

EUROPE OPTION FLOW SUMMARY

Eurozone:
OEM1 134/133.75ps, bought for 5 in 1k
DUJ1/DUM1 112.20/30cs spread, bought the June for 1.25 in 7.5k

UK:
3LU1 99.25/99.00ps 2x3, sold at 4.75 in 1.25k

FOREX: USD Run Continues, Touching 2021 Highs

The greenback is comfortably the strongest performer early Monday, with the USD Index printing new 2021 highs and levels not seen since late November. This narrows the gap with the 200-dma key level, today crossing at 92.953.

• Some focus is being paid to the ECB's weekly PEPP release, after last week's data showed a material slowing in the pace of purchases. EUR is mixed ahead of the release, but EUR/GBP's recent weakness extends. The cross is now approaching February's lows and key support at 0.8541.
• Commodity- and growth-tied currencies are lower, with AUD and NZD among the day's poorest performers. Equity weakness is sapping sentiment here, with US futures indicating a lower open on Wall Street later today.
• Tier one data releases are few and far between Monday, with just US wholesale trade inventories and trade sales. There's no Fed speakers on the slate as the FOMC entered their pre-meeting media blackout period over the weekend. There are no other central bank speakers of note.

FX OPTIONS: Expiries for Mar08 NY cut 1000ET (Source DTCC)

EUR/USD: $1.1900-05(E360mln-EUR puts), $1.2000-05(E853mln), $1.2050-65(E545mln), $1.2090-00(E676mln)

USD/JPY: Y104.25-40($2.8bln), Y105.50-55($1.7bln), Y106.00-20($614mln), Y107.00($570mln)

EUR/GBP: Gbp0.8690-00(E508mln)

AUD/USD: $0.7675-85(A$623mln), $0.7820-25(A$736mln)

USD/CAD: C$1.2490-00($730mln), C$1.2780-90($638mln)

USD/CNY: Cny6.40($650mln), Cny6.45($1.5bln), Cny6.51($562mln), Cny6.60($800mln)

Tech Focus: Price Signal Summary - Fresh Low Print In Treasuries

• In the FX space, the USD remains in an uptrend. EURUSD, is weaker again today. This opens 1.1846 next, 1.00 projection of the Jan 6 - Feb 5 sell-off from Feb 25 high. USDJPY continues to defy gravity and remains firm. Scope is for a climb to 109.00 and 109.56 further out, 61.8% retracement of the Mar 2020 - Jan downleg. Note that in the USD Index, key resistance at 91.60, Feb 5 high was breached last week, reinforcing the current bullish USD theme.
• On the commodity front, Gold remains in a clear downtrend and has cleared $1700.00. This opens $1671.0, Jun 5, 2020 low. Oil contracts are off overnight highs but remain in a bull trend. Brent (K1) has breached the psychological $70.00 handle and targets $71.75 next, Jan 8, 2020 high (cont) while WTI (J1) bulls eye $70.00.
• In the FI space, recent gains in Bunds (H1) are still considered corrective. The Mar 3 sell-off signals the potential end of this correction. Key resistance has been defined at 174.97, Mar 3 high. Gilts (M1) remains bearish. Scope is for a move towards the 127.00 handle. Resistance is at 129.27, Mar 2 high. Treasuries registered a fresh trend low print at 131-23+, highlighting the likelihood of still higher yields going forward. Scope is seen for weakness towards 130-07, Feb 2, 2020 low.
• In the equity space, the EUROSTOXX50 index remains below the recent high and key resistance at 3742.53, Feb 15 high. Key support to watch is at 3622.24, Feb 26 low. E-mini S&P futures remain heavy despite Friday's bounce and last week's leg lower has exposed the key support at 3656.50, Feb 1 low. Initial resistance is at today's intraday high of 3866.25.

EQUITIES: Futures Point to Negative Open, Tech Leading Losses

US equity index futures are lower in pre-market trade, with the e-mini S&P off just over 20 points at pixel time. Tech stocks are leading losses pre-market, prompting some heavy underperformance in NASDAQ futures, which sit lower by around 1.5% ahead of the bell. Larger tech names, most notably Tesla, are lower - with the stocks till down 2.3% pre-market.

Despite the seemingly negative outlook for stocks at present, the major US indices are all comfortably above the Friday lows. This sees first support for the e-mini S&P at 3720.50/3728.50 - the Thursday/Friday lows respectively.

COMMODITIES: Oil Fades After Sizeable Gap Higher

• Both WTI and Brent crude futures gapped higher at the Monday open to touch new cycle highs across both contracts. Prices have faded slightly since, with the firmer USD outlook pressuring prices across European hours.
• Today's move has seen Brent top key psychological resistance at the $70/bbl mark, extending further the sequence of higher highs and keeping the bull cycle in place.
• Precious metals are less directional, with gold and silver mixed in early trade, but largely within recent ranges. Spot gold is softer once again and in very close proximity to last Friday's $1687.34, the 2021 low and immediate support.