MNI US MARKETS ANALYSIS - Treasuries a Touch Richer Ahead of 2y Supply

US TSYS: Treasuries Modestly Richer With PMIs, 2Y Supply In Focus

• Cash Tsys trade modestly richer with the US coming in to find yields at the top end of yesterday’s range in the front end to belly and the lower end further out the curve. A lighter docket sees focus on today’s US PMI and 2Y supply, the former seeing mixed signs from Europe where the Eurozone composite beat (+0.9pts to 50.2, cons 49.8) but the UK composite missed (-1.2pts to 47.8, cons 48.8).
• 2YY -1.3bps at 4.215%, 5YY -2.1bps at 3.599%, 10YY -1.3bps at 3.497%, 30YY -1.2bps at 3.669%.
• TYH3 trades 6+ ticks higher at 114-28+ on again below average volumes due to the Lunar New Year period. Its three-day pullback from the Jan 19 high of 116-08 was considered corrective with trend conditions remaining bullish, but support is seen at 114-16 (Jan 18 low).
• Data: Philly Fed non-mfg, Jan (0830ET), S&P Global US mfg & service PMI, Jan prelim (0945ET), Richmond Fed mfg, Jan (1000ET).
• Bond issuance: US Tsy $42B 2Y Note auction (91282CGG0) – 1300ET
• Bill issuance: US Tsy $34B 52W bill CMB auction – 1130ET

US 2Y and 10Y yields (top panel), 2s10s spread (bottom panel)Source: Bloomberg

STIR FUTURES: Fed Rate Path Maintains Recent Range Pre PMIs

• Fed Funds implied hikes keep to yesterday’s levels: 26bp for Feb 1 (unch), cumulative 46.5bp for Mar (+0.5bp), 58bp to 4.91% terminal (-0.5bp) before cutting 46bps to 4.45% Dec (-1.5bp).
• The terminal has kept to a fairly narrow range of 4.86-4.94% ever since the miss for Dec ISM services.
• Conflicting signs from Europe ahead of today’s Jan prelim US PMI, with the Eurozone composite beating (+0.9pts to 50.2, cons 49.8) but the UK composite missing (-1.2pts to 47.8, cons 48.8).

EUROPE ISSUANCE UPDATE:

• The Green Bobl looks to be a relatively strong auction, with a good bid-to-cover, the LAP being comfortably above the mid-market price (and indeed at a price last seen around 20 minutes before the price softened into the bidding deadline).
• There is not really a comparable auction to compare this to as this is the first time a Green Bobl has been reopened when it wasn't paired with the current (or previous) on-the-run Bobl. So this is the shortest green issue from Germany.
• The price of the 0% Oct-25 Green Bobl moved from around 94.00 to 94.02 on the bidding deadline and has stayed around the latter rate as the results have been released.
• E1.5bln (E1.43bln allotted) of the 0% Oct-25 Green Bobl. Avg yield 2.29% (bid-to-cover 1.93x).

• E1.995bln of the 2.00% Jan-54 DSL. Avg yield 2.362%.

• E5bln of the 3.00% Mar-53 EU-bond (tap). Final orderbooks in excess of E51.9bln with spread set at MS+86bp

• GBP 6bln of the new 3.75% Oct-53 gilt. Final orderbooks in excess of GBP 68bln with spread set at 3.75% Jul-52 +2.75bps.

FOREX: GBP Sinks on Six Months of Sour Services

• After a middling start, GBP is now comfortably the poorest performer in G10, with a soft set of UK PMI data undermining the currency. Services and composite PMI both fell short of expectations, with the data signalling six consecutive months of contraction across the services sector, with business activity now declining at the fastest pace since the COVID pandemic.
• GBP/USD extended the losses below Monday's 1.2324, putting prices at the lowest level since January 18th. Markets are now within range of next support at 1.2215/2083, marking the 20-day EMA and Low Jan 9 respectively.
• JPY is stronger, although a similarly strong USD has kept USD/JPY within yesterday's range. The pair looked through comments from the Japanese economy minister, who quoted the BoJ governor as stating that market moves are becoming more stable.
• NOK is among the session's poorest performers so far, led lower by softer WTI and Brent crude futures prices. Nonetheless, USD/NOK remains shy of resistance at 9.9134 - yesterday's high - as well as the 50- and 200-dmas at 9.9360 and 9.9484 respectively.
• Prelim US PMI data crosses later today, with markets expecting a further slip for the manufacturing and services subindices. This is seen putting the composite headline at 46.4, just above the 45.0 previous. The speaker slate is light, with the Fed's media blackout keeping the calendar quiet. ECB's Knot, Vujcic and President Lagarde have already made appearances, but said little to sway markets in either direction.

FX OPTIONS: Expiries for Jan24 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0795-05(E928mln), $1.0900(E561mln)
• USD/JPY: Y128.00-10($924mln), Y130.00($916mln), Y131.00($821mln)
• AUD/USD: $0.7000(A$524mln)
• USD/CAD: C$1.3400($726mln), C$1.3460($610mln)

EQUITIES: E-Mini S&P Breaches 4035.25 Jan 17 High, Resuming Bullish Conditions

• EUROSTOXX 50 futures traded lower last Thursday but prices have since recovered. The trend outlook is bullish, however, the cycle is overbought and this warns of the potential for a short-term pullback. A move lower would allow the overbought reading to unwind and would open 4057.20, the 20-day EMA and a key near-term support. Key resistance and the bull trigger has been defined at 4206.00, the Jan 18 high. A break would resume the uptrend.
• S&P E-Minis traded higher Monday and breached resistance at 4035.25, the Jan 17 high. The break cancels a recent bearish threat and resumes short-term bullish conditions. Note that moving average studies are in a bull mode condition and this reinforces current trend conditions. The focus is on 4090.75 - last seen in mid-December. Key short-term support lies at 3901.75, the Jan 19 low. A break would reinstate a bearish threat.

COMMODITIES: Gold Trades to Fresh Cycle High, Confirming Extension of Uptrend

• WTI futures traded higher Monday and the contract is holding on to the bulk of its recent gains. Key short-term resistance is located at $82.66, the Jan 18 high. Clearance of this hurdle would reinstate the recent bullish theme and expose $83.14, the Dec 1 high and $85.33, a Fibonacci retracement. On the downside, the support to watch lies at $78.45, the Jan 19 low. A breach of this level would signal a potential reversal.
• Trend conditions in Gold remain bullish and the yellow metal has traded to a fresh cycle high today. This confirms an extension on the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies are in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Support to watch lies at $1878.5, the 20-day EMA. Short-term pullbacks are considered corrective.