MNI US MARKETS ANALYSIS - Treasuries Sit a Touch Richer Pre-Powell

US TSYS: Slightly Richer On The Day (Mostly) Pre-Powell, 3Y Supply

• Cash Tsys see some cheapening pressure heading to the NY crossover but mostly hold richer on the day in only a partial reversal of yesterday’s continued post-payrolls sell-off.
• 2YY -2.9bps at 4.443%, 5YY -2.1bps at 3.807%, 10YY -0.2bps at 3.638% and 30YY +0.8bps at 3.682%.
• TYH3 trades just half a tick lower at 113-15+ off yesterday’s late low of 113-10+ on average volumes. It has cleared prior support at 113-17+ (61.8 retrace of Dec 30 – Jan 19 bull run) to open 112-29 (76.4% retrace of same move).
• Fedspeak: Chair Powell clearly in focus with remarks expected 1240ET, plus also VC Supervision Barr on financial inclusion (1400ET).
• Data: Trade balance Dec (0830ET), Consumer credit Dec (1500ET)
• Bond issuance: US Tsy $40B 3Y Note auction (91282CGL9) – 1300ET

STIR FUTURES: Fed Rate Path Eases Back With Powell Eyed

• Fed Funds implied hikes have trimmed some of yesterday’s continued climb although a largely parallel shift from the terminal onwards keeps 2H23 cuts near recent lows of 33bps (50bps pre-payrolls).
• 25.5bp for Mar (unch), cumulative 43.5bp for May (-1.5bp), 53bp to terminal 5.11% in Jun/Jul (-3/-4.5bp) before 4.78% Dec (-5bp).
• Chair Powell remarks expected to start 1240ET. Follows limited Fedspeak post-FOMC and payrolls. So far Bostic (’24) late yesterday still saw two more hikes as base case but the jobs data raised the possibility of a higher terminal, and Daly (’24) Fri saw the Dec dots as a good indicator of where headed but is prepared to do more if needed.

FOMC_dated Fed Funds futures implied ratesSource: Bloomberg

EUROPE ISSUANCE UPDATE

• New 30-year May-54 OAT. Size set at E5bln with spread set at 0.75% May-53 OAT +9bps and books in excess of E47bln.

• New 2.50% Jul-33 DSL. Size E4-6bln (MNI expects top of the range). Cutoff spread set at 2.30% Feb-33 Bund +33.5bp and books of E20.62bln.

• This morning's gilt auction was a little on the weak side. The LAP was a little below the mid-price, but this was partly due to the price moving higher into the close of the auction.
• In general the gilt has traded in a 102.754-102.862 since around 15 minutes after the open this morning, so even the average auction price of 102.857 is a little lower than the price seen less than 20 minutes prior to the auction close.
• Since the auction results, the gilt has continued to trade in its pre-auction range.
• GBP3.5bln of the 4.125% Jan-27 Gilt. Avg yield 3.351% (bid-to-cover 2.36x, tail 0.7bp

Austria auction results

• E862.5mln (E750mln allotted) of the 2.90% Feb-33 RAGB. Avg yield 2.865% (bid-to-cover 1.58x).
• E862.5mln (E750mln allotted) of the 0% Oct-40 RAGB. Avg yield 2.960% (bid-to-cover 1.82x).

• E500mln (E375mln allotted) of the 0.10% Apr-26 ILB. Avg yield 0.19% (bid-to-cover 1.51x).
• E200mln (E198mln allotted) of the 0.10% Apr-46 ILB. Avg yield -0.07% (bid-to-cover 1.52x).

FOREX: AUD Higher For First Session in 4 as RBA Flag Need For Further Tightening

• AUD/USD sits higher for the first session in four following the RBA rate decision, at which the bank raised rates by 25bps to 3.35%, and hinted that another 50bps of rate rises could be still to come in an effort to rein in inflation. This puts AUD/USD close to a point off yesterday's lows at $0.6856 (showcasing a solid bounce off the 50-dma), with $0.6963 the next near-term upside level ahead of $0.7007, the 50% retracement of the early February downleg.
• GBP/USD traded a new weekly low of $1.1987 in Asia-Pac trade, putting the pair well within range of the 200-dma support of $1.1951. Any break through here opens the lowest level since early January, with focus turning to a potential party-wide reshuffle of the UK government. UK GDP, industrial production and trade balance data cross on Friday.
• Lastly, NOK is underperforming despite a more constructive crude oil price backdrop. EUR/NOK holds close to the cycle highs printed yesterday at 11.1086 - a break above here would mark the highest rate since November 2020.
• US and Canadian trade balance data are the calendar highlights Tuesday, ahead of an appearance from Fed's Powell, who speaks at the Economic Club. His comments will be carefully watched in the wake of the bumper jobs report as well as an observation from Bostic, who raised the prospect of a higher peak rate after the NFP data.

FX OPTIONS: Expiries for Feb07 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600(E829mln), $1.0700-20(E816mln) $1.0800(E1.3bln), $1.0830-50(E1.6bln), $1.0890-00(E1.1bln), $1.0990-00(E1.2bln)
• USD/JPY: Y130.00($1.1bln), Y133.50($500mln)
• GBP/USD: $1.1900-25(Gbp588mln)
• EUR/GBP: Gbp0.8850-70(E1.2bln)

Price Signal Summary - Oil Futures Appear Vulnerable Despite A Short-Term Bounce

• On the commodity front, the trend condition in Gold is bearish for now and the yellow metal has entered a corrective cycle. This follows the strong sell-off on Thursday and Friday last week and sights are on the 50-day EMA, at $1853.7. This average represents a key support and if breached, would strengthen a bearish case and suggest scope for a deeper pullback. On the upside, key resistance and the bull trigger, has been defined at $1959.7, the Feb 2 high.
• In the Oil space, a sharp sell-off on Friday in WTI futures reinforced bearish conditions. The move lower Monday resulted in a print below $72.74, Jan 5 low and a key support. A clear break of it would strengthen the bearish theme and expose $70.56, Dec 9 low and a bear trigger. Moving average studies are in a bear-mode position highlighting current market sentiment. Gains are considered corrective. Initial firm resistance is at $78.56, the 50-day EMA.

EQUITIES: Eurostoxx 50 Uptrend Remains Technically Overbought

• The EUROSTOXX 50 futures trend needle continues to point north. Resistance at 4206.00, the Jan 18 high, has been breached. The clear break confirms a resumption of the current uptrend and paves the way for gains towards 4269.50, a Fibonacci projection. Note that the trend remains overbought. A pullback, if seen, would represent a healthy correction. A break of 4097.00, the Jan 19 low, would signal the start of a short-term bear cycle.
• S&P E-Minis traded higher last week and in the process cleared recent highs to confirm a resumption of the current bull cycle that started Dec 22. A key resistance and a bull trigger at 4180.00, the Dec 13 high, has been pierced. A clear break of this level would confirm a resumption of a broader uptrend and open 4250.00, the Aug 26 2022 high. Initial firm support lies at 4007.50, the Jan 31 low. The latest pullback is considered corrective.

COMMODITIES: Bearish Gold Remains in Corrective Cycle

• A sharp sell-off on Friday in WTI futures reinforced bearish conditions. The move lower Monday resulted in a print below $72.74, Jan 5 low and a key support. A clear break of it would strengthen the bearish theme and expose $70.56, Dec 9 low and a bear trigger. Moving average studies are in a bear-mode position highlighting current market sentiment. Gains are considered corrective. Initial firm resistance is at $78.56, the 50-day EMA.
• Trend conditions in Gold are bearish for now, as the yellow metal enters a corrective cycle. This follows the strong sell-off on Thursday and Friday last week and sights are on the 50-day EMA, at $1853.7. This average represents a key support and if breached, would strengthen a bearish case and suggest scope for a deeper pullback. On the upside, key resistance and the bull trigger, has been defined at $1959.7, the Feb 2 high.