MNI US MARKETS ANALYSIS - Treasury Curve Sits Bear Steeper

US TSYS: Tsy Futures Eye Key Support Ahead Of PCE Data

Treasuries weakened overnight Friday ahead of PCE data, with bear steepening in the cash curve.

• Treasuries were under pressure for most of the overnight session, with March TY futures falling through Thursday's 114 -14 low to 114-12; key support comes in at 114-09+ (Jan 17 low).
• The 10Y segment is underperforming on the cash curve , with the 2-Yr yield up 3.5bps at 4.2176%, 5-Yr +5.7bps at 3.65%, 10-Yr +6.2bps at 3.5571%, and 30-Yr +4.2bps at 3.6812%.
• Though there were few discernable drivers for the move, higher-than-expected Tokyo inflation weakened JGBs, weighing down global counterparts. Broadly speaking, some cautions is building ahead of a very busy schedule next week, which includes multiple key central bank decisions including the ECB and Fed.
• Ahead of next Wednesday's FOMC decision, an implied hike of 26bp is priced, with a cumulative 46bp through the March meeting and 57-58bp through the cycle top in June. End-2023 pricing has ticked up a couple of basis points but still points to 45bp of cuts by the Dec FOMC.
• Focus this morning (for both FOMC participants and the market) is on the December personal income/spending/PCE prices release, with the core deflator seen picking up slightly to 0.3% M/M vs 0.2% in Nov (though slowing Y/Y to 4.4% from 4.7%).
• Relatively less attention will be paid to pending home sales data and the UMichigan survey.

EQUITIES: Earnings Cycle Reaching Critical Mass

• Cycle reaches critical mass in the coming week, with over 30% of the S&P 500 by market cap set to report. Full schedule including timings, EPS & revenue expectations here: MNIUSEARNINGS300123.pdf (rbl.ms)
• Highlights include Apple, Amazon, Alphabet (close to $4.5trl in market cap alone) as well as carmakers General Motors & Ford as well as ExxonMobil, Pfizer and Meta Platforms
• The median US corporate has beaten on both EPS (71% beat forecast) and sales (68% beat forecast) this cycle

FOREX: EUR Inside Shallow Corrective Pullback, Bias Remains Higher

• JPY trades firmer, gaining against all others in G10 after a spell of interest in early Asia-Pac hours. EUR/JPY's pullback, however, has been shallow as the single currency undergoes a shallow corrective pullback. For now, EUR/USD remains in a broader uptrend, with Thursday's 1.0929 print highlighting the upside bias. Key short-term support levels remain intact and note that moving average studies continue to highlight positive market sentiment. The next objective is 1.0954, the Apr 11 2022 high.
• At the other end of the table, GBP is softer amid a minor pullback in rate hike expectations for the front-end of the UK curve. GBP/USD remains above yesterday's lows of 1.2345, a break below which opens 1.2264/59 the Jan 24 Low and the 20-day EMA respectively.
• A softer SEK puts NOK/SEK closer to the week's best levels, but the cross is running into congestion at 1.0451 - 55. The moves follow a higher than expected Swedish unemployment rate for December, which ticked higher to 7.5% from 7.2% previously.
• Focus Friday rests on US personal income/spending data as well as the December PCE release. Pending home sales and final Michigan sentiment data round off the week.
• The central bank speaker slate is light, with ECB's Villeroy the sole speaker - although he's expected to comment on climate rather than monetary policy.

FX OPTIONS: Expiries for Jan27 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E1.6bln), $1.0700($1.5bln), $1.0780-00(E1.2bln), $1.0825-35(E1.3bln), $1.0850(E858mln), $1.0880-00(E1.2bln), $1.0950(E825mln), $1.1000(E613mln)
• EUR/GBP: Gbp0.8800(E1.2bln), Gbp0.8825-30(E572mln)
• USD/JPY: Y130.00($548mln), Y131.00($549mln), Y132.50($611mln)
• USD/CAD: C$1.3395-15($756mln), C$1.3500($1.0bln)

EQUITIES: E-Mini S&P Steadies Following Turbulent Post-GDP Price Action

• EUROSTOXX 50 futures remain above support at 4097.00, Jan 19 low and the contract is trading just ahead of key short-term resistance at 4206.00, the Jan 18 high. A break of this level would confirm a resumption of the uptrend and pave the way for a climb towards 4215.00, a Fibonacci projection. Note that the trend remains overbought. A pullback, if seen, would be seen as a healthy bull trend correction. Support to watch is 4085.4, the 20-day EMA.
• S&P E-Minis traded higher Thursday and confirmed a resumption of the current uptrend. The breach of resistance paves the way for strength towards 4090.75, the Dec 14 high and leaves the 4100.00 handle exposed. Further out, an extension higher would open 4180.00, the Dec 13 high and a bull trigger. Initial firm support has been defined at 3949.56, the 50-day EMA. A move below the average would be seen as a bearish development.

COMMODITIES: Pullback in Gold Considered Corrective, Trend Conditions Still Bullish

• WTI futures are consolidating and the contract remains below Monday’s high of $82.64. 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 break of this level would signal a potential reversal.
• Trend conditions in Gold remain bullish and the latest pullback is considered corrective. Recent cycle highs confirm an extension of the uptrend and maintain the price sequence of higher highs and higher lows. Moving average studies remain in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Initial firm support to watch lies at $1893.7, the 20-day EMA.