MNI US MARKETS ANALYSIS - Tsy Yields Hold Post-Payrolls Bounce

Back Near Unchanged After Two-Way Trade Continues

• Cash Tsys sit in the middle of somewhat narrow ranges, near unchanged on the day to consolidate Friday’s net clawing back of two-way large moves on stronger payrolls and weaker ISM services reports.
• TYH4 at 111-22+ remains within both today’s and yesterday’s wider ranges on reasonable volumes of 290k. A corrective cycle remains in play with support at 111-06+ (Jan 5 low) whilst resistance is seen at 112-19 (Jan 4 high).
• Early Monday inputs included already swelling USD & EUR IG issuance slates (headlined by a USD multi-part benchmark offering from Saudi Arabia), softer-than-expected German factory orders data and a firmer-than-expected round of Swiss CPI data.
• The weekend saw Dallas Fed’s Logan stress that the Fed should not rule out a move higher in interest rates, noting her focus on financial conditions at the same time. On the future of QT, she notes "we should slow the pace of runoff as ON RRP balances approach a low level. Normalizing the balance sheet more slowly can actually help get to a more efficient balance sheet in the long run by smoothing redistribution and reducing the likelihood that we'd have to stop prematurely."
• On the fiscal side, the weekend saw congressional leaders announce an accord re: top-line spending levels for the current FY, essentially reduces the chance of a government shutdown later this month.
• Fed Funds implied rates show 17bp of cumulative cuts for March and 137bp of cuts through '24, after Friday's data-inspired vol saw some meaningful swings in that marker.
• Data: NY Fed inflation expectations Dec (1100ET), Consumer credit Nov (1500ET).
• Fedspeak: Bostic ('24) on economic outlook (1230ET, no text)
• Bills issuance: US Tsy $75B 13W, $68B 26W Bill auctions (1130ET)

US Employment Insight, Jan'24: Hawkish But Less So Than First Met The Eye

• We have just published and e-mailed to subscribers the MNI Employment Insight, a review of MNI's analysis for Friday's payrolls report and wider data, plus views from 18 analysts:
• Find the full report here: https://roar-assets-auto.rbl.ms/files/59394/USEmploymentReportJan2024.pdf

EUROPE ISSUANCE UPDATE:

EU-Bond Auction Results

• The EU-bond auction saw pretty soft demand with bid-to-covers of 1.07x for both bonds on offer. And also note the lowest accepted price was only just above the pre-auction mid for the 10-year 3.25% Jul-34 EU-bond but notably below for the 5-year 3.125% Dec-28 EU-bond.
• Both saw decent discounts between the low price and the average price.- Disappointing auction overall.
• E2.263bln of the 3.125% Dec-28 EU-bond. Avg yield 2.628% (bid-to-cover 1.07x)
• E2.336bln of the 3.25% Jul-34 EU-bond. Avg yield 2.85% (bid-to-cover 1.07x).

• E5bln of the Jul-29 EFSF. Books closed in excess of E23.8bln. Spread set at MS+11bps.
• E2bln WNG of the 3.375% Aug-38 EFSF. Books closed in excess of E19.7bln. Spread set at MS+46bps.

• New 10-year Oct-34 OLO to be launched in the near future (MNI expect Tuesday transaction). MNI looks for a E5-7bln size. Note the 29 January auction has been cancelled.

FOREX: USD/JPY Fade Off Highs Keeps Key Resistance Intact

• The fade off the Friday high for USD/JPY has kept the most notable resistance intact at the 50-day EMA of 145.32. This seems to have contained the recovery rally from late last week, keeping the trend outlook bearish for now. Resultingly, the JPY is the strongest performer in G10 headed into the NY crossover.
• Elsewhere, a slightly firmer than expected Eurozone retail sales release helped stall modest selling pressure in EUR/USD, keeping the pair rangebound and close to the midpoint of the Friday range.
• NOK trades poorly, slipping against most others in G10 to reflect the pullback in Brent and WTI crude futures since the resumption of trade after the weekend. Moves come ahead of the December CPI print due on Wednesday this week, at which markets expect CPI-ATE to fade further to 5.6%. A particularly strong print here could call markets to question the peak of the tightening cycle from the Norges Bank.
• Tier one data releases are few and far between Monday, with markets watching an appearance from Fed's Bostic, who's set to speak at 1730GMT/1230ET on the economic outlook. The NY Fed Inflation Expectations survey could draw some focus in the interim.

Expiries for Jan08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1130-45(E943mln)
• USD/JPY: Y144.46-55($560mln)
• AUD/USD: $0.6620-40(A$1.1bln), $0.6725(A$633mln)

Solid Hedging Activity Supported by CNY Options Demand

• Friday trade saw another session of ~$100bln options turnover, making for four consecutive sessions of activity above the rolling 3m average. Monday looks to follow the same pattern, with solid trade in USD/CNY, AUD/USD and EUR/HUF hedges contributing to a busy morning.
• Front-end implied vols are seen firmer, with G10 FX 1m implied generally higher by 0.2-0.4 points, while the post-payrolls pullback in the very front-end has been contained by the proximity to this Thursday's US CPI release, at which markets expect core inflation to moderate to 3.8% Y/Y.
• EUR/USD 1w implied remains supported above 7 points (above the rolling 3m average of ~6.8) implying a break-even of ~90 pips for a Jan15 expiry.
• USD/CNY interest is tilted toward downside, as markets seek CNY upside protection - playing out via 7.03/7.05/7.10 put strikes. Structures follow reports late last week that state-owned banks were becoming more active in FX by swapping CNY for dollars to sell in the spot market - with the express purpose of containing the slide in the CNY, according to sources.

Fresh Multi-Year Lows For CSI 300

MNI (London) - Weakness in Chinese & HK equities stands out on Monday, with the CSI -1.3% and the Hang Seng -1.9%.

• HSI bears target the Dec ’23 lows, while the CSI 300 looked through its own late ’23 base, with the index hitting the lowest level seen since ’19.
• We flag several potential drivers for the broader move lower:
• Zhongzhi’s bankruptcy news from late last week.
• Late in the day RTRS sources suggested that “China's securities regulator is allowing mutual fund managers to sell more shares than they buy each day, removing a ban introduced late last year aimed at propping up a flagging stock market.”
• Local reports pointing to Chinese authorities tightening scrutiny of offshore borrowing on the part of LGFVs. This contributes a portion of the pressure stemming from continued worry re: well-known areas of economic risk.
• Continued tension with the U.S. re: trade matters.
• Some desks pointed to CBBC hedging-related weakness in HK.
• More granularly, news surrounding a criminal probe at Evergrande NEV will have had a negative impact on sentiment.
• JD Logistics struggled on the back of a price target downgrade at a brokerage.
• CICC led mainland brokerage names lower as a major shareholder outlined a plan to cut its stake in the name.
• Conversely, Morgan Stanley’s outlook for screen display producers supported that space.
• HK-China Stock Connect flows generated ~CNY4.3bn of net sales for mainland equities.

EGBS: Another Weak Start; Peripheries Widen

Core/semi-core EGBs are off session lows headed into the NY crossover, but remain weaker to begin the week.

• Headline flow has generally been light, with this morning's Eurozone data not providing much impulse in either direction. Block buying in USTs has been noted to help Bunds off intraday lows in recent trade.
• That leaves Bunds 50 ticks lower on the day at 135.53, with the Jan 5 low of 135.06 is the first support. German and French cash curves have bear steepened on the day, but yields remain inside recent ranges.
• Periphery spreads are once again wider, continuing last week's dynamics. The 10-Yr BTP/Bund spread hovers around 170bps, currently 0.5bps wider on the day at 169.6bps.
• Aforementioned Eurozone data comprised of retail sales and EC/Sentix confidence indices. Retail sales were broadly in line with consensus, while an uptick in confidence across respondents were seen in both surveys.
• The remainder of today's local docket is light, with external focus on an appearance from Fed's Bostic ahead of the US CPI data later this week.

EQUITIES: Primary Trend Direction in Eurostoxx 50 Futures Remains Up

• The primary trend direction in Eurostoxx 50 futures remains up and the recent move lower appears to be a correction. MA studies are in a bull-mode position, signalling a rising trend cycle. Key short-term support to watch lies at 4439.30, the 50-day EMA. A break of this level would signal scope for a deeper retracement and open 4370.00, the Nov 28 low. For bulls, a reversal higher would refocus attention on 4634.00, the Dec 14 high and bull trigger.
• The pullback in S&P E-Minis from recent highs has now cracked first material support at the 20-day EMA of 4745.34. This strengthens a short-term bearish threat and exposes 4696.72, the lower band of a MA envelope. A move through this support would expose the 50-day EMA, at 4650.64. The recent move lower is considered corrective and the primary uptrend remains intact. Key resistance and the bull trigger is 4841.50, the Dec 28 high.

COMMODITIES: Bearish Conditions in WTI Futures Intact

• Bearish conditions in WTI futures remain intact and short-term gains are considered corrective. Resistance to watch is $75.02, the 50-day EMA. The average was briefly pierced late December. A clear break of it would strengthen a bullish theme and highlight a stronger reversal. For bears, moving average studies are in a bear-mode position, highlighting a downtrend. The trigger for a resumption of the trend is $67.98, Dec 13 low.
• The Dec 13 reversal in Gold and the subsequent move higher continues to suggest the Dec 4 - 13 pullback was a correction. Note that moving average studies are in a bull-mode position too, reflecting an uptrend. A resumption of gains would open $2097.1, 76.4% of the Dec 4 - 13 bear leg, ahead of key resistance and the Dec 4 all-time high of $2135.4. Initial support to watch is $2011.3, the 50-day EMA. Key support lies at $1973.2, the Dec 13 low.