MNI US MARKETS ANALYSIS - USD Firmer Amid Soft French CPI

US TSYS: Ultimately Little Changed After EU Data, ECI and Chicago PMI Ahead

• Cash Tsys currently sit little changed after retracing an initial bid with spillover from mixed European data. The net result are benchmark tenors all tracking well within yesterday’s range ahead of some important data releases on day one of the FOMC’s two-day meeting. We highlight the Q4 ECI, MNI Chicago PMI and Conference Board consumer survey.
• 2YY +0.2bps at 4.326%, 5YY -0.3bp at 3.659%, 10YY -0.2bp at 3.535%, 30YY -0.3bps at 3.649%.
• TYH3 trades 4 ticks higher at 114-13 off earlier highs of 114-19 on modestly above average volumes. Support is seen close by with the Jan 30 low of 114-05+ after which lies the 50-day EMA of 114-00, whilst to the upside sits 114-28 (Jan 27 high).
• Data: ECI Q4 (0830ET), FHFA & S&P CoreLogic house prices Nov (0900ET), MNI Chicago PMI Jan (0945ET), Conf. Board Consumer Survey Jan (1000ET), Dallas Fed services index (1030ET).
• No issuance

STIR FUTURES: Fed Rate Path Holds Yesterday’s Drift Higher Pre-ECI

• Fed funds implied hikes: 26.5bp for tomorrow’s decision, cumulative 47bp for Mar, 60bp to a terminal 4.93% in Jun before 41bp of cuts to 4.52% end-2023.
• The Q4 ECI at 0830ET is firmly in focus after recent large revisions to monthly average hourly earnings, most recently leaving them on a slowly moderating trend into December.
• The terminal is at the high end of its 4.86-4.94% range seen since that AHE miss was combined with a large miss for ISM Services on Jan 6.

FOMC-dated Fed Funds futures implied ratesSource: Bloomberg

FOREX: NOK Slides as Norges Bank Confirmed Upped FX Purchase Plan

• The USD trades firmer ahead of NY hours, with a spell of greenback strength following the softer-than-expected French inflation release. Volumes picked up across futures markets to make for a busier-than-expected morning, possibly catching markets off guard given the delay to German inflation data originally slated for today.
• NOK is the poorest performer in G10, as the Norges Bank confirmed a larger than expected schedule for February FX purchases. Consensus looked for an unchanged clip of NOK 1.5lbn per day, not the NOK 1.9bln confirmed this morning. EUR/NOK rallied to new cycle highs in response, touching 10.8982 in early European trade.
• AUD trades similarly poorly after a softer-than-expected retail sales release overnight, which dropped 3.9% on the month vs. Exp. -0.2%. AUD/USD is holding just above the $0.70 handle at typing, but a break below would open losses toward $0.6994 - a move that would narrow the gap with the 50-dma support of $0.6832.
• MNI Chicago Business Barometer is the data highlight Tuesday, with markets expecting a read of 45.1 - in line with the prior month. Elsewhere, the Employment Cost Index and January consumer confidence releases could draw focus on top of Canadian GDP.
• There are no central bank speakers of note, with the ECB, Fed and BoE respecting their pre-decision media blackout periods.

FX OPTIONS: Expiries for Jan31 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700-25(E532mln), $1.0730-50(E591mln), $1.0850-55(E1.5bln), $1.0875-00(E1.7bln), $1.1100(E652mln)
• USD/JPY: Y127.50($500mln), Y130.00($511mln)
• USD/CAD: C$1.3400($1.2bln)
• USD/CNY: Cny6.8000($1.8bln)

EUROPE ISSUANCE UPDATE:

Italy auction results:

• Decent Italian auction result with the average price above the mid-price for all bonds on offer.
• Both 5/10-year BTPs dipped immediately ahead of the auction close, but the average auction price was still in line with prevailing mid-prices around 8 minutes before the auction closed.
• Some falls in the bid-to-cover for the 10-year BTP / CCTeu but these are offset by the larger auction size.
• E4bln of the 3.40% Apr-28 BTP. Avg yield 3.7% (bid-to-cover 1.38x).
• E3.5bln of the 4.4% May-33 BTP. Avg yield 4.28% (bid-to-cover 1.35x).
• E1.5bln of the 0.50% Apr-26 CCTeu. Avg yield 2.58% (bid-to-cover 1.76x)

• That wasn't a strong Schatz auction for the new 2.50% Mar-25 Schatz but it also wasn't terrible.
• It was technically uncovered (but so was every Schatz launch auction in 2022).
• Furthermore, the amount allotted was higher than at any point since at least 2020, and with a relatively tight tail.
• E6bln (E4.929bln allotted) of the 2.50% Mar-25 Schatz. Avg yield 2.64% (bid-to-cover 0.90x).

BONDS: Early Rally Fades, With Focus On Data

Core FI has strengthened in Tuesday's early European trade, led by EGBs, as French inflation came in line with expectations (vs Spain's upside surprise yesterday).

• Bunds continue to outperform Treasuries and Gilts, though are well off session highs and trading within Monday's ranges with Month-end today, and the FOMC, ECB and BoE decisions looming later in the week.
• Morning data - which in addition to French CPI included a weak Eurozone bank lending survey, and poor German/French consumer numbers - did little to lessen Eurozone market rate hike pricing though. 50bp is 99% priced in for the ECB Thursday, and a further 45bp in March (highest since the start of the year).
• Attention turns to US data later in the session, with the 4Q Employment Cost Index potentially impacting the messaging at Wednesday's FOMC given the Fed's increasing focus on job market tightness.
• We also get the Jan MNI Chicago Business Barometer and Jan Consumer Confidence, and US house price data.

EQUITIES: E-Mini S&P Move Lower Considered Technically Corrective

• EUROSTOXX 50 futures are consolidating above support at 4097.00, Jan 19 low. The contract is also trading just ahead of key short-term resistance at 4206.00, Jan 18 high. A break of this level would resume 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 represent a healthy correction. Support to watch is 4101.40, the 20-day EMA.
• S&P E-Minis traded higher last week to confirm a resumption of the current uptrend. The move lower Monday is likely a correction. The recent breach of resistance has resulted in a print above the 4100.00 handle and an extension higher would open 4180.00, the Dec 13 high and a bull trigger. Initial firm support has been defined at 3957.89, the 50-day EMA. A move below the average would be seen as a bearish development and signal a reversal.

COMMODITIES: Gold Trend Conditions Remain Bullish Despite Recent Pullback

• WTI futures traded sharply lower Monday and in the process breached support at $78.45, the Jan 19 low. The move lower undermines the recent bull theme and a continuation would signal potential for an extension towards $72.74, the Jan 5 low. On the upside, the bull trigger has been defined at $82.66, the Jan 18 high. A break of this level is required to reinstate the recent bullish theme.
• 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 $1899.5, the 20-day EMA. A break would signal scope for a deeper pullback.