MNI US MARKETS ANALYSIS - USD/JPY Touches Multi-Year Highs

US TSYS SUMMARY: Treasuries Eye ISM & JOLTS After Large Bear Steepening

• Cash Tsys have been relatively subdued after yesterday’s large bear steepening, with the limited moves seemingly pinned by news of the latest localised lockdown in China, ahead of important data releases.
• 2Y yields are +1.2bps at 0.780%, 5Y +1.5bps at 1.369%, 10Y +1.1bps at 1.639% and 30Y -0.2bps at 2.021%.
• TYH2 has edged lower to 129-12+, after falling -1-00+ yesterday. It is testing a support level of 129-12+ (76.4% retracement of the Nov 24 – Dec 20 rally), a break of which could open the 128s (late Nov lows).
• Two significant releases ahead with ISM for Dec and JOLTS for Nov both at 1000ET/ 1500GMT.
• The JOLTS quits rate will likely be looked at particularly closely after Powell noted in the Dec FOMC presser that it “is really one of the very best indicators […] So on wages, that’s the price indicator we look at”.
• NY Fed buy-op: TIPS 1Y-7.5Y, appr $1.525B (1120ET)

EGB/GILT SUMMARY: Gilts Underperform

EGBs have firmed in the morning while gilts have sold off sharply alongside a broad rally in equities.

• Gilts have started the first trading day of the year on a weak footing with cash yields now 6-9bp higher across the curve and the belly underperforming. With no UK-specific catalysts, this morning's move likely reflects spillover from the EGB sell-off yesterday.
• OATs have rallied, unwinding some of yesterday's losses. Yields are broadly 1-3bp lower with the curve bull flattening.
• Bunds have similarly firmed, while underperforming OATs on the day.
• BTPs are close to flat on the day at the shorter-end/belly, while longer-end yields have pushed higher. The 2s30s spread is 1bp wider.
• Supply this morning came from Germany (Schatz, EUR3.957bn), Belgium (TCs, EUR2.09bn) , Greece (GTBs, EUR625mn) and the ESM (Bills, EUR1.491bn).

OPTION FLOW SUMMARY:

Eurozone:
0RU2 99.75/99.50/99.37 broken p fly, bought for 3.25 in 5k
2RH2 100/99.875ps vs 100.12/100.37cs, sold the ps at 2 in 10k

US:
FVH2 120.5/120ps, bought for 11 in 15k

FOREX: JPY Drops to New Multi-Year Lows as Equities Crest at Fresh Highs

• JPY underperforms headed into Tuesday's NY crossover, slipping against all others and boosting USDJPY to closer to 116.00 and the best levels since early 2017. EURJPY is running higher in sympathy, with the cross approaching resistance layered between 131.00-04. JPY is lower as equities globally continue to improve (at the expense of bonds), evident in the e-mini S&P rallying through 4800 and hitting a fresh alltime high.
• The strongest currencies so far today include AUD and NOK, with commodity-tied and growth proxy FX at the top of the pile.
• Elsewhere, the greenback is a touch softer, but holds close to the highs printed yesterday as the USD Index rebounded off the 50-dma at 95.628.
• December's ISM Manufacturing data takes focus going forward, with activity seen slowing to 60.0 from 61.1. Particular focus will likely be paid to the employment sub component ahead of Friday's NFP release - with US jobs growth seen accelerating to 424k across December.

FX OPTION EXPIRIES

• EURUSD: 1.1275 (342mln), 1.1330 (337mln)
• USDJPY: 115.50 (947mln), 116.50 (1.13bn)
• USDCAD: 1.2750 (380mln)

Price Signal Summary - Risk-On Mood Pushes Equities Higher, Bonds Lower

• In the equity space, the S&P E-minis futures trend condition remains bullish and the 4800.00 has been breached. The break higher confirms a resumption of the uptrend and paves the way for a climb towards 4854.19, 0.764 projection of the Oct 1 - Nov 22 - Dec 3 price swing. EUROSTOXX 50 futures remain in an uptrend and continue to push higher. The recent break of resistance at 4270.00, the Dec 8 high strengthened bullish conditions and attention is on the key resistance at 4392.50, the Nov 18 high.
• In FX, EURUSD remains below resistance at 1.1383/86, the Nov 30 and Dec 31 high. Price continues to trade inside the past month's range. A deeper pullback would expose support at 1.1222, Dec 15 low ahead of the bear trigger at 1.1185, Jul 1, 2020. For bulls, a clear breach of 1.13783/86 is required to suggest scope for a stronger recovery. GBPUSD remains above its 50-day EMA at 1.3427 - the recent breach of this average reinforced bullish conditions. A resumption of strength would clear the way for 1.3578, 61.8% of the Oct - Dec sell-off and 1.3607, the Nov 9 high. EURGBP weakness has opened the major support and bear trigger at 0.8282/77, the Feb’20 / Dec’19 low and key bear trigger. Note that the 0.8300 area is the base of a broad multi-year range and marks a major support. Initial resistance is at 0.8419, Monday’s high. USDJPY has cleared key resistance at 115.52, the Nov 24 high. The breach confirms a resumption of both the short and medium-term trends, paving the way for a climb towards 116.09 next, 1.764 projection of Apr 23 - Jul 2 - Aug 4 price swing.
• On the commodity front, yesterday's high in Gold of $1831.9 (resistance) plus 1779.8, the channel base drawn from the Aug 9 low (support), mark the key short-term directional triggers. For now, the trend remains up. WTI futures remain in an uptrend. Recent weakness is considered corrective and yesterday’s low of $74.27 represents a key short-term support. Attention is on resistance at $77.44, the Dec 29 high and the bull trigger.
• In the FI space, Bund futures have started the year on a soft note. Last week’s breach of support at 171.77, Nov 24 low strengthened the bearish case, paving the way for a move towards 170.19, Nov 2 low ahead of the major support at 169.34, the Oct 29 low. Gilts remain in a downtrend. The contract has cleared support at 124.35, Dec 29 low and 124.17, Nov 24 low. The break of this latter support strengthens bearish conditions and opens 123.48, the 3.00 projection of the Dec 8 - 16 - 20 price swing.

EQUITIES: Stocks Surge to Touch Fresh Highs

• The e-mini S&P trades solidly early Tuesday, with the index rallying further to touch 4807.50. Both Dow Jones and NASDAQ futures are posting similar sized pre-market gains, pointing to a solid start for US stocks.
• Across Europe, sentiment is similarly positive, putting France's CAC-40 and UK's FTSE-100 higher by 1.3%, with the rest of the continent lagging, but only slightly.
• In single stock news, Apple trades higher by around 0.7% pre-market, and is set to cross the $3trl market cap benchmark at the opening bell.

COMMODITIES: OPEC+ Expected to Stick to Planned Output Boost

• Oil markets trade in minor positive territory early Tuesday, with WTI and Brent crude futures higher by around 0.8% apiece. WTI sits just below the $77/bbl handle, with progress through here and $77.44/bbl exposing the best levels for the contract since late November.
• OPEC+ meet again Tuesday, with the group expected to stick to their planned expansion of output by another 400,000bpd, effective from February. The meetings begin from 1200GMT/0700ET, with the formal decision set to be made at a meeting around one hour later.
• WTI futures are holding the sizeable Dec27 rally and remain in an uptrend. Recent weakness is considered corrective. Yesterday's low of $74.27 represents a key short-term support. Attention is on resistance at $77.44, the Dec 29 high and a Fibonacci retracement. A break would confirm a resumption of the uptrend and open $78.59, Nov 24 high.
• Gold traded sharply lower yesterday. In terms of price patterns, the sell-off appears to be a bearish engulfing candle but it remains to be seen whether this pattern is an early sign of a stronger bearish reversal that would result in a break of support at $1753.7, the Dec 15 low.