MNI US MARKETS ANALYSIS - NFP Next Up

US TSYS SUMMARY: Treasuries Slightly Sold Ahead Of Payrolls

• Cash Tsys are slightly sold this morning ahead of payrolls, having sold off materially over the past two days following the FOMC minutes.
• 2Y yields are +0.4bps at 0.870% (just off intraday fresh post-pandemic highs), 5Y +0.4bps at 1.472%, 10Y +0.2bps at 1.723% and 30Y +0.5bps at 2.081%.
• TYH2 sees a mild start to the day, up 3 ticks at 128-20 in the middle of most of yesterday’s range. Support is seen at 128-08 (=1.78% yields), 128-05 (1.618 proj of the Dec 20-29-31 price swing) and the psychological 128-00. Resistance is seen at 129-19 (Jan 4 high).
• Fedspeak: Daly (non-voter) at 1000ET is unlikely market moving after speaking yesterday (takes high inflation very seriously but need measured approach to hikes). Bostic (non-voter) at 1215ET isn't scheduled to speak directly on mon pol.
• Payrolls: BBG consensus for 447k in Dec after the surprisingly soft 210k. As usual, focus on the unemployment rate in conjunction with participation plus potential seasonality distortions.
• NY Fed buy-op: Tsy 0Y-2.25Y, appr $9.325B (1030ET).
• No Tsy issuance.

EGB/GILT SUMMARY: EZ Inflation Hits Fresh Record

European government bonds trade mixed this morning with a similarly uneven performance in the equity and FX space. Another bumper inflation print for the euro area is challenging the ECB's current policy setting at a time when the economic recovery is still not fully secured.

• Following a weak start, gilts have inched higher and now trade above yesterday's close. Cash yields are 1-2bp lower on the day with the curve slightly bull steepening.
• Bunds similarly initially traded weaker before recovering losses to now trade close to flat on the day.
• The OAT curve has marginally flattened with the 2s30s spread narrowing 1bp.
• The BTP curve has steepened with the 2s30s spread trading up 3bp on the back of the short end pushing higher and the longer end trading soft.
• Eurozone CPI surprised higher in December, coming in at 5.0% Y/Y vs 4.8% expected and marking another fresh record high.
• Elsewhere, German and French industrial production data for November came in weaker than expected (-2.4% Y/Y vs -0.8% expected and -0.5% Y/Y vs 0.6%, respectively) while Eurozone retail sales printed higher (7.8% Y/Y vs 5.6% consensus).
• Supply this morning came from the UK (UKTBs, GBP2bn).

EUROPE OPTION FLOW SUMMARY

Eurozone:
OEG2 132.00/131.75 put spread bought for 1.5 in 2.5k
RXG2 167.50/166.00 1X1.5 put spread bought for 11.5 in 5.5k
RXG2 171/170 put spread sold at 56 in 1.2k
RXG2 171/172 1x2 call spread bought for 5/5.5 in 1.5k

UK:
SFIG2 99.45/99.55/99.65 call fly bought for 1.5 in 1k

FOREX: Greenback Sits Flat-to-Lower Ahead of NFP

• The greenback sits flat-to-lower ahead of the NY crossover, with most major pairs trading inside their recent ranges. This has favoured EUR/USD, which has climbed back above the 1.13 handle, while GBP/USD is north of 1.3550.
• The EUR/CHF chart stands out slightly, with the cross extending the rally off the week's low to narrow the gap with the 50-dma of 1.0452. This level was last crossed at the end of August last year, and a rise through here could signal a reversal from the solid downtrend posted across Q4 2021.
• AUD/USD has shown below yesterday's lows, but losses are more muted as markets watch sizeable option expiries rolling off today at $0.7160 (A$2.4bln).
• The strongest currency so far Friday is NOK, which is benefiting from the steepening of the crude futures curve, which has put the active Brent crude price at the highest levels since October.
• The December jobs data takes focus going forward, with markets expecting 447k jobs to have been added over the month. This is seen pressing the unemployment rate 0.1ppts lower to 4.1%. MNI preview here: https://roar-assets-auto.rbl.ms/documents/13381/US...

FX OPTIONS: Expiries for Jan07 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1250(E982mln), $1.1290-00(E1.5bln), $1.1350-53(E905mln)
• USD/JPY: Y116.00($2.5bln)
• AUD/USD: $0.7160(A$2.1bln), $0.7200(A$1.3bln), $0.7250-55(A$728mln)
• USD/CAD: C$1.2650($665mln), C$1.2675-90($1.3bln), C$1.2700($581mln), C$1.2800($639mln)

Price Signal Summary - Gold Bears Eye The Bull Channel Base

• In the equity space, the S&P E-minis remain vulnerable following the sharp sell-off this week from just above 4800.00. Price has traded below the 20-day EMA and attention is on the 50-day EMA that intersects at 4647.00. A clear break of it would signal scope for a deeper pullback. A bearish threat remains present in EUROSTOXX 50 futures. From a technical standpoint, the recent pullback is considered corrective. Initial support is seen at 4255.20, the 20-day EMA.
• In FX, EURUSD is still trading sideways and below resistance at 1.1383/86, the Nov 30 and Dec 31 high. Support to watch lies at 1.1222, Dec 15 low ahead of the bear trigger at 1.1185, Jul 1, 2020. GBPUSD remains in an uptrend and above its 50-day EMA - the recent breach of this average reinforced bullish conditions. The focus is on 1.3607 next, the Nov 9 high. Support to watch is at 1.3429, the 20-day EMA. USDJPY remains in an uptrend following the break of key resistance at 115.52, Nov 24 high. The break confirms a resumption of the uptrend, and opens 117.08 next, 2.00 projection of Apr 23 - Jul 2 - Aug 4 price swing.
• On the commodity front, Gold traded lower yesterday. The move reinforces the potential importance of Monday’s engulfing candle pattern and a bearish reversal signal. Attention is on the base of a bull channel drawn from the Aug 9 low, at $1782.3. A break would strengthen a bearish case and open $1753.7, Dec 15 low. WTI futures remain in an uptrend. Scope is seen for a climb towards $81.73, Nov 10 high.
• In the FI space, Bund futures remain bearish and the contract is trading near its recent lows. The focus is on 169.34, Oct 29 low. Gilts remain in a downtrend. The contract has this week cleared support at 124.17, Nov 24 low. The focus is the 123.00 handle.

EQUITIES: Mixed Ahead Of Payrolls, With Energy And Tech Leading

• Asian stocks closed weaker (with the exception of Hong Kong): Japan's NIKKEI closed down 9.31 pts or -0.03% at 28478.56 and the TOPIX ended 1.33 pts lower or -0.07% at 1995.68. China's SHANGHAI closed down 6.536 pts or -0.18% at 3579.543 and the HANG SENG ended 420.52 pts higher or +1.82% at 23493.38
• European equities are a little weaker, with energy and tech stocks outperforming: the German Dax down 44.09 pts or -0.27% at 16012.04, FTSE 100 up 4.86 pts or +0.07% at 7457.81, CAC 40 down 9.53 pts or -0.13% at 7238.81 and Euro Stoxx 50 down 2.4 pts or -0.06% at 4322.77.
• U.S. futures are edging higher ahead of the December payrolls report, with the Dow Jones mini up 58 pts or +0.16% at 36181, S&P 500 mini up 8.25 pts or +0.18% at 4695.75, NASDAQ mini up 17 pts or +0.11% at 15776.

COMMODITIES: Oil Higher With Kazakh Output Disruption Eyed

• WTI Crude up $0.8 or +1.01% at $80.16
• Natural Gas up $0.06 or +1.52% at $3.87
• Gold spot up $0.94 or +0.05% at $1792.21
• Copper up $3 or +0.69% at $438.45
• Silver up $0.01 or +0.02% at $22.2138
• Platinum up $5.06 or +0.52% at $975.1