MNI US MARKETS ANALYSIS - Wall St Set For Another Negative Open

TSYS SUMMARY: Treasuries Slowly Unwinding Overnight Risk-Off Rally

• Cash Tsys have spent much of the morning unwinding an overnight rally led by risk-off flows on a deteriorating geopolitical outlook. Yields remain lower on the day with a modest bull flattening.
• 2Y yields are -0.1bps at 1.024%, 5Y -0.6bps at 1.580%, 10Y -1.4bps at 1.790% and 30Y -1.3bps at 2.104%.
• TYH2 sits near highs for the week at 128-02 (peak of 128-10 overnight) with a resumption of strong volumes. Key-short term resistance is seen at 128-27 (Jan 13 high) whilst support is 127-02 (Jan 19 low).
• Data: Limited to the Leading index for Dec (1000ET).
• NY Fed buy-op: Tsy 0Y-2.25Y, appr $12.425B vs. $9.325B prior (1030ET).

EGB/GILT SUMMARY: Risk Off Buying

European government bonds have rallied this morning alongside a broad sell off in equities and some downside for oil.

• Gilts opened higher and have managed to hold on to most of the early gains. Cash yields are 1-3bp lower with the belly of the curve marginally outperforming on the day.
• Bunds have outperformed gilts particularly at the longer end. Yields are 2-4bp lower with the curve 2bp flatter.
• The OAT curve has similarly bull flattened with the 2s30s spread narrowing 2bp.
• BTPs have slightly underperformed core EGBs with yields now down 1-2bp.
• UK retail sales data missed by a wide margin in December with the Ex Auto series falling 3.0% Y/Y vs + 1.1% Y/Y consensus.
• Supply this morning came from the UK (UKTBs, GBP2bn),
• The ECBs Christine Lagarde is due to speak later today on a panel concerning the global economic outlook at an event organised by the World Economic Forum. The BoE's Chartherine Mann is also scheduled to speak about the economic outlook.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXH2 169.5/167.5 ps v 171.5/172.5 cs, bought the ps for 33 in 20.5k total vs RXG2 172 put, sold at 195 in 7.5k total
RXH2 169/168ps bought for 25 in 2k
RXH2 172.50/174.50cs bought for 19 in 2.5k
RXH2 171.5/173cs, bought for 29.5 in 2.5k

SX7E 18/02/22 107c, bought for 2.40 in 10k

FOREX: NZD/USD Nears Key Medium-Term Support

• The late Thursday sell-off across US equity markets continues to exert influence well into the Friday session, with a bias for risk-off seen across G10 FX ahead of the NY crossover. AUD, NZD and NOK are among the weakest currencies so far, with NZD/USD nearing a particularly notable level at the 0.6702 support. This level marks both the December 2021 low (lowest print since late 2020) as well as the 38.2% Fib retracement of the 2020-2021 upleg.
• GBP similarly underperforms, with EUR/GBP bouncing well off the 2022 low following a particularly disappointing read from December retail sales - which slipped nearly 4% on a M/M basis as non-food stores saw a distinct drop on footfall following the spread of the omicron COVID variant. GBP/USD eyes next support at the 1.3543 100-dma.
• Haven curencies are the notable outperformers, with CHF, JPY and the greenback all seen firmer this morning.
• Canadian retail sales data crosses later today, with Eurozone consumer confidence and US Leading Index shortly afterwards. There remains a very quiet central bank speakers slate, with the Fed remaining in their pre-meeting media blackout period. ECB's Lagarde is due to appear on a virtual panel, while BoE's Mann speaks on monetary policy at 1300GMT.

FX OPTIONS: Expiries for Jan20 NY cut 1000ET (Source DTCC)

• USDJPY: 113.50 (730mln), 113.55 (284mln)113.85 (655mln), 113.90 (415mln), 114.00 (260mln)
• USDCAD: 1.2545 (901mln), 1.2550 (250mln), 1.2555 (1.1bn), 1.2560 (424mln), 1.2600 (840mln)
• AUDUSD: 0.7195 (411mln)

Price Signal Summary - S&P E-Minis Trade Through A Key Support

• In the equity space, S&P E-minis traded lower again yesterday. The move this week has resulted in a break of key support at 4485.75, Dec 3 low. This significantly strengthens the current bearish case and signals potential for an extension lower towards 4383.85, 76.4% retracement of the Oct 2021 - Jan rally. EUROSTOXX 50 futures have probed support at 4216.50, the Jan 10 low. This level has held for now and support has again surfaced below the 50-day EMA. A clear break of 4216.50 would trigger a resumption of bearish pressure and open 4161.80, 61.8% retracement of the Dec 20 - Jan 5 rally.
• In FX, EURUSD remains vulnerable. The move lower this week, threatens the recent bullish theme and suggests that the recent range and bear channel breakout appears to have been a false one. Further weakness would expose 1.1272, the Jan 4 low. GBPUSD trend conditions are bullish however the pair remains in a bearish corrective cycle. The support to watch is at 1.3558, the 20-day EMA where a clear break would signal potential for a deeper sell-off. The 200-dma, at 1.3734 marks an important resistance. A clear break of it would open 1.3835, Oct 20 high. USDJPY remains above the Jan 14 low 113.49. The bullish doji candle pattern on Jan 14 continues to highlight a reversal and signals the end of the recent corrective pullback. A resumption of gains would open 115.68, Jan 11 high. Sub 113.49 levels would be bearish.
• On the commodity front, Gold traded sharply higher Wednesday. This resulted in a break of resistance at $1831.9, Jan 3 high and a bull trigger. The outlook is bullish and attention is on $1848.0 next, 76.4% retracement of the Nov 16 - Dec 15 downleg. WTI futures remain in an uptrend and the most recent pullback is likely a correction. Key support to watch is at $83.52, the Jan 12 low. A resumption of gains would refocus attention on $87.47, 2.00 projection of the Dec 2 - 9 - 20 price swing.
• In the FI space, Bund futures remain in a downtrend and short-term gains are considered corrective. Key short-term resistance is seen at 171.00, Jan 13 high. The bear trigger is 168.95, Jan 19 low. Gilts remain in a downtrend too. Key short-term resistance has been defined at 123.79, Jan 13 high. A break is required to signal a base. The bear trigger is 121.93, Jan 19 low.

EQUITIES: Tech Under Pressure As Netflix Tumbles

• Asian markets closed mostly weaker: Japan's NIKKEI closed down 250.67 pts or -0.9% at 27522.26 and the TOPIX ended 11.35 pts lower or -0.59% at 1927.18. China's SHANGHAI closed down 32.495 pts or -0.91% at 3522.568 and the HANG SENG ended 13.2 pts higher or +0.05% at 24965.55
• European equities are broadly lower, with the German Dax down 229.59 pts or -1.44% at 15674.12, FTSE 100 down 60.51 pts or -0.8% at 7527.53, CAC 40 down 89.26 pts or -1.24% at 7117.85 and Euro Stoxx 50 down 53.21 pts or -1.24% at 4242.08.
• U.S. futures are flat/lower, led by tech, with the Dow Jones mini up 33 pts or +0.1% at 34649, S&P 500 mini down 3.25 pts or -0.07% at 4471.5, NASDAQ mini down 49 pts or -0.33% at 14791.75.

COMMODITIES: Oil Drop Reflects Broader Markets Pullback

• WTI Crude down $1.68 or -1.96% at $83.95
• Natural Gas up $0.13 or +3.31% at $3.927
• Gold spot down $5.1 or -0.28% at $1835.33
• Copper down $4.85 or -1.06% at $453.95
• Silver down $0.04 or -0.17% at $24.4458
• Platinum down $0.3 or -0.03% at $1045.77