MNI US MARKETS ANALYSIS - E-mini S&P Nears Formal Correction

US TSYS SUMMARY: Bull Flattening On Ukraine Tensions, Soft EA PMI

• Cash Tsys have bull flattened this morning in a reversal of the overnight sell off, led by Russia-Ukraine fears and soft Eurozone PMIs.
• 2Y yields are unch at 1.002%, 5Y -2.0bps at 1.537%, 10Y -2.8bps at 1.730% and 30Y -2.2bps at 2.049%.
• TYH2 is off earlier highs but still above most of last week’s range, up 4 ticks at 128-14 on decent volumes. Key-short term resistance is seen at 128-27 (Jan 13 high) whilst support has previously been identified at 127-02 (Jan 19 low).
• Data: Whilst the focus is firmly on the FOMC on Wed, today’s preliminary Markit PMI surveys for Jan could still be important, with consensus for a pullback in activity.
• Issuance: US Tsy $60B 13W, $51B 26W bill auctions (1130ET) US Tsy $54B 2Y Note auction (1300ET).

EGB/GILT SUMMARY: Geopolitical Tensions Fuel Risk-Off

European sovereign bonds have started the week on a firmer footing with gilts leading the charge. Equities have had a weak session so far, while the USD dollar has gained against G10 FX and oil has inched lower.

• Geopolitical tensions are rising as the Russia-Ukraine crisis deepens and NATO members put their forces on standby.
• Gilts have rallied with cash yields 1-4bp lower and the curve bull flattening.
• Bunds have similarly firmed with yields 2-3bp lower on the day and the belly of the curve marginally flattening.
• OATs have inched higher with yields 1-2bp below the Friday close.
• BTP yields are now 2-3bp lower.
• Preliminary Eurozone PMI data was a touch weaker than expected while still pointing to a sustained expansion in output. Germany notably outperformed expectations with the manufacturing survey hitting 60.5 in January (vs 57.0 survey) while the services component came in at 52.2 and returning to expansion territory.
• Supply this morning came from Germany (Bubills, EUR5.875bn) and the EU (Green EU bond, EUR2.499bn). Later today France will offer EUR4.4-5.6bn of BTFs.

EUROPE ISSUANCE UPDATE:

European Union sells E2.499bln 0.40% Feb-37 Green EU-bond, Avg yield 0.374% (Prev. 0.453%), Bid-to-cover 1.49x, Price 100.37 (Prev. 99.219)

FOREX: Risk-Off Keeps Last Week's USD Index High Under Pressure

• The negative close of Wall Street Friday has fed through into Monday's NY crossover, with index futures again pointing lower and indicating more near-term pain for equity longs. The price action has favoured haven currencies so far, with the greenback, CHF and JPY the early beneficiaries.
• The nearing Fed meeting remains the focal point for markets, with outside expectations that the FOMC will shift to a focus on quantitative tightening as soon as this Wednesday. This has kept the USD Index close to last week's highs, narrowing in on first major resistance at the 96.02 50-dma, a break above which would open gains toward YTD highs of 96.462.
• The outperformance in the CHF puts the EUR/CHF cross at new cycle lows of 1.0318 and the lowest level since mid-2015, with 1.0315 and 1.0296 the next levels to watch. Markets will continue to speculate over the involvement of the SNB at these levels, which may look to smooth any erratic declines.
• Risk off trades puts growth and commodity-tied currencies at the bottom of the pile, with AUD, NOK and NZD among the session's poorest performers.
• Preliminary US PMI data takes focus going forward, with markets expecting both the manufacturing and services metrics to decelerate from the prior. There are no major central bank speakers, with the FOMC remaining in their pre-meeting media blackout period.

FX OPTIONS: Expiries for Jan24 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1230-35(E875mln)
• USDJPY: Y113.95-05($795mln), Y114.85-00($634mln)
• AUDUSD: $0.7200(A$761mln), $0.7235(A$1.6bln)

Price Signal Summary - Equities Head South

• In the equity space, S&P E-minis remain vulnerable and the contract is under pressure once again today. 4383.85, 76.4% retracement of the Oct 2021 - Jan rally has been breached. A clear break would reinforce the current bearish threat and open 4311.00, the Oct 12 low. EUROSTOXX 50 futures are sliding once again and have traded through 4161.80, 61.8% retracement of the Dec 20 - Jan 5 recovery. This opens 4109.90, the 76.4% retracement.
• In FX, EURUSD is consolidating. The move lower last week highlights the fact that the recent range and bear channel breakouts have failed to deliver a bullish reversal - a false technical break. Further weakness would expose 1.1272, the Jan 4 low. GBPUSD remains offered and has traded through both the 20- and 50-day EMAs. This signals scope for a deeper unwinding of the bull rally between Dec 8 - Jan 13. The focus is on 1.3456, 50.0% retracement of the Dec 8 - Jan 13 bull phase. USDJPY has probed key short-term support at 113.49. This threatens the recent bullish reversal signals and instead highlights potential for a deeper retracement towards 113.14 next, Dec 7 low. Key short-term resistance has been defined at 115.06, Jan 18 high.
• On the commodity front, Gold traded sharply higher last 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 Friday’s low of $82.78. A break would signal scope for a deeper retracement.
• In the FI space, Bund futures remain in a downtrend and short-term gains are still considered corrective. Key short-term resistance to watch is 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 where a break is required to highlight a short-term base. The bear trigger is 121.93, Jan 19 low.

EQUITIES: Futures Indicate Seventh Session in the Red

• The e-mini S&P printed fresh YTD lows ahead of Monday's opening bell, showing below the key 200-dma support, which today crosses at 4424.8. Markets must settle back above this level to steady the near-term outlook, with earnings now a key driver as well as the FOMC decision on Wednesday. Highlights for the week include Microsoft, Tesla and Apple.
• This morning's moves follow the break of other notable tech levels including the 50-day EMA, which prompted the downside to accelerate and shift focus lower toward 4311.00, the Oct 12 low and next key support of 4252.75.
• On a more fundamental basis, 4326.9 marks a 10% drawdown from the alltime highs posted in early January, marking when the index enters an official correction.
• Europe's tech and industrials sectors are leading losses, although all tracked sectors are in the red a few hours out from the open.

COMMODITIES: Oil Underpinned by Heightened Geopolitical Tension Despite Equity Rout

• Oil markets trade in minor negative territory early Monday, but both WTI and Brent crude futures sit comfortably north of last Friday's lows. Energy price resilience comes despite a worsening of the equity outlook, with the e-mini S&P lower for a seventh consecutive session and nearing official correction territory.
• Support for energy prices stem from continued unrest in eastern Europe, as NATO issue a formal statement confirming that forces are being placed on standby including ships and jets.
• Some relief has been seen across the front-end of the futures curve, inline with today's front future, although contacts out to end-2024 still signify a tight market in the near-term.
• Gold short-term conditions remain bullish following last Wednesday's strong rally. The climb resulted in a break of resistance at $1831.9, Jan 3 high and a bull trigger.