MNI US MARKETS ANALYSIS - Dollar Lower for Second Session

US TSYS SUMMARY: Bull Flattening With Modestly Lower Hike Expectations

• Cash Tsys have bull flattened, with the rally broadly a continuation of a move which started with yesterday’s NY session and which appeared to be helped by a modest pulling back of rate hike expectations.
• 2Y yields -2.0bps at 1.159%, 5Y-2.8bps at 1.582%, 10Y -2.8bps at 1.748% and 30Y -3.4bps at 2.073%.
• TYH2 touches the highs since Jan 25 at 128-09, moving closer resistance at 128-14+ (20-day EMA) on average volumes.
• Fedspeak: 0830 Harker Bbg interview (moderate, voter 2023) followed by 1000 Barkin (moderate, non-voter).
• Data: Various important releases with ISM Mfg and final Markit Mfg PMI for Jan plus JOLTS for Dec.
• NY Fed buy-op: TIPS 7.5Y-30Y, appr $1.225B vs. $0.925B prior (11120ET).

EGB/GILT SUMMARY: Gilts Edge Higher; Pressure Mounts On PM

Gilts have rallied through the morning while performance for EGBs has been somewhat mixed. Equities are broadly higher while the US dollar is on the back foot against G10 FX

• Gilt cash yields are 1-3bp lower on the day with the curve bull flattening.
• UK PM Boris Johnson faces mounting pressure to publish the full Gray report into the Downing Street lockdown parties, fueling speculation of further revelations that could undermine his position.
• Bunds have lacked clear direction so far and broadly trade a touch above yesterday's close.
• It is a s similar story for OATs, which now trade close to flat on the day.
• BTPs have oscillated through the morning with yields now 1-2bp above yesterday's close.
• Final manufacturing PMI data for January was higher than initially expected for the UK (57.3 vs 56.9) and Spain (56.2 vs 56.0), and a touch lower for Germany (59.8 vs 60.5), Italy (58.3 vs 61.2) and the broader eurozone (58.7 vs 59.0)
• Elsewhere, French preliminary CPI data for January surprised higher (3.3% Y/Y vs 2.9% expected), while the Nationwide house price index for the UK increased by 11.2% Y/Y in January vs 10.9% expected.
• Supply this morning came from Germany (Schatz, Eur4.846bn allotted), Belgium (TC's, EUR1.16bn) and the ESM (Bills, EUR1.5bn).

EUROPE ISSUANCE UPDATE:

Germany allots E4.846bln 0% Mar-24 Schatz, Avg yield -0.50% (Prev. -0.62%), Bid-to-cover 0.97x (Prev. 1.56x), Buba cover 1.20x (Prev. 1.97x)

EUROPE OPTION FLOW SUMMARY

Eurozone:
DUH2 112.00/111.70 put spread sold at 12 in 5k

OEH2 131 put bought for 7.5 in 3k
OEH2 131.75/132.50 strangle sold at 46 in 1k
OEJ2 132.75/132.00/131.25 put fly sold at 12.5 in 1k
OEJ2 131.75/130.75 1x1.5 put spread bought for 15/15.5 in 6k
OEH2 131.50/131.00 put spread bought for 8 in 8.35k vs RXH2 169/168 put spread sold at 38 in 1.67k

RXH2 167.50/166.00 1x1.5 put spread sold at 13 in 2k
RXH2 169.5 call vs RXJ2 166.5 call sold at 61 in 1.5k (sold April, bought Mar)

FOREX: Greenback Lower for Second Session, Nearing First Support

• The greenback trades poorly early Tuesday, slipping against all others in G10 as currencies follow yields lower. The 10y yield is lower for a fourth consecutive session, edging toward 1.75% and the lowest level since Jan25. The USD Index is lower for a second session, with the 50-dma the next downside level at 96.11.
• AUD traded volatile overnight, with AUD/USD dropping to 0.7034 as the RBA concluded their QE programme, but stressed that an end to asset purchases does not equate to a near-term increase in interest rates. Into the NY crossover, however, AUD/USD trades positively, with the bias toward USD sales working in favour of the pair. 0.7121, the Jan27 high, marks the first upside level.
• Elsewhere, the EUR has added to the week's gains, with EUR/USD climbing to touch 1.1269 as positive short-term technical signals begins to emerge - yesterday’s daily close highlights a 3-day Japanese candle reversal known as a morning star. This suggests scope for a stronger short-term corrective bounce toward 1.1293, the 20-day EMA and the first upside level.
• Canadian GDP and the US January ISM Manufacturing data cross later today, with particular attention to be paid to the price paid subcomponent, with markets expecting a deceleration to 67.0 from 68.2.

February Historically a Strong Month For the Dollar

• 10yr Average Seasonality Returns here:

FX OPTIONS: Expiries for Feb01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1150-70(E2.0bln), $1.1215-25(E2.9bln), $1.1300(E1.5bln), $1.1350-55(E1.2bln)
• USD/JPY: Y112.75($708mln), Y113.20-40($1.3bln), Y114.65($600mln), Y115.00-25($1.1bln), Y116.50-65($1.4bln), Y117.00($940mln)
• USD/CAD: C$1.2705($570mln)
• USD/CNY: Cny6.3600-15($1.2bln)

Price Signal Summary - Recovery In The Equity Space Considered Corrective

• In the equity space, S&P E-minis gains are still considered corrective. Price action in January has resulted in a reversal of the moving average conditions to bearish. This suggests that short-term gains are corrective. Two important resistance levels to watch are; 4521.05, the 20-day EMA and 4578.22, the 50-day EMA. A decisive break of this resistance zone is required to suggest a stronger price reversal. A resumption of weakness would refocus attention on 4121.75, the Jan 24 low. EUROSTOXX 50 futures are trading higher and price has probed the 50-day EMA at 4212.10. This average marks a key resistance area and a clear break of it is required to suggest scope for stronger recovery. Gains are considered corrective. A reversal lower would refocus attention on 3990.50, the Jan 24 low.
• In FX, EURUSD has recovered from its recent low. Yesterday’s daily close highlights a 3-day Japanese candle reversal known as a morning star. This suggests scope for a stronger short-term corrective bounce ahead of the next firm resistance at 1.1293, the 20-day EMA. The broader trend direction remains down though and gains are considered corrective. GBPUSD is firmer too as the pair extends the recovery from last week’s 1.3358 low on Jan 27. Resistance to watch is at 1.3525, the Jan 26 high. 1.3358 is the trigger for a resumption of the recent bear leg. Recent USDJPY price action defined a key short-term support last week at 113.47, Jan 24 low. The recent rally from this low suggests potential for stronger short-term gains and sights are set on 116.35, the Jan 4 high and key resistance.
• On the commodity front, Gold remains vulnerable following the recent break of the bull channel base drawn off the Aug 9 low. The clear breach strengthens the bearish threat and opens $1753.6, the Dec 15 low. Resistance to watch is $1822.2, the Jan 27 high. WTI futures remain in an uptrend. The contract has cleared $87.10, the Jan 20 high and this has opened the psychological $90.00 handle.
• In the FI space, Bund futures resumed their downtrend yesterday, trading below former support at 168.95, Jan 19 low. This maintains the bearish sequence of lower lows and lower highs. The focus is on 168.46, 4.00 projection of the Dec 8 - Dec 20 price swing. Gilts yesterday traded through support 121.93, Jan 19 low. This confirms a resumption of the downtrend. The move lower opens 121.61 next, the Nov 13 2018 low.

EQUITIES: Tuesday Marks Busiest Session of the Week For US Earnings

Today's the busiest session of the week for US earnings, with Alphabet, ExxonMobil, UPS, PayPal, AMD, General Motors and Starbucks due among others. So far this quarter, the average firm in the S&P 500 has beaten forecast on EPS by 4.3%, while beating revenue expectations by 1.1%.

• Full schedule with timings, EPS and revenue expectations here: https://marketnews.com/mni-us-earnings-schedule-sp...

COMMODITIES: Metals Gain As Dollar Retraces

• WTI Crude down $0.93 or -1.06% at $88.22
• Natural Gas down $0.09 or -1.85% at $4.841
• Gold spot up $9.24 or +0.51% at $1803.07
• Copper up $3.3 or +0.76% at $437.15
• Silver up $0.27 or +1.21% at $22.5993
• Platinum up $16.75 or +1.64% at $1038.25