MNI US MARKETS ANALYSIS - Vols Run Higher Ahead of BoE, ECB Decisions

US TSYS SUMMARY: Small Bull Steepening Ahead Of A Busy Day

• Cash Tsys have seen a modest bull steepening on low volumes ahead of a heavy US docket and policy decisions from the BoE and ECB.
• 2Y yields -1.4bps at 1.140%, 5Y -1.0bps at 1.598%, 10Y -0.2 at 1.773% and 30Y +0.1bps at 2.109%. This sees 2s10s up 4bps from the yesterday’s low to 63bps.
• TYH2 is at the low end of today’s narrow range at 128-02+ with volumes approx. 50% of typical at this time of day. Being well within yesterday’s range, it hasn’t troubled resistance of 128-11+ (20-day EMA) or support of 127-06+ (Jan 26 low).
• Fedspeak: Confirmation hearings for Raskin, Cook & Jefferson (0845ET)
• Data: ULC/productivity for Q4 (0830ET), ISM Services for Jan (1000ET) plus final releases for PMI Services and durable goods, all with an eye on tomorrow’s payrolls.
• NY Fed buy-op: Tsy 10Y-22.5Y, appr $1.625B (1030ET).
• Bill issuance: US Tsy $50B 4W. $40B 8W bill auctions (1130ET).

EGB/GILT SUMMARY: Energy Inflation Biting

European government bonds have traded mixed this morning with gilts edging lower and EGBs lacking clear direction. Regional equities are broadly lower while the dollar is on the front foot against G10 FX.

• Gilt yields are now 1-2bp higher with the curve bear steepening.
• Further fueling UK inflation pressures, the energy regular Ofgem, has announced that the energy price cap will be lifted again, resulting in 54% rise in the spring. The move is further adding to the political pressures facing the government and the PM Boris Johnson, with reports that some form of fiscal support package is being considered to alleviate the burden
• Bunds trade close to flat on the day across much of the curve.
• OATs have traded in a relatively tight range through the morning with the curve a touch steeper.
• The BTP curve has marginally twist flattened.
• Moscow has warned that the US decision to send more troops to Europe in a bid to support Ukraine it is a 'destructive step'.
• Supply this morning came from France (OATs/Green OAT, EUR11.496bn) and Spain (Bono/Oblis/Obli-Ei, EUR6.099bn)

EUROPE ISSUANCE UPDATE

France sells: 8/10/30-year OATs / Green OAT

• E3.296bln 0% Nov-30 OAT, Avg yield 0.30% (Prev. 0.03%), Bid-to-cover 2.59x (Prev. 2.38x)
• E3.435bln 0% May-32 OAT, Avg yield 0.45% (Prev. 0.30%), Bid-to-cover 2.62x (Prev. 2.12x)
• E1.981bln 0.75% May-53 OAT, Avg yield 1.05% (Prev. 0.99%), Bid-to-cover 2.00x (Prev. 1.58x)
• E2.784bln 0.50% Jun-44 Green OAT, Avg yield 0.85% (Prev. 0.55%), Bid-to-cover 1.90x (Prev. 2.14x)

EUROPE OPTION FLOW SUMMARY:

Eurozone:
RXH2 169/167.5/165p fly, sold at 33 in 3k (closing)

ERU2 100.25/100.125/100.00p fly, bought for 1 in 2k

FOREX: EUR Vols Climbing Ahead of ECB Decision

• Front-end vols across both EUR and GBP are climbing, with overnight implieds for both EUR/USD and GBP/USD at fresh 2022 highs. Moves come ahead of rate decisions from both the ECB and the Bank of England, at which both committees will be quizzed on their tightening plans for this year in the face of hot inflation.
• EUR/USD has drifted back below the 1.13 handle, with GBP/USD either side of 1.3550. The USD is reversing the last few sessions of weakness, most evidently against the JPY, with USD/JPY nearing yesterday's highs of 114.80 despite the late pullback in US equities.
• EUR/CHF is extending the recovery off the late January multi-year lows of 1.0300, topping the 50-dma at 1.0405 ahead of NY hours. 1.0441 marks next resistance - the Jan31 high.
• Outside of the ECB, BoE decisions, central banks remain in focus, with new Fed nominees Raskin, Cook and Jefferson appearing in front of lawmakers. Markets will look to gauge their views on policy in the new inflationary environment post-COVID.

FX OPTIONS: Expiries for Feb03 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1150-60(E1.9bln), $1.1195-00(E654mln), $1.1220-25(E720mln) $1.1275-00(E1.9bln), $1.1310-25(E1.2bln), $1.1335-40(E542mln)
• USD/JPY: Y112.35-50($965mln), Y113.00-20($657mln), Y113.80-00($606mln), Y114.90-00($1.9bln)
• GBP/USD: $1.3300(Gbp593mln), $1.3400(Gbp779mln), $1.3500-05(Gbp635mln)
• AUD/USD: $0.7100-20(A$1.1bln), $0.7130-50(A$1.4bln), $0.7200-08(A$755mln)
• NZD/USD: $0.6750-60(N$532mln)

Price Signal Summary - EURUSD Key Resistance Is Its Bear Channel Top

• In the equity space, S&P E-minis continued to climb yesterday and the contract probed key resistance at the 50-day EMA, which intersects at 4576.56 today. A clear breach of this average is required to improve bullish conditions and signal the potential for a strong bullish recovery towards 4671.75 next, the Jan 18 high. For now, gains are still considered corrective. A resumption of weakness would refocus attention on 4121.75, the Jan 24 low. EUROSTOXX 50 futures also traded higher yesterday. Recent gains have resulted in a break of the 50-day EMA. Price has so far failed to remain above the average - at 4212.10 today - and is trading lower. The 50-day EMA marks a key resistance area and a clear break of it is required to suggest scope for a stronger recovery. This would open 4324.50, the Jan 13 high. Gains are, for now at least, still considered corrective. A strong reversal lower would refocus attention on 3990.50, the Jan 24 low.
• In FX, EURUSD has traded above the 20-day EMA. Two key resistance levels remain intact; 1.1338, the 50-day EMA and1.1356, the bear bear channel top, drawn from the Jun 1 2021 high. Currently, gains are considered corrective however a channel breakout would alter the picture. A resumption of weakness would refocus attention on the key support at 1.1121, Jan 28 low. GBPUSD is firmer too as the pair extends the recovery from last week’s 1.3358 low on Jan 27. Resistance at 1.3525, Jan 26 high, has been breached. This opens 1.3662 next, the Jan 20 high. A turn lower however would signal the end of the corrective bounce and open 1.3358, Jan 27 low and the short-term bear trigger. USDJPY remains below 115.68, the Jan 28 high. Key short-term support has been defined at 113.47, the Jan 24 low. While this level holds, the outlook appears bullish and a reversal higher would refocus attention on 116.35, the Jan 4 high.



• On the commodity front, Gold remains vulnerable following the recent break of a bull channel base drawn off the Aug 9 low. This signals potential for a move lower towards $1753.6, the Dec 15 low. Initial resistance to watch is $1822.2, the Jan 27 high. WTI futures remain in an uptrend. The contract has recently cleared $87.10, the Jan 20 high and attention is on the psychological $90.00 handle.
• In the FI space, Bund futures remain in a downtrend with a bearish sequence of lower lows and lower highs clearly highlighting a downtrend. The focus is on 168.00. Gilts earlier this week traded through support 121.93, Jan 19 low. This confirms a resumption of the downtrend and opens 121.61 next, the Nov 13 2018 low.

EQUITIES: Spiralling Meta Shares Weighing on NASDAQ Pre-Open

• A distinct drop in Meta (Facebook)'s share price pre-market really dragging on NASDAQ futures relative to the S&P, DJIA, indicating a drop of over 2% for the index in a few hours' time.
• Meta is poised to open lower by ~20% today, representing around $180bln in market cap and, according to Bloomberg, one of the biggest wipeouts of value in market history.
• Meta is struggling on a few fronts: dropping users to rival networks like TikTok, a shrinking user base for the first time in company history, a tightening of Apple's privacy standards hurting Meta's ability to target advertising and sizeable investments in unprofitable virtual reality/metaverse products.

COMMODITIES: Crude Softer as USD Bounces Off Lows

• WTI and Brent crude futures sit in negative territory, off around 1.5% apiece as risk sentiment sours and the greenback regains some of its recently lost territory.
• Negotiations between Iran and the West are in focus, with the Iranian foreign minister speaking this morning to reiterate his country's willingness to reach an agreement and revive the 2015 deal that could allow the return of Iranian crude to international oil markets.
• Despite today's weakness in crude prices, the uptrend remains intact - the contract last week cleared resistance at $87.10, Jan 20 high. This maintains the bullish price sequence of higher or higher highs and higher lows and moving average conditions remain in a bull mode. Attention is on the psychological $90.00 handle next as price continues to climb. Key short-term support has been defined at $81.90, the Jan 24 low.