MNI US MARKETS ANALYSIS - Markets on Watch for Soft Payrolls

US TSYS SUMMARY: Twist Flatten Ahead Of Payrolls

• Cash Tsys have twist flattened ahead of payrolls after yesterday’s large sell-off across the curve on the BoE and ECB, pushing 2YY briefly to new pandemic era highs.
• 2Y yields +2.1bps at 1.217%, 5Y -0.3bps at 1.667%, 10Y -1.2bps at 1.818% and 30Y -2.4bps at 2.129%.
• TYH2 is at the high end of today’s range at 127-21 on above average volumes, but remains at the low end of the weekly range after falling 17+ ticks between the BoE announcement and the end of the ECB press conference.
• Data: The sole focus today is payrolls at 0830ET. Bloomberg consensus has an increase of +125k in Jan but risks are seen to the downside, with the dealer median of +75k and a Bloomberg whisper now at 0k. Unemployment and participation rates remain key to watch, expected to be flat.
• No Fedspeak currently scheduled for today.
• No Tsy auctions or NY Fed buy operations today.

MNI US Payrolls Preview: A Messy Report Likely

• Payrolls are expected to have increased +125k in Jan but risks are skewed lower, with a dealer median of +70k and a whisper of just +5k.
• There are various distortions likely at play, with Omicron-related absenteeism clashing with a seasonal adjustment boost from fewer layoffs plus the annual benchmark revision/population adjustment potentially further muddying things.
• Please find the MNI preview including a selection of sell-side analyst views here: https://roar-assets-auto.rbl.ms/documents/13737/US...

EGB/GILT SUMMARY: Repricing Policy Rates

European government bonds have sold off this morning with EGBs leading the way following yesterday''s hawkish ECB shift.

• Although there were no new policy innovations at the February meeting, President Lagarde indicated that hte GC were unanimous in their concern over inflation surprises, that inflation had shifted to the upside and that the ECB would make on assessment on inflation in March.
• The ECBs Peter Kazimir stated earlier today that inflation will stay elevated for longer than expected, while Gediminas Simkus suggested that an inflationary peak is close.
• The bund curve has bear flattened with the 2s30s spread widening 8bp.
• The OAT curve has twist flattened with the 2s30s spread widening 9bp.
• BTPs have sold off across the curve, led by the short end where yields are now 11-13bp higher on the day.
• Pressure continues to mount on UK PM Boris Johnson with reports of another adviser quitting.
• The gilt curve has flattened on the back of the short end selling off and the long end firming. 2s10s has traded down 4bp and 2s30s 6bp.

EUROPE OPTION FLOW SUMMARY:

• RXH2 169.5/167.5ps sold 20.5k at 157 vs buying 20k RXH2 166/164.5/163.5/162 put condors at 27
• RXH2 162/160ps, bought for 43 in 3k
• RXH2 168/166.5ps, sold at 88 in 4k
• OEH2 131.50/131.00ps, sold at 34 in 9k
• OEK2 130/129ps, bought for 23.5 in 16.5k

FOREX: EUR Extending Post-ECB Rally, Nearing Congestion Resistance

• EUR strength has persisted into a second session, with EUR/USD making further progress after topping the 100-dma of 1.1429 after yesterday's hawkish ECB press conference. This puts the pair just shy of congestion resistance layered between 1.1483 up to 1.1500, which could slow progress from here. EUR/GBP is similarly higher, extending the recovery off the multi-year low printed yesterday at 0.8285. This puts markets on track to test 0.8480 - the 61.8% retracement of the December - February downleg.
• Commodity-tied currencies are trading more poorly, with AUD and CAD among the session's worst performers. This retains the 50-dma in AUD/USD at 0.7164 as key resistance, which has contained rallies so far. The keeps the trend condition bearish and the recent bounce is considered corrective. The recent breach of key support at 0.6993/91, the Dec 3 2021 and Nov 2 2020 lows reinforced a bearish theme and confirmed a resumption of the downtrend and has opened 0.6963/21, the Jul 16 and Jul 14 2020 lows.
• Nonfarm payrolls takes focus going forward, with markets expecting job gains to slow to +125k in January vs. December's +199k. Nonetheless, there remains a wide range of estimates with a considerable tail skewed toward a negative reading, with a number of analysts looking for a reading as low as -250k.
• Canadian jobs data is also due, with the unemployment rate seen rising to 6.3% from 6.0% previously. A number of central bank speakers are also due, with BoE's Pill and Broadbent due as well as ECB's Villeroy.

FX OPTIONS: Expiries for Feb04 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1200(E2.2bln), $1.1225-35(E514mln), $1.1300(E724mln), $1.1350(E656mln), $1.1400(E1.1bln)
• USD/JPY: Y113.80-00($1.3bln)
• GBP/USD: $1.3750(Gbp961mln)
• AUD/USD: $0.7100(A$701mln), $0.7195-00(A$549mln), $0.7300(A$1.1bln)
• USD/CAD: C$1.2500($1.6bln), C$1.2600-10($891mln), C$1.2695-10($1.5bln), C$1.2740($635mln), C$1.2940($2.5bln)

Price Signal Summary - EURO Bulls Return

• In the equity space, S&P E-minis are trading below recent highs. Attention remains on the 50-day EMA that intersects at 4572.34 today. For bulls, a clear break of the EMA is required to suggest scope for a stronger rally that would open 4671.75, the Jan 18 high. On the downside, a stronger bearish reversal would refocus attention on the 4212.75 low from Jan 24 . EUROSTOXX 50 futures are lower today. The failure at 4250.00, Feb 2 low means the 50-day EMA - at 4210.50 - has provided resistance. The reversal lower also suggests that the recent leg higher between Jan 24 - Feb 2 has been a correction and that the correction is over. If correct, this opens 3990.50, the Jan 24 low and the bear trigger.
• In FX, EURUSD traded sharply higher Thursday and remains firm. The pair has cleared the 20- and 50-day EMAs and price is through the top of its bear channel that yesterday intersected at 1.1356. The clear break of this channel resistance highlights a more significant reversal. The focus is on 1.1483 next, Jan 14 high. The Euro is also firm across a number of crosses. GBPUSD is holding onto the bulk of its recent gains. Price has recently cleared resistance at 1.3525, Jan 26 high and this suggests scope for a climb towards 1.3662 next, Jan 20 high. On the downside, initial support lies at 1.3501, the 50-day EMA. Recent USDJPY remains above key short-term support at 113.47, Jan 24 low. The short-term outlook remains bullish and the focus is on 116.35, the Jan 4 high and key resistance. Initial firm resistance is at 115.68, Jan 28 high.
• On the commodity front, Gold is firmer this morning and continues to trade above the recent low of $1780.4, the Jan 28 low. Attention remains on the recent break of the bull channel base drawn off the Aug 9 low. A resumption of weakness would open $1753.6, the Dec 15 low. Resistance to watch is at $1822.2, the Jan 27 high. WTI futures resumed their uptrend again yesterday and the contract continues to defy gravity. The focus is on $92.85 - 2.50 projection of the Dec 2 - 9 - 20 price swing.
• In the FI space, Bund futures traded sharply lower yesterday and remain weak. Futures have cleared the 168.00 handle, reinforcing underlying bearish conditions and maintaining the clear bearish price sequence of lower lows and lower highs. The focus is on 165.86, the 61.8% retracement of the May ‘18 - Sep ‘19 bull cycle. Gilts traded sharply lower yesterday. The break lower reinforces bearish conditions The focus is on 120.51, Oct 16 2018 low (cont).

EQUITIES: Tech Outperformance Fades as Markets Position for Payrolls

• Japanese equities closed higher (China still closed for holidays): Japan's NIKKEI closed up 198.68 pts or +0.73% at 27439.99 and the TOPIX ended 10.64 pts higher or +0.55% at 1930.56.
• European stocks are mostly weaker, with the German Dax down 153.88 pts or -1% at 15209.12, FTSE 100 up 29.52 pts or +0.39% at 7558.27, CAC 40 down 25.54 pts or -0.36% at 6983.8 and Euro Stoxx 50 down 31.25 pts or -0.75% at 4109.59.
• U.S. futures initially traded higher, boosted by Amazon's earnings after-market Thursday, but have returned back into negative territory ahead of the Friday bell. Traders eye today's NFP for direction, with markets expecting a particularly weak reading.

COMMODITIES: Precious Metals Continue To Bounce

• WTI Crude up $1.42 or +1.57% at $91.66
• Natural Gas up $0.13 or +2.56% at $5.017
• Gold spot up $8.48 or +0.47% at $1813.31
• Copper up $1.6 or +0.36% at $448.65
• Silver up $0.19 or +0.83% at $22.6186
• Platinum down $7.3 or -0.7% at $1029.08