MNI US MARKETS ANALYSIS - Risk-Off Footing as Ukraine Crisis Escalates

US TSYS SUMMARY: Twist Flattening To Back Near Recent Flats

• Cash Tsys have twist flattened as the front end continues to be pinned by rate hike expectations and the longer end rallies on broader risk-off sentiment from Russia-Ukraine.
• The 2s10s spread is back near Friday’s lows at 41bps, the flattest since Aug 2020.
• 2YY +1.3bps at 1.513%, 5YY -1.7bps at 1.838%, 10YY -1.6bps at 1.922% and 30YY -1.2bps at 2.226%.
• TYH2 is at the high end of today’s range at 126-20, close to pre-CPI levels and again on above average volumes. Resistance is seen at 127-01 (Feb 7 high) and support at 125-17+ (Feb 10 low).
• Bullard will be in focus as he speaks again at 0830ET after saying he was open to an intermeeting hike following Thursday’s CPI release. No data of note today.
• US Tsy $60B 13W, $51B 26W bill auctions (1130ET).

EGB/Gilt: Geopolitical Risks Trigger Risk-Off Move

European government bonds have rallied alongside broad equity selling with the escalation in the Ukraine crisis underpinning the risk-off move.

• European leaders continue diplomatic efforts to defuse the crisis. German Chancellor Olaf Scholz is in Kyiv today to discuss the crisis, while UK PM Boris Johnson has indicated that he will be holding further talks with world leaders to find a way of bringing Russia "back from the brink of war".
• The gilt curve has bull flattened with the 2s30s spread narrowing 7bp.
• Bunds have remained bid through the morning with cash yields 7-10bp lower on the day.
• It is a similar story for OATs with yields down 7-9bp.
• BTPs have slightly underperformed core EGBs with yields 5-6bp lower.
• Supply this morning came from Germany (Bubill, EUR2.886bn allotted). Later today France will offer EUR4.7-5.9bn of BTFs.
• There was no tier one European data this morning.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXH2 164.50p, sold at 20 in 6k
RXH2 166/169.50cs 1x2, bought for 38 in 1.5k
RXJ2 150p, bought for 5 in 15k
RXJ2 166c, bought for 52.5 in 3.6k
RXJ2 159/157ps, sold at 17.5 in 2.5k
RXJ2 158/156ps, sold at 12 and 11 in 5.5k

DUH2 111.80c, sold at 3.25 in 5k
DUH2 112.10/112/111.90, bought for half in 1.5k
DUJ2 113.30/111.10ps, bought for 9 in 12k

ERN2 100.12/100.25/100.37c ladder, bought for 3.5 in 10k

SX7E 120/125cs, bought for 0.60 and 0.30 in 28.5k

FOREX: Havens Favoured as Markets Watch Russia/Ukraine Clock Ticking

• Haven currencies are outperforming early Monday, with markets starting the week on an acutely risk-off footing. The blunt and direct warnings from US leaders late last week that we're approaching a crunchpoint in Russia/Ukraine talks (US intelligence suggested a full invasion could occur as soon as Wednesday) continues to roil markets, putting JPY and CHF at the top of the G10 pile.
• Resultingly, growth proxies are on the backfoot, with AUD, NZD, SEK and NOK slipping lower and reversing recent recoveries. German Chancellor Scholz is the next world leader headed to meet Putin, in the latest part of the Western attempt to de-escalate tensions - despite insistence among both Kiev and Moscow representatives that the situation on the ground is somewhat more placid.
• The data docket is typically quiet for a Monday, with no major releases due. This should keep focus on the speaker slate, with Fed's Bullard appearing on CNBC at 1330GMT/0830ET. His comments will be watched particularly closely given his outright hawkishness last week, in which he brought up the prospect of both a 50bps rate hike, as well as the possibility of an inter-meeting hike. ECB's Lagarde follows later in the day, speaking at 1615GMT/1115ET.

FX OPTIONS: Expiries for Feb14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1600(E608mln), $1.1480(E1.1bln)
• USD/JPY: Y116.00($533mln)
• AUD/USD: $0.6900(A$1.0bln), $0.7100-10(A$1.6bln)

Price Signal Summary - Equities remain Vulnerable

• In the equity space, S&P E-minis traded sharply lower Friday and have remained under pressure this morning. The contract last week failed to hold above the 50-day EMA - at 4555.49 today. The Jan 10 candle pattern was a bearish engulfing reversal, signalling a potential top and the extension lower reinforces the pattern. A deeper pullback would expose 4212.75. EUROSTOXX 50 futures are sharply lower today, extending the reversal from last Thursday’s high. The failure to remain above the 50-day EMA reinforces a broader bearish threat and exposes support at 3990.50, Jan 24 low. A break of this level would open 3980.00, the Nov 30 2021 low.
• In FX, EURUSD is trading lower this morning having reversed from last Thursday’s 1.1495 high. The pair has breached an important support at 1.1320 marking the top of a former bear channel drawn from the Jun 1, 2021 high. A continuation lower would expose 1.1267, the Feb 2 low. A break above 1.1495 is required to highlight a resumption of the recent upleg. GBPUSD maintains its short-term bullish theme although the pair is consolidating in a range. A resumption of gains would open 1.3662 next, Jan 20 high. Support to watch lies at 1.3491, Feb 7 low. USDJPY last week traded to a high just short of key resistance at 116.35, the Jan 4 high and bull trigger. A clear break of this hurdle would confirm a resumption of the uptrend. Support to watch, with price trading lower, is at 114.62, the 50-day EMA.
• On the commodity front, Gold rallied sharply higher Friday resulting in a clear breach of resistance at $1853.9, the Jan 25 high. The break reinforces current bullish conditions and suggests scope for a stronger climb within the bull channel drawn off the Aug 9 low. The focus is on $1877.2, Nov 16, 2021 low. WTI futures rallied Friday and have resumed their uptrend. The break higher also resumes the bullish price sequence of higher highs and higher lows. The focus is on $95.70 next, 2.764 projection of the Dec 2 - 9 - 20 price swing.
• In the FI space, Bund futures remain vulnerable and the downtrend remains firmly intact. The focus is on the 164.00 handle. The Gilts trend needle still points south and attention is on 119.36, Oct 10, 2018 low (cont).

EQUITIES: Stocks Slide as Markets Watch For Next Steps in Ukraine

• The negative close on Wall Street Friday has fed directly into the Monday open in Europe, with continental indices uniformly in negative territory. France's CAC-40 sits worst off, dropping around 3.75%, while the FTSE-100 fares slightly better, but still sits lower by near 2%.
• Europe's tech, financials and consumer discretionary names are hit the hardest, mimicking the breakdown seen at the Wall Street close on Friday.
• Markets are lower this morning as tensions between the West and Russia ratchet higher still. US intelligence on Friday suggested Russia could be mounting an invasion as soon as Wednesday, making the German Chancellor's meeting with Putin due tomorrow all the more important. Airlines and travel, firms including Wizz Air and TUI AG are among the day's worst performers, both of which are lower by as much as 9%.
• For the e-mini S&P, losses through the 200-dma on Friday have accelerated weakness this morning, putting the index at the lowest levels since January. Key support undercuts at 4363.25/4266.25 ahead of the YTD lows of 4212.75.

COMMODITIES: Gas Prices Defy Broader Risk-Off Move

• WTI Crude down $0.27 or -0.29% at $93.3
  
• Natural Gas up $0.22 or +5.51% at $4.157
• Gold spot down $1.1 or -0.06% at $1856.31
• Copper down $4 or -0.89% at $447.25
• Silver up $0.16 or +0.7% at $23.7501
• Platinum down $6.46 or -0.63% at $1029.2