MNI US MARKETS ANALYSIS - Sentiment Bounce Extends

US TSYS SUMMARY: Small Rally Ahead Of Heavy Docket, FOMC Minutes

• Cash Tsys have seen a small rally across the curve, at least compared to recent moves, despite further comments hinting at a de-escalation of tensions on the Russia-Ukraine border.
• 2YY -1.5bps at 1.562%, 5YY -1.3bps at 1.927%, 10YY -0.9bps at 2.035% and 30YY -1.1bps at 2.346%. This maintains yesterday’s steepening, with 2s10s at 47bps after Monday’s low of 38bps had touched the flattest since Apr 2020.
• TYH2 is up 2+ ticks on the day at 125-26 on low volumes. It is broadly in the middle of yesterday’s range post-initial Russia comments of some units returning to base. It continues to sit above first support of 125-17+ (Feb 10 low) after which it would open 125-06+ (low May 30, 2019, cont).
• Fed: Kashkari (2023 voter) speaks at 1100ET followed by FOMC minutes at 1400ET, although they are pre-dated by surprisingly strong payrolls and inflation data.
• Data: A heavy docket with retail sales, international prices, IP, capacity utilisation, business inventories and NAHB housing index.
• Issuance: US Tsy $9B 20Y auction (1300ET).

EGB/Gilt: Broad Gains

European government bonds have traded firmer this morning while equities are close to flat on the day.

• Despite potential signs of a marginal de-escalation in the Ukraine crisis yesterday, indications that Russian troop levels could be rising on the border reflect the still heightened degree of uncertainty over the direction of the conflict.
• UK inflation came in above expectations for January (5.5% Y/Y vs 5.4% survey).
• The gilt curve has twist steepened. Yields at the shorter end are 4-5bp lower on the day, while pushing up 2bp at the longer end. The 2s30s spread is 7bp wider.
• Bunds started the session on a weak footing before making gains through the morning and now trading marginally above yesterday's close.
• OATs have performed in a similar fashion with the curve 1bp steeper.
• BTPs recovered earlier losses to now trade close to flat on the day.
• Supply this morning came from Germany (Bund, EUR3.273bn allotted), Portugal (BTs, EUR1.25bn) and the Eurozone (EU Bills, EUR1.991bn). In addition, syndicated auctions were held for the ESM (0% Dec-26, books last seen above EUR37bn) and Slovenia (2.25% Mar-32 SLOREP tap, books above EUR900mn & 0.4875% Oct-50 SLOREP, books above EUR1.1bn).
• Italy bought back a combined EUR2.231bn of BTP/CTZ/CCTeu.

EUROPE ISSUANCE UPDATE:

Germany allots E3.273bln 0% Feb-32 Bund, Avg yield 0.31% (Prev. -0.08%), Bid-to-cover 1.63x (Prev. 1.15x), Buba cover 1.99x (Prev. 1.38x)

SLOVENIA SYNDICATION: Dual-tranche: Spread set
2.25% Mar-32 SLOREP tap:

• Tap Size: EUR Benchmark
• Maturity Date: 03 March 2032
• Current Outstanding: E2.35bln
• Spread set: MS+13bps (guidance was +15bps area)
• Books over E900mln inc E385mln JLM

• Tap Size: EUR Benchmark
• Maturity Date: 20 October 2050
• Current Outstanding: E1.25bln
• Spread set: MS+68bps (guidance was +70bps area)
• Books over E1.1bln inc E365mln JLM

EUROPE OPTION FLOW SUMMARY

More upsides in SONIA, continuing the theme of the week.

Eurozone:
UBM2 179p, bought for 183 in 2k

DUJ2 111.20/111.50cs vs 111p, bought the put for 4 in 5k

UK:
SFIK2 98.70/98.80/98.90/99.00c condor, bought for 2 in 10k
SFIK2 98.60/98.80/99.00c fly, bought for 1.75 in 5k

FOREX: Bounce Extends as Signs Point to More Likely Diplomatic Ukraine Solution

• Markets are extending the move initiated on Tuesday, by pressuring haven currencies and boosting growth proxies as a diplomatic solution to the Ukraine crisis looks to be becoming more likely. While Western authorities continue to insist there are few signs of a Russian military withdrawal from Ukrainian borders, Russian news agencies continue to report the pullback of military columns from Crimea and territories bordering eastern Ukraine.
• AUD/JPY is the strongest cross headed into the NY crossover, although early gains have faded as markets failed to hold above the 93.00 handle. The 100-dma undercuts as support at 82.69.
• UK inflation data came in modestly ahead of expectations, with the ONS flagging the influence of clothing and footwear prices - which often fall in January - fell by the smallest margin since the series began in 2005. The data was sufficiently close to analyst expectations to leave market pricing relatively unchanged, with UK markets continue to see a persistent tightening cycle across 2022.
• US retail sales for January cross later today, with markets expecting sales to have risen 2.0% across the month. Canadian CPI is also due, as well as CB speakers including BoC's Lane, Fed's Kashkari and the FOMC minutes.

FX OPTIONS: Expiries for Feb16 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1250(E860mln), $1.1280-00(E1.0bln), $ $1.1400-05(E1.1bln), $1.1425-30(E1.0bln)
• USD/JPY: Y114.40-50($1.6bln), Y115.00($619mln), Y115.25-40($1.0bln), Y116.00-05($1.1bln)
• EUR/JPY: Y128.50(E1.4bln)
• USD/CAD: C$1.2600($837mln), C$1.2785-90($630mln)

Price Signal Summary - Equities Remain Vulnerable Despite Bounce

• In the equity space, S&P E-minis remains vulnerable despite Tuesday’s gains. The contract recently failed to hold above the 50-day EMA - at 4549.15. This average represents a firm resistance and a clear break would suggest scope for a stronger rally towards 4671.75 initially, Jan 18 high. EUROSTOXX 50 futures remain vulnerable. Last week, the contract failed to hold above the 50-day EMA - at 4188.70. This average still represents a key resistance point where a clear break would suggest scope for a stronger recovery and open 4324.50, Jan 13 high.
• In FX, EURUSD is recovering for a second session, narrowing the gap with next resistance at the Feb11 high of 1.1401. EURJPY has extended the bounce off recent lows, chewing further through the downtick posted on Friday. The bull trigger remains at 133.15, Feb 10 high, meaning rallies will target this level before shifting sights to 133.48 and above.
• The Gold rally paused Tuesday, with prices drifting. Nonetheless, the recent clearance of resistance at $1853.9, the Jan 25 high reinforces the underlying bullish condition. The recent rally in WTI futures petered out on Tuesday. Nonetheless, the recent break higher resumed the bullish price sequence of higher highs and higher lows. Note too that corrections remain shallow and this both highlights and reinforces underlying bullish sentiment.
• Bund futures are trading near its recent lows and remain in a clear downtrend. Moving average conditions are in a bear mode set-up too, highlighting current sentiment. The focus is on the 164.00 handle next. The trend condition in Gilt futures is unchanged and remains bearish. With the 120.00 psychological handle cleared, the focus is on 119.28 next, a Fibonacci projection.

EQUITIES: Materials, Energy Lead Early Gains

• Asian markets closed higher: Japan's NIKKEI closed up 595.21 pts or +2.22% at 27460.4 and the TOPIX ended 31.93 pts higher or +1.67% at 1946.63. China's SHANGHAI closed up 19.743 pts or +0.57% at 3465.831 and the HANG SENG ended 363.19 pts higher or +1.49% at 24718.9.
• European equities are a little higher, with the German Dax up 35.44 pts or +0.23% at 15450.28, FTSE 100 up 4.48 pts or +0.06% at 7612.65, CAC 40 up 24.87 pts or +0.36% at 7004.76 and Euro Stoxx 50 up 15.58 pts or +0.38% at 4160.04.
• U.S. futures are flat, with the Dow Jones mini up 21 pts or +0.06% at 34925, S&P 500 mini up 1.25 pts or +0.03% at 4465.75, NASDAQ mini up 2 pts or +0.01% at 14611.5.

COMMODITIES: Energy Leads Broad Gains

• WTI Crude up $0.83 or +0.9% at $92.85
• Natural Gas up $0.19 or +4.51% at $4.504
• Gold spot up $4.4 or +0.24% at $1857.43
• Copper up $3.35 or +0.74% at $457
• Silver up $0.17 or +0.71% at $23.5244
• Platinum up $9.06 or +0.88% at $1035.57