MNI US MARKETS ANALYSIS - Ukraine Confusion Leaves Sentiment Shaky

US TSYS SUMMARY: Renewed Russia-Ukraine Risks See Haven Rally On The Day

• Cash Tsys have bull steepened on the day although this masks sizeable intraday swings, with an abrupt haven rally yesterday and overnight on higher Russia-Ukraine tensions, including shelling in the Donbas, before more mixed headlines have seen a partial retracing.
• 2YY -3.0bps at 1.491%, 5YY -4.2bps at 1.877%, 10YY -3.5bps at 2.003% and 30YY -2.3bps at 2.323%.
• TYH2 sits up 10 ticks on the day at 126-04 on strong volumes, although continues to not trouble technicals with resistance at 127-01 (Feb 7 high) and support at the bear trigger of 125-17+ (Feb 10).
• Fedspeak: 2022 voters today with Bullard at 1100ET and Mester at 1700ET.
• Data: Jobless claims, building permits/housing starts, Philly Fed and existing homes.
• NY Fed buy-op: Tsy 10Y-22.5Y, appr $1.625B steady (1030ET)
• Issuance: US Tsy $50B 4W, $40B 8W bill auctions (1130ET), US Tsy $9B 30Y TIPS auction (1300ET)

EGB/GILT SUMMARY: Gilts Outperforming Core EGBs

European bonds have rallied this morning with gilts leading the charge among core FI. Equities have been mixed across the region as has been FX performance against the US dollar. The fluid situation with respect to the Ukraine crisis remains the key driver of markets.

• A senior official at the White House stated that claims of Russia withdrawing troops are false and that 7,000 additional soldiers have arrived at the Ukrainian border, although Moscow rejects this claim.
• Gilts appear to be benefiting from safe haven demand amid the geopolitical headwinds with cash yields 2-9bp lower on the day and the curve bull steepening.
• The ECB's Pablo Hernandez de Cos argued that while it is clear that the ECB needs to move in a tighter direction, while also warning against overreacting.
• Bunds opened higher and have held onto the early gains with yields 1-2bp lower.
• OATs have marginally outperformed bunds with yields down 2-3bp.
• BTPs have rallied strongly, with the short-end of the curve outperforming. The 2s30s spread has widened 2bp.
• Supply this morning came from France (OATs, EUR10.996bn & Linkers, EUR1.498bn), Spain (Bono/Obli, EUR4.53bn) and Ireland (IRTBs, EUR750mn).

EUROPE ISSUANCE UPDATE:

France sells MT OATs:

• E4.005bln 0% Feb-25 OAT, Avg yield -0.080% (Prev. -0.35%), Bid-to-cover 2.52x (Prev. 3.25x)
• E4.498bln 0% Feb-27 OAT, Avg yield 0.230% (Prev. -0.15%), Bid-to-cover 2.00x (Prev. 2.32x)
• E2.493bln 0.75% May-28 OAT, Avg yield 0.33% (Prev. -0.21%), Bid-to-cover 2.01x (Prev. 2.47x)

• E729mln 0.10% Jul-31 OATei, Avg yield -1.20% (Prev. -1.50%), Bid-to-cover 2.47x (Prev. 2.81x)
• E499mln 0.10% Mar-32 OATi, Avg yield -1.01% (Prev. -1.33%), Bid-to-cover 2.59x (Prev. 2.87x)
• E270mln 0.10% Mar-36 OATi, Avg yield -0.87% (Prev. -1.10%), Bid-to-cover 3.98x (Prev. 2.30x)

FOREX: Havens Rally Amid Mixed Messages in Eastern Ukraine

• Haven currencies are on the front foot Thursday, with JPY and CHF outperforming all others. Markets have adopted a risk-off poise amid mixed messages emerging from eastern Ukraine - with early reports of shelling in separatist regions unsettling traders. Reports of the activity circulated in late Asia-Pac hours, prompting a sharp tick lower in EUR/JPY, which slipped around 100 pips and remains weak at the NY crossover.
• The reports are less than clear-cut, however, with shelling and the exchange of fire along the line of control in the Donbas a frequent occurrence and not necessarily an indication of Russian incursion. However, the tense situation in the region has understandably made each headline a potential signal of imminent conflict. As a result, front-end vols are inching higher, while 1m contracts also add a Fed-premium as they begin to capture the March FOMC rate decision.
• Antipodean currencies have swiftly recouped some of the earlier risk-off selling pressure, with a solid set of jobs numbers from Australia adding a tailwind. Employment change figures came in well ahead of expectations, with a rising participation rate, helping AUD/USD hold close to the top end of the recent range. The 0.7245 100-dma marks the next key resistance line.
• US weekly jobless claims numbers are the data highlight Thursday, but markets may also pay some heed to building permits and housing starts numbers for January. The speaker slate could be of more interest, with MNI hosting a webinar with ECB's Lane (Sign up link here: https://www.eventbrite.co.uk/e/philip-r-lane-executive-board-member-and-chief-economist-at-the-ecb-tickets-241129283177 ) as well as scheduled appearances from Fed's Bullard and Mester - both of which speak on the policy outlook.

FX OPTIONS: Expiries for Feb17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1390-00(E522mln), $1.1435-50(E1.7bln), $1.1500-20(E1.1bln)
• USD/JPY: Y115.00($1.3bln), Y115.75($860mln), Y116.00($1.5bln)
• GBP/USD: $1.3400(Gbp1.0bln), $1.3500(Gbp1.0bln)
• EUR/GBP: Gbp0.8390(E583mln)

Price Signal Summary - Intraday Volatility Reinforces Fragility of Equities

• In the equity space, S&P E-minis remains vulnerable, with corrective intraday rallies proving particularly shallow. This keeps the outlook pointed lower for now, with downside impetus strengthened by the failure of the contract to hold above the 50-day EMA - at 4549.15. EUROSTOXX 50 futures remain vulnerable despite the Wednesday bounce. 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 steadied Wednesday but has traded in a volatile manner overnight. The outlook remains modestly positive, however, having narrowed the gap with next resistance at the Feb11 high of 1.1401. GBPUSD traded slightly higher Wednesday, having recovered from a brief slip lower on Tuesday. The rate continues to trade inside its recent range and importantly above support at 1.3491, Feb 7 low.
• On the commodity front, the Gold rally paused Tuesday before prices regained some poise into the Wednesday close. The recent clearance of resistance at $1853.9, the Jan 25 high reinforces the underlying bullish condition and Tuesday’s show above $1877.2, the Nov 16 high adds to the bullish case. Strength across WTI futures resumed Wednesday, with the dip seen earlier in the week largely reversed - confirming that weakness is currently corrective in nature.
• In the FI space, Bund futures appear vulnerable and the downtrend remains firmly intact. The focus is on the 164.00 handle. The Gilts trend needle still points south and the contract has delivered another fresh cycle low today of 119.39. Price is approaching the 119.36 level, Oct 10, 2018 low (cont). A break would open 119.06, the 2.500 projection of the Jan 13 - 19 - 24 price swing.

EQUITIES: Markets Mixed as Relief Rally Pauses

• The relief rally off the week's lows hit pause early Thursday, with sentiment knocked by mixed reports in eastern Ukraine of shell fire being exchanged in the disputed Donbas region. While both the Ukrainian and Russian military have vehemently denied responsibility (likely leaving domestic Ukrainian separatists at fault), markets remain shaky, with Spanish, Italian and UK indices in the red at the NY crossover.
• Similarly, US futures are lower, indicating a negative open at the bell later today. Losses are broad-based, but modest underperformance is noted in the tech and growth-led NASDAQ, which sits 0.7% below water.
• Europe's energy sector is reversing recent outperformance, and is the weakest so far Thursday, while consumer discretionary and utilities are at the top of the Stoxx600.
• Intraday volatility for stocks underpins the fragility of headline markets at this stage, with corrective intraday rallies proving particularly shallow. This keeps the outlook pointed lower for now, with downside impetus strengthened by the failure of the e-mini S&P to hold above the 50-day EMA - at 4549.15. EUROSTOXX 50 futures remain vulnerable despite the Wednesday bounce. 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.

COMMODITIES: Oil Remains Under Pressure With Iran Deal Optimism

• WTI Crude down $2.15 or -2.3% at $92.08
• Natural Gas down $0.09 or -1.84% at $4.636
• Gold spot up $16.39 or +0.88% at $1888.25
• Copper down $1.6 or -0.35% at $451.95
• Silver up $0.1 or +0.44% at $23.7467
• Platinum up $16.62 or +1.56% at $1084.35