MNI US MARKETS ANALYSIS - Markets More Sanguine as Focus Turns to Munich

US TSYS SUMMARY: Softer On The Day, Heavy Fedspeak Ahead

• Cash Tsys have bear flattened after two days of sizeable rallies, with most of the sell-off coming overnight after opening notably firmer.
• 2YY +1.8bps at 1.484%, 5YY +1.4bps at 1.854%, 10YY +0.7bps at 1.969% and 30YY +0.2bps at 2.296%. The modest flattening leaves 2s10s at 48bps, off last week’s flats of 38bps as front end yields pull back more aggressively from recent heady highs.
• TYH2 sits unchanged at 126-13+ on soft volumes. Still well within yesterday’s range, it continues to sit comfortably between resistance at 127-01 (Feb 7 high) and support at the bear trigger of 125-17+ (Feb 10).
• Fedpeak: Heavy schedule with Evans (2023 voter), Waller (permanent), Williams (permanent) and Brainard (permanent) all speaking.
• Data: Existing home sales for January are the pick, with focus on the extent of housing market tightness.
• No NY Fed buy-op or Tsy issuance.

EGB/GILT SUMMARY: Gilts Continue To Outperform

Core European government bonds have broadly traded firmer again today while equities and FX have been mixed.

• The fluid situation with respect to the Russia-Ukraine crisis continues to be a key driver for markets. US President Joe Biden has warned that the possibility of a Russian invasion of Ukraine in the coming days is high.
• Meanwhile, Russia has announced that it will start nuclear exercises to test ballistic missiles on Saturday.
• UK retail sales increased faster than expected in January relative to December, while falling short of expectations in Y/Y terms (Ex Auto Fuel: 1.7% M/M vs 1.1% consensus, 7.2% vs 7.9%).
• Gilt cash yields are 1-3bp lower on the day with the curve bull steepening
• Bunds initially opened weaker but have firmed through the morning and now trade marginally above yesterday's close.
• The OAT curve has twist steepened with the 2s30s spread 2bp wider.
• BTPs have lacked clear direction and trade a touch weaker on the day.
• Supply this morning came from the UK (UKTBs, GBP2bn).

EUROPE ISSUANCE UPDATE:

Eurozone:
ERZ2 99.75/50ps bought for 5.5 in 5k (ref 99.995, 12 Del)
ERZ2 100.50/100.625cs 1x2,sold at 0.25 in 7.5k

SX5E 16th Dec 4500/4800cs 1x2, bought for 28.5 in 12.5k

EURUSD 3rd June (105 days) 1.000p, bought for 0.00040 in 3,560

FOREX: Markets Stabilise, Prompting Minor Bounce in USD/JPY

• Markets are relatively sanguine so far Friday, with Thursday's risk-off weakness across equities and growth proxies pausing and allowing for a minor retracement. This puts JPY at the bottom-end of the G10 table, with USD/JPY improving back above the Y115.00 handle.
• Risk and growth proxies including AUD and NZD are modestly higher, helping AUD/USD extend the recovery off recent lows. This works in favour of AUDUSD at this stage and negates the bearish signals evident in the bearish candle pattern posted late last week. As such, markets re-target the early February highs of 0.7249 to sustain any rally, while a return back below 0.7086 would prove bearish.
• UK retail sales data came in ahead of expectations, with monthly sales rising 1.7% ex-auto fuel. Nonetheless, negative revisions for the December readings countered any feed through to sentiment, keeping GBP/USD just above the 1.35 handle. The outlook is bullish following recent gains from 1.3358, the Jan 27 low and scope is seen for a test of 1.3662 next, Jan 20 high.
• Data highlights Friday include Canadian retail sales for December and US existing home sales. The central bank speaker slate should prove more interesting, with Fed's Evans, Waller, Williams and Brainard on the docket as well as ECB's Panetta.

FX OPTIONS: Expiries for Feb18 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1275-80(E959mln), $1.1325-40(E1.6bln), $1.1345-55(E2.1bln), $1.1375-90(E3.6bln), $1.1450-60(E775mln)
• USD/JPY: Y113.95-05($1.7bln), Y114.20-40($1.5bln), Y114.45-60($2.2bln), Y115.00($635mln), Y115.45-50($1.1bln), Y117.00($1.9bln)
• EUR/GBP: Gbp0.8350(E1.3bln)
• EUR/JPY: Y132.00(E510mln)
• AUD/USD: $0.7045-55(A$705mln)
• AUD/NZD: N$1.0755(A$2.0bln)
• USD/CAD: C$1.2595-00($572mln), C$1.2615-35($1.5bln), C$1.2700($1.2bln), C$1.2740-60($1.2bln), C$1.2795-00($1.1bln)
• USD/CNY: Cny6.3500-20($1.1bln)

Price Signal Summary - Gold Breaks to New Cycle Highs

• In the equity space, the e-mini S&P partially reversed the Tuesday recovery into the Thursday close, reinforcing the fragile nature of equity sentiment. 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. 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 traded in a volatile manner across the Thursday session but provided few fresh technical signals. The outlook remains modestly positive, having narrowed the gap with next resistance at the Feb11 high of 1.1401. GBPUSD traded slightly higher again Thursday, having recovered from brief slippage on Tuesday. The rate continues to trade inside its recent range and importantly above support at 1.3491, Feb 7 low. AUDUSD continues to hold recovery gains, putting the pair at odds with the likes of USDJPY, which have slipped lower. Markets re-target the early February highs of 0.7249 to sustain any rally, while a return back below 0.7086 would prove bearish.
• On the commodity front, the Gold rally resumed Thursday, pushing prices to fresh cycle highs as the uptrend accelerated through 1879.6. This puts gold at the best levels since June last year, and keeps the trend direction pointed higher. WTI faded into the Wednesday close, but dips remain corrective in nature for now, with the broader outlook remaining positive. Corrections remain shallow and this both highlights and reinforces underlying bullish sentiment.
• In the FI space, Bund futures recovered off the day’s lows ahead of the Wednesday close and built further through the Thursday session. This rally is deemed corrective, however, with the broader outlook bearish for now. The medium-term trend condition in Gilt futures is unchanged, but markets are currently undergoing a corrective rally, putting prices back toward recent highs of 120.96.

EQUITIES: Non-Cyclicals Lead Early

• Asian stocks closed mixed: Japan's NIKKEI closed down 110.8 pts or -0.41% at 27122.07 and the TOPIX ended 6.93 pts lower or -0.36% at 1924.31. China's SHANGHAI closed up 22.722 pts or +0.66% at 3490.757 and the HANG SENG ended 465.06 pts lower or -1.88% at 24327.71.
• European stocks are likewise mixed (Germany underperforming, France leading), with the German Dax down 34.4 pts or -0.23% at 15238.69, FTSE 100 up 19.95 pts or +0.26% at 7558.53, CAC 40 up 33.75 pts or +0.49% at 6981.34 and Euro Stoxx 50 down 2.09 pts or -0.05% at 4113.59.
• U.S. futures are a little higher, with the Dow Jones mini up 111 pts or +0.32% at 34342, S&P 500 mini up 19.5 pts or +0.45% at 4393.75, NASDAQ mini up 86.5 pts or +0.61% at 14249.5.

COMMODITIES: WTI Dips Below $90 As Geopolitical Concerns Ease

• WTI Crude down $1.81 or -1.97% at $90.01
• Natural Gas down $0.06 or -1.23% at $4.43
• Gold spot down $5.36 or -0.28% at $1893.18
• Copper up $2.15 or +0.47% at $454.95
• Silver up $0.02 or +0.07% at $23.8635
• Platinum down $1.13 or -0.1% at $1092.5