MNI US MARKETS ANALYSIS - Markets on Steadier Footing

US TSYS SUMMARY: Treasury Sell-Off Continues As Larger Hikes Priced

• Cash Tsys have firmed from session lows but remain softer on the day in a continuation of yesterday’s sell-off, with 2Y yields just 3bps off pandemic-era highs from after US CPI last week.
• 2YY +3.0bps at 1.606%, 5YY +3.4bps at 1.896%, 10YY +3.1bps at 1.970% and 30YY +2.6bps at 2.263%.
• TYH2 sits 6 ticks lower on the day at 126-09 after pulled back off new lows for the week, on below average volumes after yesterday’s heavy trading. It remains above the bear trigger of 125-17+ (Feb 10 low) whilst resistance is seen at 127-09 (Feb 22 high).
• SF Fed’s Daly speaks at 1530ET whilst there is limited data today before tomorrow’s GDP release.
• Bill issuance: US Tsy $35B 119D bill auction (1130ET)
• Note issuance: US Tsy $22B 2Y FRN re-open auction (1130ET), US Tsy $53B 5Y note auction (1300ET)

EGB/GILT SUMMARY: Curves Flatten

EGBs curves have bear flattened this morning alongside broad gains for equities and FX against the US dollar.

• The BoE's Andrew Bailey stated that 'moderate' rate rises are likely in the coming months and warned markets not to get carried away.
• Gilts initially opened weaker before recovering through the morning. Cash yields are now 1-2bp lower on the day.
• Following on the heels of the escalation in the Ukraine crisis, the ECB's Villeroy stressed the flexibility and optionality of monetary policy.
• The bund curve has bear flattened with the 2s30s spread narrowing 4bp.
• The OAT curve has similarly flattened with the 2s30s spread trading down 4bp.
• The BTP curve has also flattened 4bp.
• Supply this morning came from Germany (Bund, EUR1.283bn allotted), Italy (BTP Short Term, EUR3bn) and Greece (GTB, EUR625mn).
• The final Eurozone CPI print for January matched the initial estimate (5.1% Y/Y, 0.3% M/M) with no other tier one European data published this morning.

EUROPE OPTION FLOW SUMMARY

Eurozone:
OEJ2 130.50/129.50ps 1x1.5, bought for 19.5 in 5k
OEJ2 131.00/130.00ps 1x1.5, sold at 24.5 in 15k

UK:
SFIH2 98.87/98.70ps vs 99.20c, sold the call at 1.25 in 2k

EUROPE ISSUANCE UPDATE

• Germany allots E1.283bln 0% May-36 Bund, Avg yield 0.37% (Prev. 0.15%), Bid-to-cover 2.32x (Prev. 1.01x), Buba cover 2.72x (Prev. 1.15x)
• Italy sells E3bln 0% Nov-23 BTP, Avg yield 0.140% (Prev. -0.130%)

FOREX: Greenback Lower For Third Consecutive Session

• The greenback is leading losses Wednesday, putting the USD Index lower for a third consecutive session as markets continue to watch the tense situation in eastern Ukraine and any Russian response to Western sanctions pressures applied by the US, the EU and the UK yesterday.
• Antipodean currencies are extending their relief rally, with AUD and NZD higher against all others in G10 so far. This keeps the uptrend in AUD/USD intact, with the pair now north of both the 100-dma of 0.7242 as well as the mid-February high of 0.7249. Similarly NZD/USD touched 0.68 in overnight trade, putting the pair at a fresh monthly high. This opens the 100-dma level at 0.6859.
• Both EUR and GBP are more rangebound, with EUR/GBP holding just below 0.8350. Members of the Bank of England MPC are testifying in front of the Treasury Select Committee, in which members again stressed their focus on price setting and wages for the future of monetary policy.
• Data releases are few and far between Wednesday, with no major releases due. This should keep focus on the central bank slate, with ECB's de Guindos & de Cos, Fed's Daly and BoE's Tenreyro due to speak.

FX OPTIONS: Expiries for Feb23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1200(E1.0bln), $1.1250(E601mln), $1.1275(E1.1bln), $1.1300-15(E1.6bln), $1.1350-60(E1.4bln), $1.1380-85(E575mln)
• USD/JPY: Y114.00($860mln)
• AUD/USD: $0.7190-00(A$1.3bln), $0.7225($637mln)

Price Signal Summary - Oil Markets Eye The Psychological $100 Barrier

• In the equity space, S&P E-minis are trading in a volatile manner. The contract however remains vulnerable and a bearish threat is still present. The focus is on this year’s low of 4212.75, the Jan 24 low and the bear trigger. The 50-day EMA - at 4519.72 - still marks the key resistance. EUROSTOXX 50 futures have rebounded from yesterday’s low of 3874.00. Despite the recovery the outlook remains bearish though and the clearance of a number of support levels this week highlights the current bearish threat. The focus is on 3844.00, May 13 2021 low (cont).
• In FX, EURUSD remains above its key short-term support at 1.1280, the Feb 14 low. Attention is on the next resistance at the Feb16 high of 1.1396. A break of this level would improve the outlook for bulls and expose 1.1495, the Feb 10 high and bull trigger. Sub 1.1280 levels would signal potential for a deeper pullback instead. GBPUSD remains in a short-term bullish cycle and the focus is on 1.3662 next, Jan 20 high. The support to watch lies at 1.3487, Feb 15 low. USDJPY yesterday has traded below its 50-day EMA - at 114.76 - but found support below this average at 114.50. The next key short-term support to watch is 114.16, the Feb 2 low. The area between 114.76-16 represents a firm zone. A resumption of strength would refocus attention on the 116.34/35 key resistance, the Feb 10 / Jan 4 highs.
• On the commodity front, Gold bulls have paused for breath. The trend remains up following the recent strong impulsive rally. The focus is on $1916.6, the Jun 1 2021 high and a key bull trigger. Note that the top of the bull channel drawn from the Aug 9 2021 low intersects at $1937.5. WTI futures remain in an uptrend and rallied once again Tuesday. The contract has cleared resistance at $93.83, the Feb 14 high. This confirms a resumption of the uptrend and opens $95.38 next, 2.764 projection of the Dec 2 - 9 - 20 price swing.
• In the FI space, Bund futures remain vulnerable and recent gains are likely a correction. The 20-day EMA has been probed however, levels above the average have also offered resistance - the EMA intersects at 166.73 today. The bear trigger is 164.34, the Feb 16 low and a break would expose the 164.00 handle. Trendline resistance drawn off the Dec 20 high intersects at 167.37 today. The trend condition in Gilts remains down and the contract found resistance at 121.75 yesterday. A resumption of gains would allow for a stronger correction and open the 122.00 handle and the 50-day EMA at 122.56. The latter is a key resistance. The bear trigger is at 119.32, Feb 16 low.

EQUITIES: Stocks Chew Further Through Monday Losses

• European indices trade uniformly higher at the NY crossover, extending gains seen across Asia-Pac hours after the positive close for Chinese and Hong Kong stocks. The EuroStoxx50 holds gains of 1.2%, chewing further through Monday's losses. Europe's healthcare and consumer discretionary sectors are leading the way higher, while energy firms trade more moderately, paring back some of the recent oil price-induced rally.
• In the equity space, S&P E-minis are trading in a volatile manner. The contract however remains vulnerable and a bearish threat is still present.The focus is on this year's low of 4212.75, the Jan 24 low and the bear trigger. The 50-day EMA - at 4519.72 - still marks the key resistance.
• EUROSTOXX 50 futures have rebounded from yesterday's low of 3874.00. Despite the recovery the outlook remains bearish though and the clearance of a number of support levels this week highlights the current bearish threat. The focus is on 3844.00, May 13 2021 low (cont).

COMMODITIES: Oil Prices Moderate, But Bull Trend Intact For Now

• WTI and Brent crude futures are in minor negative territory early Wednesday, with prices moderating off the week's best levels. Concerns that sanctions pressure would hit Russian energy output were largely misplaced, with Western measures targeting individuals and smaller financial institutions for now.
• Despite the weakness of Tuesday's high, WTI futures remain in an uptrend having cleared resistance at $93.83, the Feb 14 high. This confirms a resumption of the uptrend and opens $95.38 next, 2.764 projection of the Dec 2 - 9 - 20 price swing.
• Gold bulls have paused for breath. The trend remains up following the recent strong impulsive rally. The focus is on $1916.6, the Jun 1 2021 high and a key bull trigger. Note that the top of the bull channel drawn from the Aug 9 2021 low intersects at $1937.5.