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MNI US MARKETS ANALYSIS - Fed Pricing Returns to 5 Hikes in 2022

  • Rates markets stabilise, re-introduce 5 Fed rate hikes this year
  • Prospect of second Ukraine - Russia meeting supporting sentiment
  • Bank of Canada expected to launch tightening cycle

US TSYS SUMMARY: Bear Flattening With Powell Ahead

  • Cash Tsys sell-off through the London session as rate hikes are priced back in after yesterday’s sizeable rally, led by the front-end for a decent-sized bear flattening.
  • 2YY +5.6bps at 1.396%, 5YY +4.4bps at 1.638%, 10YY +2.2bps at 1.750%, 30YY +1.5bps at 2.121%.
  • 2YY sit 23.5bps below post US CPI highs but nevertheless 2s10s is down to just 35bps, the flattest since March 2020 and approaching a 76.4% retracement of the 2019-2021 steepening.
  • TYM2 sits 15 ticks lower at 128-08+ on modestly above average volumes after yesterday’s huge volumes. Resistance is eyed at 128-23 (Jan 13 high).
  • Fedspeak: Powell testifies before the House Panel at 1000ET (no confirmed time if a text will be pre-released, it wasn’t last night), with both Evans (2023 voter) at 0900ET and Bullard (2022) at 0930ET beforehand. NY Fed VP Logan speaks on asset purchases (1630ET).
  • Data: ADP employment for Feb (0815ET) as a prelude to Friday’s payrolls with the Beige Book later (1400ET).
  • Bill issuance: US Tsy $35B 119D-Bill CMB auction (1130ET).

US 2Y and 10Y yields plus 2s10sSource: Bloomberg

STIR FUTURES: Fed Funds Nudge Above 5 Hikes In 2022

  • Hikes implied by FOMC-dated Fed Funds futures have firmed through the London session, with 24.7bp priced for March, almost back to three consecutive hikes through June (72bp) and edging back to five hikes fully priced for 2022 (126bp).
  • This takes 2022 pricing back to levels immediately prior to last month’s strong payrolls report.
  • Powell testifies before the House Panel at 1000ET (no confirmed time if a text will be pre-released, it wasn’t last night), with both Evans (2023 voter) at 0900ET and Bullard (2022) at 0930ET beforehand.
  • ADP employment also at 0815ET prior to Friday's payrolls release for Feb.

FOMC-dated Fed Funds futures cumulative hikesBloomberg


European government bonds have reversed some of yesterday's flight to safety gains, while regional equities have broadly inched higher following a bout of heavy selling the previous day.

  • There have been no significant positive catalysts this morning, with market moves likely reflecting a period of consolidation following a burst of volatility.
  • Gilts have sold off through the morning with the curve bear flattening. Cash yields are now up 7-14bp with the curve 7-8bp flatter.
  • The sell-off in bunds has been less emphatic with yields up 3-7bp.
  • OATs have slightly underperformed bunds on the day with yields pushing up 5-8bp.
  • BTPs have underperformed core EGBs with yields up 10-15bp.
  • The geopolitical situation continues to worsen with the Russian Defence Ministry reporting that it has captured the port city of Kherson, while fears remain of a intensification of the bombardment of Kyiv.
  • The ECB's Luis de Guindos earlier stated that the impact of the Russia invasion of Ukraine on energy prices would add to inflation pressure and weigh on economic activity.
  • The Eurozone CPI estimate for February came in above the Bloomberg survey (5.8% Y/Y vs 5.6%).
  • Supply this morning came from the UK (Gilts, GBP3.25bn), Germany (Green Bund, EUR1.441bn allotted) and the Eurozone (EU Bills, EUR4.993bn).

UKRAINE UPDATE: Kharkiv Clashes Intensify

Russia’s invasion of Ukraine is entering a new phase, promising a more deadly time ahead for the country’s civilians and its remarkably determined army, according to Western military officials. Early signs are that Russian commanders are abandoning the approach that marked the first days of the conflict, in which they relied on lightning strikes into cities they assumed would be half-heartedly defended, the officials said.

  • Fierce fighting was seen for a seventh day in Ukraine today as the Russian army claimed to have taken control of a strategic southern Ukrainian port and paratroopers assaulted the city of Kharkiv in the northeast.
  • The defence ministry in Moscow said that Kherson, a key port on the Black Sea, was “under full control” of Russian divisions as other urban centres came under heavy bombardment from President Putin’s forces.
  • Airborne troops had landed in Kharkiv, the country’s second biggest city, the Ukrainian army said, adding that there were immediate clashes.
(MNI/BBG/The Times)


  • Germany allots E1.441bln 0% Aug-30 Green Bund, Avg yield -0.20% (Prev. -0.46%), Bid-to-cover 1.16x, Buba cover 1.21x
  • UK DMO sells GBP3.25bln 0.25% Jan-25 Gilt, Avg yield 0.952% (Prev. 0.690%), Bid-to-cover 1.91x (Prev. 1.96x), Tail 2.5bp (Prev. 0.8bp)


RXJ2 166.50/167/168.5/169c condor, sold at 11 in 5.3k, said to be rolling a call spread
RXJ2 170c, bought for 61 and 71 in 5k total

OEJ2 132p, bought for 20.5 in 2.25k
OEK2 132.75/131.75/130.75p fly, bought for 14 in 2.5k
OEM2 131.5/130.5/129.5/128.5p condor, bought for 14.5 in 20k

DUJ2 112.10/30cs vs half DUJ2 111.80 put, bought for -2 in 3k
DUK2 111.60/111.30/111.00p fly, bought for 3.5 in 2.5k
DUK2 111.60/30/20/110.90p condor, bought for 4.25 in 2.5k

ERZ2 100.25/100/99.75p fly, bought for 3, up to 3.25 in 35k

SX7E 60 put, 17th June, bought for 1.20 and 1.25 in ~51.3k
SX7E 70 put 16th Sep, bought for 5.30 in 11k
SX7E 16 Sep 115c, bought for 0.85 in 16k

FOREX: CAD Inching Higher as BoC Seen Launching Tightening Cycle

  • CAD is outperforming in early Wednesday trade, higher against all others in G10 ahead of the Bank of Canada rate decision at 1500GMT/1000ET. The BoC are expected to begin a protracted tightening cycle with a 25bps hike to 0.50%, running slightly against the recent trade in market pricing.
  • Elsewhere, the Ukraine tail risk continues to exert influence on global currencies, with regional currencies again underperforming. SEK and NOK are the weakest in G10, with the single currency also trading softer. EUR/USD printed 1.1059 in early Wednesday weakness, putting the rate again at the lowest level since mid-2020.
  • Latest reports from the region suggest Russian military units are switching to ranged, artillery based attacks, which may suggest a slowdown in their approach to central Kyiv. Talks between Russian and Ukrainian representatives remain a hope for markets, however both sides talked down the likelihood of an imminent return to negotiations absent a solid agenda.
  • The schedule for the Wednesday session is busy: Fed's Powell testifies in front of the House Panel, with markets watching to see the extent to which the recent Ukraine crisis has impacted Fed policy-setting. Markets unwound bets for Fed tightening throughout the Tuesday session. Fed's Evans, Bullard and Logan also speak ahead of the release of the Fed's Beige Book. ECB's Lane and BoE's Cunliffe make up the rest of the docket.

FX OPTIONS: Expiries for Mar02 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1050-60(E668mln), $1.1300-20(E1.4bln), $1.1350(E1.0bln)
  • USD/JPY: Y114.20-30($865mln), Y114.90-00($641mln), Y115.20-40($582mln)
  • EUR/JPY: Y127.70(E617mln), Y129.35(E572mln)
  • AUD/USD: $0.7135(A$558mln), $0.7355-73(A$915mln)
  • USD/CAD: C$1.2570-90($1.1bln), C$1.2778-80($538mln)

Price Signal Summary - Oil Continues To Defy Gravity

  • In the equity space, the S&P E-minis found resistance Tuesday ahead of the 20-day EMA. The average intersects at 4398.31 today and represents an important intraday hurdle. Recent gains are likely part of a corrective cycle that is allowing a recent oversold condition to unwind. A deeper sell-off would signal a resumption of the downtrend and refocus attention on 4101.75, the Feb 24 low and bear trigger. EUROSTOXX 50 futures traded lower Tuesday to a fresh trend low of 3704.00. This confirms a resumption of the downtrend and marks an extension of the primary sequence of lower lows and lower highs - a price condition that defines a downtrend. The break lower paves the way for weakness towards 3700.00 and 3663.50. The latter is a 1.50 projection of the Jan 5 - 24 - Feb 2 price swing.
  • In FX, EURUSD delivered a new 2022 low Tuesday and this morning. The break lower confirms a resumption of the broader bearish sequence of lower lows and lower highs, in line with the medium-term downtrend and a bearish moving average set-up. The focus is on 1.1040, 76.4% of the Jan ‘21 - Mar ‘21 bull phase. GBPUSD has probed 1.3273, Feb 24 low. The outlook is bearish following the move lower on Jan 24 and a clear breach of 1.3273, Feb 24 low, would strengthen bearish pressure and open 1.3163, Dec 8 low and a key support. USDJPY key short-term support at 114.16, the Feb 2 low, remains intact. The trend outlook remains bullish above this support. A move higher would refocus attention on the bull trigger at 116.35, this year’s high on Jan 4. Sub 114.16 levels would alter the picture.
  • On the commodity front, Gold has traded higher today and moved above the top of its bull channel. The channel is drawn from the Aug 9 2021 low and intersects at $1941.7. A clear break higher would reinforce bullish conditions and pave the way for strength towards the Feb 24 high of $1974.3. Key short-term support is unchanged at last Thursday’s $1878.4 low. Oil markets remain in an uptrend. Gain this week in WTI futures confirm a significant acceleration of the uptrend. This has again marked an extension of the bullish price sequence of higher highs and higher lows. The $100.00 level has been cleared. The focus is on the $113.15 next, 2.618 projection of the Aug - Oct - Dec ‘21 price swing.
  • In the FI space, Bund futures traded sharply higher yesterday as the contract extends recent gains, resulting in a break of the 50-day EMA. The focus is on the 172.00 handle next. Gilts broke out of the recent range Tuesday, signalling potential for a stronger short-term recovery. This opens 126.90 next, 2.00 projection of the Feb 16 - 18 - 23 price swing.

EQUITIES: Some recovery for US/European stocks this morning

  • Japan's NIKKEI down 451.69 pts or -1.68% at 26393.03 and the TOPIX down 37.23 pts or -1.96% at 1859.94.
  • China's SHANGHAI closed down 4.643 pts or -0.13% at 3484.192 and the HANG SENG ended 417.79 pts lower or -1.84% at 22343.92.
  • German Dax up 44.03 pts or +0.32% at 13954.51, FTSE 100 up 41.09 pts or +0.56% at 7371.86, CAC 40 up 15.72 pts or +0.25% at 6412.54 and Euro Stoxx 50 up 27.62 pts or +0.73% at 3794.73.
  • Dow Jones mini up 249 pts or +0.75% at 33506, S&P 500 mini up 32.25 pts or +0.75% at 4336.5, NASDAQ mini up 116.25 pts or +0.83% at 14122.5.

COMMODITIES: Oil flirting with $110/bbl

  • WTI Crude up $5.81 or +5.62% at $109.19
  • Natural Gas (NYM) up $0.19 or +4.05% at $4.756
  • Natural Gas (ICE Dutch TTF) up $38.41 or +31.57% at $161.58
  • Gold spot down $20.02 or -1.03% at $1925.28
  • Copper up $3.25 or +0.71% at $462.75
  • Silver down $0.39 or -1.55% at $24.9739
  • Platinum up $9.28 or +0.88% at $1066.64

02/03/20221100/1200EUECB de Guindos Q&A at Universidad Carlos III
02/03/20221200/0700**US MBA Weekly Applications Index
02/03/20221315/0815***US ADP Employment Report
02/03/20221400/0900USChicago Fed's Charles Evans
02/03/20221430/0930USSt. Louis Fed's James Bullard
02/03/20221500/1000***CA Bank of Canada Policy Decision
02/03/20221500/1000USFed Chair Pro Tempore Jerome Powell
02/03/20221530/1030**US DOE weekly crude oil stocks
02/03/20221600/1700EUECB Lane lecture at Hertie School Berlin
02/03/20221630/1130*US US Treasury Auction Result for Cash Management Bill
02/03/20221830/1830UKBOE Tenreyro speech to Economic Research Council
02/03/20221900/1400US Fed Beige Book
02/03/20222000/2000UKBOE Cunliffe speech at Oxford Union
02/03/20222130/1630USNew York Fed's Lorie Logan
03/03/20222200/0900*AU IHS Markit Final Australia Services PMI
03/03/20220030/1130**AU Trade Balance
03/03/20220030/1130*AU Building Approvals
03/03/20220030/0930**JP IHS Markit Final Japan Services PMI
03/03/20220145/0945**CN IHS Markit Final China Services PMI
03/03/20220700/0200*TR Turkey CPI
03/03/20220730/0830**SE Manufacturing PMI
03/03/20220730/0830**SE Services PMI
03/03/20220730/0830***CH CPI
03/03/20220815/0915**ES IHS Markit Services PMI (f)
03/03/20220845/0945**IT IHS Markit Services PMI (f)
03/03/20220850/0950**FR IHS Markit Services PMI (f)
03/03/20220855/0955**DE IHS Markit Services PMI (f)
03/03/20220900/1000**EU IHS Markit Services PMI (f)
03/03/20220930/0930**UK IHS Markit/CIPS Services PMI (Final)
03/03/20221000/1100**EU retail sales
03/03/20221000/1100**EU unemployment
03/03/20221000/1100**EU PPI
03/03/20221330/0830**US WASDE Weekly Import/Export
03/03/20221330/0830**US Jobless Claims
03/03/20221330/0830**US Non-Farm Productivity (f)
03/03/20221445/0945***US IHS Markit Services Index (final)
03/03/20221500/1000***US ISM Non-Manufacturing Index
03/03/20221500/1000**US factory new orders
03/03/20221500/1000USFed Chair Pro Tempore Jerome Powell
03/03/20221530/1030**US Natural Gas Stocks
03/03/20221630/1130**US NY Fed Weekly Economic Index
03/03/20221630/1130*US US Bill 08 Week Treasury Auction Result
03/03/20221630/1130**US US Bill 04 Week Treasury Auction Result
03/03/20221630/1130CA BOC Governor Macklem speech, "Economic Progress Report."
03/03/20222030/1530CA BOC Governor Macklem testifies at House committee.
03/03/20222130/1630US New York Fed's Lorie Logan
03/03/20222300/1800USNew York Fed's John Williams
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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