MNI US MARKETS ANALYSIS - Oil RSI Nears Highest in Thirty Years

US TSYS SUMMARY: Limited Rally After Yesterday’s Substantial Hike Repricing

• Cash Tsys rally modestly as they largely consolidate yesterday’s sell-off on substantial re-pricing of rate hike expectations, which began earlier in the day before driving further on Powell indicating close to policy continuation.
• 2YY -1.6bps at 1.496%, 5YY -1.0bps at 1.745%, 10YY -2.2bps at 1.854%, 30YY -2.0bps at 2.228%. This sees the curve broadly hold onto yesterday’s new recent flats of ~35bps (although it did fleetingly touch 31bps).
• TYM2 is up 4 ticks on the day at 127-13 with soft volumes. After some large swings, it sits comfortably below resistance of 128-31+ (Mar 1) and above initial firm support from the 20-day EMA of 126-30.
• Fedspeak: Powell testimony to the Senate (1000ET), followed by NY Fed’s Williams (permanent voter) late on at 1800ET.
• Data: Some of the more important releases today include finalised ULCs, Markit PMIs and ISM Services plus factory orders, all before tomorrow’s payrolls.
• NY Fed buy-op: Tsy 7Y-10Y, appr $1.625B vs. $3.225 prior (1120ET)
• Bill issuance: US Tsy $45B 4W, $35B 8W bill auctions (1130ET)

STIR FUTURES: Fed Hike Pricing Consolidates Powell Gains

• Hikes implied by FOMC-dated Fed Funds futures have consolidated at levels established after Powell’s House testimony yesterday.
• March pricing is pinned around the 25bp mark with the same large repricing further out.
• There is very nearly four consecutive 25bp hikes up to and including July (98bp from 88bp into Q&A) and nearing six hikes for 2022 again (144bps from 132bp into Q&A).
• Plenty of further trigger points ahead. Powell speaks in the Senate (1000ET) but there will be fresh commentary late on from NY Fed’s Williams (1800ET). Some of the more important data releases today include finalised ULCs, Markit PMIs and ISM Services plus factory orders, all before tomorrow’s payrolls.

Source: Bloomberg

EGB/GILT SUMMARY: Inflation Expectations Pushing Higher

European government bonds continue to trade weaker this morning with gilts underperforming EGBs and regional stocks broadly edging lower.

• Russia has seized the port city of Kherson while the city of Mariupol is encircled. The EU is reportedly preparing a fresh raft of sanctions against Russia
• Commodity prices continue to push higher - Brent crude now trades at USD115.28/bl - and are underpinning the surge in breakevens and the benchmark EUR5y5y forward inflation swap.
• Gilt yields are 7-9bp higher on the day with the curve slightly bear flattening.
• The bund curve has similarly bear flattened. Cash yields are 1-4bp higher while the 2s30s spread has narrowed 3bp.
• OATs trade broadly in line with bunds.
• BTP yields are up 7-11bp with the 5-year benchmark significantly underperforming the curve.
• Supply this morning came from France (OATs, EUR9.999bn) Spain (Bono/Obli/Green Obli/Obli-Ei, EUR5.599bn).
• Final PMI estimates for February were broadly a touch low than the flash prints for the UK and the Euro area aggregate. The updated numbers for Italy were a touch better, while the Spanish estimates surprised (Services: 56.6 vs 51.6, Composite: 56.5 vs 52.0).

EUROPE ISSUANCE UPDATE

France sells 10/23/30-year OATs:

• E6.339bln 0% May-32 OAT, Avg yield 0.52% (Prev. 0.45%), Bid-to-cover 1.75x (Prev. 2.62x)
• E1.874bln 3.25% May-45 OAT, Avg yield 1.00% (Prev. 0.50%), Bid-to-cover 1.78x (Prev. 2.70x)
• E1.786bln 0.75% May-53 OAT, Avg yield 1.18% (Prev. 1.05%), Bid-to-cover 2.06x (Prev. 2.00x)

EUROPE OPTION FLOW SUMMARY

Eurozone:

• RXJ2 163/161.5ps, bought for 22.5 in 10k
• OEK2 131.50/134.50 strangle, sold at 76 and 77.5 in 5k
• DUJ2 111.70/111.40ps 1x2, bought for 3 in 3k
• SX7E 16th Sep 120c, bought for 0.65 and 0.70 in 30k

FOREX: AUD Outperformance Extends, Narrows in on 200-dma

• The single currency remains weak, with EUR/USD retracing much of Wednesday's late bounce, re-circling key support at the YTD low printed this week at 1.1058. The pair remains a victim of monetary policy expectations, with the Fed policy arc for 2022 being re-priced at a faster rate relative to the Eurozone.
• NOK continues to diverge from oil prices, with further strength in Brent crude futures failing to be reflected in the currency. NOK is the weakest in G10 so far, putting USD/NOK back above the 50-dma, but still well shy of the week's highs at 9.0391.
• AUD continues the recent streak of outperformance, with AUD/USD narrowing in on key resistance at the 200-dma. 0.7326 marks the bull trigger, and progress through here opens 0.7331, the 61.8% retracement of the October - January downleg.
• The ISM Services Index is the data highlight Thursday, with the weekly jobless claims also due. Central bank speakers include the second part of Powell's testimony in front of lawmakers, with BoC's Macklem also likely to take focus following the decision to raise rates yesterday.

FX OPTIONS: Expiries for Mar03 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1075(E609mln), $1.1100-20(E994mln), $1.1200(E1.2bln), $1.1320-40(E855mln), $1.1350(E1.1bln), $1.1370-75(E1.2bln)
• USD/JPY: Y115.00-10($1.1bln), Y116.00-05($598mln)
• AUD/USD: $0.7250(A$741mln)
• USD/CAD: C$1.2585-00($511mln)
• USD/CNY: Cny6.3000($825mln)

Price Signal Summary - Impulsive Oil Rally Extends

• In the equity space, S&P E-minis remain below the 20-day EMA. The average intersects at 4396.73 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 resumption of weakness would refocus attention on 4101.75, the Feb 24 low and bear trigger. Clearance of the 20-day EMA would open the 50-day EMA at 4478.44. EUROSTOXX 50 futures recovered yesterday, however the outlook remains bearish and gains are considered corrective. Weakness earlier in the week confirmed a resumption of the downtrend and marks an extension of the primary sequence of lower lows and lower highs. This paves the way for 3700.00 and 3663.50. The latter is a 1.50 projection of the Jan 5 - 24 - Feb 2 price swing.
• In FX, EURUSD traded lower again Wednesday and a bearish theme remains clearly intact. The focus is on 1.1040, 76.4% of the Jan ‘21 - Mar ‘21 bull phase. GBPUSD has probed 1.3273, the Feb 24 low, this week. The outlook is bearish and a clear breach of 1.3273, Feb 24 low, would open 1.3163, Dec 8 low and a key support. EURGBP has resumed its downtrend. The cross has breached support at 0.8285, Feb 3 low and this has resulted in a test of a key support at 0.8282/77, the Feb ’20 and Dec’19 lows and a key bear trigger. Note that prices below 0.8300 highlight a potential break of the base of a multi-year range - a key bearish development if confirmed. The focus is on 0.8242, 50% of the 2015-2020 upleg. USDJPY key short-term support at 114.16, the Feb 2 low, remains intact. The trend outlook is 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 is again back inside its bull channel. The channel is drawn from the Aug 9 2021 low and intersects at $1950.1. A clear break to the upside would reinforce bullish conditions and open the Feb 24 high of $1974.3. Key short-term support is unchanged at $1878.4 low, the Feb 24 low. Oil markets remain in an uptrend. Gains this week in WTI futures confirm a significant acceleration of the uptrend. The focus is on the $120.00 handle next.
• In the FI space, Bund futures traded sharply higher Tuesday, clearing the 50-day EMA. Short-term conditions remain bullish and a resumption of gains would open 172.00. Gilts have pulled back from Tuesday’s high of 126.81. Support is seen at 123.50, the Mar 1 low. A resumption of gains would open 126.90, 2.00 projection of the Feb 16 - 18 - 23 price swing.

EQUITIES: Some stabilisation for European / US stocks

• Japan's NIKKEI up 184.24 pts or +0.7% at 26577.27 and the TOPIX up 21.86 pts or +1.18% at 1881.8.
• China's SHANGHAI closed down 3.079 pts or -0.09% at 3481.113 and the HANG SENG ended 123.42 pts higher or +0.55% at 22467.34.
• German Dax down 118.56 pts or -0.85% at 13882.19, FTSE 100 down 13.37 pts or -0.18% at 7416.16, CAC 40 up 2.59 pts or +0.04% at 6501.52 and Euro Stoxx 50 down 20.49 pts or -0.54% at 3800.53.
• Dow Jones mini up 2 pts or +0.01% at 33850, S&P 500 mini down 5.75 pts or -0.13% at 4376, NASDAQ mini down 50.75 pts or -0.36% at 14188.

COMMODITIES: Brent backs away from $120/bbl (but still higher on the day)

• WTI Crude up $2.64 or +2.39% at $113.21
• Natural Gas (NYM) up $0.07 or +1.49% at $4.83
• Natural Gas (ICE Dutch TTF) up $2.93 or +1.77% at $168.47
• Gold spot up $2.12 or +0.11% at $1930.46
• Copper up $9.7 or +2.08% at $476.3
• Silver up $0.01 or +0.03% at $25.2979
• Platinum up $17.61 or +1.64% at $1091.69