MNI US MARKETS ANALYSIS - EUR/USD Cracks 1.10 Support

US TSYS SUMMARY: Firm On Russian Seizure Of Nuclear Power Plant

• Cash Tsys sit firmer on the day after Russia seized the Zaporizhzhya nuclear power plant, having spiked shortly after open on news of a fire before partially reversing as it was reported the fire was in a training facility and has since been extinguished.
• 2YY -3.0bps at 1.500%, 5YY -5.6bps at 1.678%, 10YY -6bps at 1.780%, 30YY -4.8bps at 2.172%. Today’s bull flattening sees 2s10s drop to new recent lows of ~28bps.
• TYM2 is up 18+ ticks on at 128-03 (intraday high of 128-27+) after extremely strong volumes overnight which have since moderated but remain above average for the day so far. Whilst there have been large moves, it remains below resistance of 128-31+ (Mar 1) whilst initial firm support is the 20-day EMA of 126-31.
• Fedspeak: Chicago Fed’s Evans (2023 voter) is the only member slated to speak (0845ET) on the last day before the media blackout ahead of the Mar 15-16 FOMC.
• Data: Nonfarm payrolls at 0830ET, with consensus for another strong print in Feb after Omicron disruption.
• No NY Fed Buy-op or issuance today.

UST 2YY (%), 10YY (%) and 2s10s (bp)Source: Bloomberg

EGB/GILT SUMMARY: Risk Sentiment Takes Further Hit Following Ukraine Nuclear Plant Fire

European bonds have rallied this morning alongside a sharp sell off in stocks.

• Russian forces are reported to have seized control of Ukraine's largest nuclear power plant, which previously caught fire after being fired upon. The latest development shines a light on the myriad and severe risks, both internal and external, of Russia's military invasion.
• Gilts have lacked firmed direction this morning and now trade slightly above yesterday's close. Cash yields are 2-3bp lower.
• Bunds opened higher and have made gains through the morning with yields now 5-6bp lower on the day.
• The OAT curve has bull steepened with the 2s30s spread widening 3bp.
• BTPs have firmed across the curve with yields down 2-3bp.
• French industrial production performed better than expected in January (1.6% M/M vs 0.5% expected, -1.5% Y/Y vs -3.2% expected).
• Supply this morning came from the UK (UKTBs, GBP2bn).

EUROPE OPTION FLOW SUMMARY

Eurozone:
ERM3 100.375/100.50cs 1x2 sold in 10k vs buying 100.25p, traded for 1
0RU2 99.00p, sold at 13 down to 12.5 in 3.8k

UK:
SFIU2 97.00/96.75ps, bought for 1.5 in 10k

FOREX: EUR/USD Flirting With 1.10 as Single Currency Suffers

• Regional currencies in close proximity to Ukraine remain weak on further reports of clashes and conflict in south-eastern Europe. Markets were particularly unsettled by reports of shelling and explosions at the Zaporizhzhia nuclear power plant, with emergency services having to attend fires at one of the continent's largest nuclear centres. This puts the likes of SEK, HUF, CZK and PLN on the backfoot, forcing the hand of both the Polish and Czech central banks, who've had to coordinate currency intervention already on Friday.
• EUR is just behind SEK as the worst performer in G10, putting EUR/USD toward the 1.10 handle - a level last broken in 2020 during the worst of the COVID crisis. Haven currencies remain far more solid, with CHF, JPY faring better.
• EUR/AUD, meanwhile, has broken considerably lower, hitting new multi-year lows and extending through key horizontal support. This marks the 11th consecutive day of declines for the cross, with support seen scant until 1.4794. Monetary policy expectations continue to play out, with the cross correlating well with market pricing for ECB vs. RBA rate hikes across 2022.
• Focus turns to the February payrolls report, with markets expecting 423k jobs added over the month, pressing the unemployment rate lower by 0.1ppts to 3.9%. See MNI's preview here: https://roar-assets-auto.rbl.ms/documents/14079/US...
• Outside of the US data, focus rests on the extraordinary NATO meeting with defence ministers Friday. NATO's Stoltenberg holds a post-meeting press conference at 1130GMT/0630ET.

FX OPTIONS: Expiries for Mar04 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1100-20(E1.4bln), $1.1300-15(E1.2bln), $1.1325-30(E681mln)
• USD/JPY: Y114.00($1.5bln), Y115.00($675mln), Y116.00($680mln)
• EUR/GBP: Gbp0.8530(E610mln)
• AUD/USD: $0.7030(A$1.2bln), $0.7300(A$841mln)
• USD/CAD: C$1.2495($520mln), C$1.2595-00($1.2bln), C$1.2700-20($1.6bln), C$1.2800($831mln)

Price Signal Summary - EUROSTOXX50 Futures Remain Heavy

• In the equity space, S&P E-minis traded to a fresh weekly high Thursday above the 20-day EMA at 4393.16. The break of this EMA suggests scope for an extension of recent gains towards the 50-day EMA at 4473.77. Broader trend conditions though remain bearish. Initial support is seen at 4227.50, Feb 25 low. EUROSTOXX 50 has traded lower again today to confirm a resumption of this year’s downtrend. The contract has retraced just over 50.0% of the entire bull cycle between Mar ‘20 - Nov ‘21. The focus is on 3560.30, 1.764 projection of the Jan 5 - 24 - Feb 2 price swing.
• In FX, EURUSD has resumed its downtrend and technical signals suggest an extension lower is likely near-term. The focus is on 1.1000 and 1.0976, 2.00 projection of the Jan - Jun - May ‘21 price swing. GBPUSD has this week probed 1.3273, Feb 24 low. The outlook is bearish and a clear break lower would open 1.3163, Dec 8 low and a key support. EURGBP has resumed its downtrend this week. The cross has breached support at 0.8285, Feb 3 low and this has resulted in a move through 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 level. A move higher would refocus attention on the bull trigger at 116.35, this year’s high on Jan 4.
• On the commodity front, Gold is again trading at the top of its bull channel, drawn from the Aug 9 2021 low, that intersects at $1943.4. 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 are volatile but remain in an uptrend. Gains this week in WTI futures confirmed a significant acceleration of the uptrend. The focus is on the $120.00 handle next.
• In the FI space, Bund futures remain in a short-term uptrend. 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 recent gains would open 126.90, 2.00 projection of the Feb 16 - 18 - 23 price swing.

EQUITIES: Stocks lower on concerns of Ukraine nuclear power plant safety

• Japan's NIKKEI down 591.8 pts or -2.23% at 25985.47 and the TOPIX down 36.86 pts or -1.96% at 1844.94.
• China's SHANGHAI closed down 33.464 pts or -0.96% at 3447.649 and the HANG SENG ended 562.05 pts lower or -2.5% at 21905.29.
• German Dax down 449.95 pts or -3.28% at 13246.91, FTSE 100 down 222.03 pts or -3.07% at 7016.31, CAC 40 down 233.05 pts or -3.65% at 6149.21 and Euro Stoxx 50 down 126.8 pts or -3.39% at 3613.8.
• Dow Jones mini down 248 pts or -0.74% at 33480, S&P 500 mini down 33.25 pts or -0.76% at 4325.5, NASDAQ mini down 100.5 pts or -0.72% at 13927.75.

COMMODITIES: European natgas up almost 10% (but way below yday's intraday high)