MNI US MARKETS ANALYSIS - ECB, CPI Make for Busy Thursday

US TSYS SUMMARY: Treasuries Bull Flatten, US CPI Ahead

• Cash Tsys have on balance rallied 1-2.5bps after mixed Russia-Ukraine headlines saw a partial unwind of an earlier rally through the early London session, which had possibly followed overnight US comments on the potential for Russia to use chemical / biological weapons.
• 2YY -1.0bps at 1.670%, 5YY -1.3bps at 1.865%, 10YY -2.1bps at 1.932% and 30YY -2.4bps at 2.311%. The 2s10s section of the curve is off lows but remains extremely flat at 26bps.
• TYM2 sits 3+ ticks higher at 126-21 on below average volumes. It holds above yesterday’s low of 126-16+, after which it could open 1260-10 (76.4% retracement of the Feb10-Mar7 rally) whilst resistance remains Tuesday’s high of 128-04.
• Data: US CPI for Feb (0830ET) and monthly budget statement for Feb (1400ET)
• Bill issuance: US Tsy $45B 4W, $35B 8W bill auctions (1130ET)
• Bond issuance: US Tsy $20B 30Y Bond auction re-open (1300ET)

STIR FUTURES: Fed Hikes Higher Prior To US CPI

• Hikes implied by FOMC-dated Fed Funds futures have firmed modestly for upcoming meetings, with March up to 28bps and June edging a little over 3.5x25bp hikes (90bps)
• Further out, Dec still sits at 161bp, little changed from much of yesterday’s US session having increased strongly throughout the week from ~135bps.
• US CPI at 0830ET. Whilst it seems unlikely to sway expectations of a 25bp hike next week, we see two-way risk to the path further out. Preview: https://marketnews.com/mni-us-cpi-preview-mar-2022

Source: Bloomberg

EGB/GILT SUMMARY: Russia-Ukraine Talks Deadlocked

European government bonds have firmed alongside weaker trading in equities as the risk respite over the previous two days has subsided.

• Fresh attempts at bilateral negotiations between Russia and Ukraine have made no tangible progress with Moscow rejecting Ukraine's proposed 'neutrality'.
• Elsewhere, Western sanctions continue to widen with several high profile Russian oligarchs having their UK assets frozen.
• Gilts opened lower with the short end continue to make gains through the morning. Cash yields are now down 4-7bp with the curve bull steepening.
• The bund curve has flattened with the 2s30s spread narrowing 4bp.
• The OAT curve has similarly flattened 4bp.
• The BTP curve has twist flattened with the 2s30s spread trading down 3bp.
• Supply this morning came from Italy (BTPs, EUR6bn), Ireland (IGBs, EUR1bn).

EUROPE ISSUANCE UPDATE:

• E400mln 0.35% Oct-32 IGB, Avg yield 0.778% (Prev. 0.387%), Bid-to-cover 3.46x
• E600mln 1.70% May-37 IGB, Avg yield 0.984% (Prev. 0.477%), Bid-to-cover 2.03x (Prev. 2.06x)

EUROPE OPTION FLOW SUMMARY:

Eurozone:
RXJ2 161.50/159/156.5 put fly, bought for 26.5/27.0 2.75k

OEJ2 135.50c, bought for 3 in 40k (short cover)
OEJ2 131p bought for 21/22.5/24 in 6k

FOREX: Markets Consolidate Wednesday Moves, Focus Turns to ECB

• Markets are largely unwinding the sharp moves seen across the Wednesday session, putting regional currencies lower (notably SEK and NOK) while haven FX regains some recent lost ground. The greenback trades firmer, with markets watching for the growing prospect of a Zelensky - Putin face to face meeting in the coming weeks.
• AUD remains the year's best performer by some margin, and is stronger again early Thursday, keeping the onus on the 0.7441 print from Mar 7.
• Focus has been on the meetings held between the Russian and Ukrainian foreign ministers in Turkey today - both sides showed very little sign of backing away from their recent demands, with Lavrov reasserting that Russia will continue their military incursion in the country. A Putin-Zelensky meeting was floated, but the Russian foreign minister stressed that substantive specifics would be needed before any meeting could take place.
• The ECB rate decision takes focus going forward, with the governing council seen opting to keep policy on hold, but note the building pressures to tighten policy into the second half of the year. US CPI also crosses, with markets expecting prices to have risen by 7.9% on a Y/Y basis, which would mark the hottest inflation read since the early 1980's.

FX OPTIONS: Expiries for Mar10 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0950(E744mln), $1.1000(E1.8bln), $1.1020-25(E1.0bln), $1.1075-80(E652mln), $1.1150-55(E706mln)
• GBP/USD: $1.3280-00(Gbp603mln), $1.3500(Gbp758mln)
• USD/JPY: Y114.65-75($1.2bln), Y114.90($750mln), Y115.30-40($1.5bln), Y115.80-00($580mln), Y116.40($560mln)
• USD/CAD: C$1.2550($860mln), C$1.2750($755mln), C$1.2900($1.2bln)

Price Signal Summary - Oil Pulls Away From Recent Highs

• In the equity space, the trend needle continues to point south despite yesterday’s gains. Key support lies at 4094.25, the Feb 24 low. A break of this level would confirm a resumption of the downtrend. The 20-day EMA, at 4335.19, represents an important near-term resistance. EUROSTOXX 50 futures remain vulnerable however a bullish corrective cycle dominates for now following this week’s gains. The move higher is allowing an oversold condition to unwind. Resistance to watch is at 3850.60, the 20-day EMA.
• In FX, yesterday’s gains in EURUSD are considered corrective. The downtrend remains intact and short-term gains are allowing an oversold condition to unwind. A resumption of weakness would open 1.0767 next, the May 7 2020 low. GBPUSD remains weak following Monday's breach of 1.3163, the Dec 8 low. The break confirms a resumption of the downtrend and opens 1.3058 next, 1.50 projection of the Jan 13 - 27 - Feb 10 price swing. USDJPY maintains this week’s firmer tone. The USD has remained above the Feb 24 low of 114.41 and more importantly above its key support at 114.16, Feb 2 low. Attention is on the 116.34/35 key resistance and bull trigger, the Feb 10 and Jan 4 high.
• On the commodity front, the all-time high print in Gold of $2075.5 on Aug 7 2020 remains intact for now following yesterday's strong sell-off. The broader trend condition is bullish and the pullback is allowing an overbought condition to unwind. The next support is seen at $1961.2, Mar 7 low, while a firmer area of support lies at $1926.1, the 20-day EMA. Oil markets are volatile but remain in an uptrend. The move lower in WTI is allowing the recent overbought trend condition to unwind. The next firm area of support is seen at the 20-day EMA, at $101.80.
• In the FI space, Bund futures traded lower again Wednesday, extending this week’s bearish pressure. The contract has breached support at 165.51, Mar 3 low to suggest potential for a deeper pullback. Further weakness would open 163.19, 76.4% retracement of the Feb 10 - Mar 7 rally. Gilts have breached support at 123.50, Mar 1 low and 122.47, the 76.4% retracement of the Feb 16 - Mar 1 rally. This has exposed the key support at 121.10, Feb 16 low.

EQUITIES: Stocks Dip Ahead Of US CPI, ECB Decision

• Asian stocks closed stronger: Japan's NIKKEI closed up 972.87 pts or +3.94% at 25690.4 and the TOPIX ended 71.14 pts higher or +4.04% at 1830.03. China's SHANGHAI closed up 39.704 pts or +1.22% at 3296.092 and the HANG SENG ended 262.55 pts higher or +1.27% at 20890.26
• European equities are weaker ahead of the ECB decision, with the German Dax down 299.83 pts or -2.17% at 13640.17, FTSE 100 down 82.1 pts or -1.14% at 7141.16, CAC 40 down 144.53 pts or -2.26% at 6297.75 and Euro Stoxx 50 down 84.64 pts or -2.25% at 3703.27.
• U.S. futures are lower pre-CPI data, with the Dow Jones mini down 259 pts or -0.78% at 33006, S&P 500 mini down 31 pts or -0.73% at 4244.25, NASDAQ mini down 126.75 pts or -0.92% at 13608.

ENERGY: UAE Backs Down From Oil Production Hike

The UAE Minister for Energy Suhail Al Mazrouei has appeared to roll back on comments yesterday from UAE Ambassador to the US Yousef Al Otaibi and US Secretary of State Antony Blinken stating that the UAE is willing to increase oil production and urge fellow OPEC members to do the same.

• Emirati news service Wam has reported that Mazrouei is 'committed to the “OPEC +” agreement and its current mechanism for adjusting monthly production'.
• Wam continues that Mazrouei: 'believes in the value provided by “OPEC +” as there is no agreement to increase production unilaterally outside the “OPEC +” agreement in light of the UAE’s continuous support for the efforts of the oil alliance and its commitment to this agreement.'
• At a State Department presser yesterday Blinken said: ''Im not sure if its been made public yet about Emirati support for increased OPEC+ production. Which I think is an important thing to stabilise global energy markets.'

COMMODITIES: Oil Bounces, But Well Off Week's Highs

• WTI Crude up $3.27 or +3.01% at $112.04
• Natural Gas up $0.1 or +2.21% at $4.626
• Gold spot down $9.82 or -0.49% at $1982.23
• Copper up $6.9 or +1.51% at $464.25
• Silver down $0.28 or -1.08% at $25.5023
• Platinum up $3.37 or +0.31% at $1086.85