MNI US MARKETS ANALYSIS - Kremlin Talks Down 'Major Progress'

US TSYS SUMMARY: Treasuries Flatten Further Post-FOMC

• Cash Tsys have seen a sizeable bull flattening today after yesterday’s post-FOMC bear flattening. Most recent comments from the Kremlin that reports of major progress in Ukraine talks were wrong only accounted for about a 1.5bp dip in 10YY before largely reversing the move.
• The continued flattening sees 2s10s touch 20bps (lowest since Feb/Mar-2020) whilst 5s10s continue to sit around 0bps, last seen for a prolonged period of time in 2006-07.
• 2YY -2.2bps at 1.916%, 5YY -6bps at 2.120%, 10YY -6.2bps at 2.123%, 30YY -8.1bps at 2.372%.
• TYM2 sits 16+ ticks higher on the day at 124-24 on slightly above average volumes. Yesterday’s low of 123-25+ likely becomes new support whilst resistance remains at 126-13+ (Mar 11 high).
• Data: A solid day for second tier releases with jobless claims, housing starts/building permits (0830ET), Philly Fed (0830ET) and IP & cap util (0915ET).
• Bill issuance: US Tsy $45B 4W, $35B 8W bill auctions (1130ET).

Source: Bloomberg

STIR FUTURES: Fed Funds Still Torn On 25bp Or 50bp For May

• Fed Funds futures imply a further 158bps of hikes in 2022, i.e. 6.3 hikes over the six meetings, close to where they were as Powell wrapped up the conference after fluctuating overnight but with a recent dip on the Kremlin denying major progress has been made in talks.
• Despite the hawkish dot plot surprise, the FOMC decision has seen a slight dip in expectations for immediate meetings with 36bp of tightening in May and a cumulative 70bps for June.
• The latter implies a 17% chance of 50bp over the two meetings, 55% chance of 75bp and 28% chance of 100bp.

RUSSIA/UKRAINE: Risk Stumbles As Russia Says Reports of Major Progress in Talks are Wrong

• KREMLIN SAYS REPORTS OF MAJOR PROGRESS IN UKRAINE TALKS 'WRONG'
• KREMLIN: MORE TALKS WITH UKRAINE EXPECTED TODAY
• KREMLIN: BIDEN CALLING PUTIN WAR CRIMINAL IS 'UNFORGIVABLE'
• RUSSIA HAS RESOURCES NEEDED TO AVOID DEFAULT, KREMLIN SAYS
• KREMLIN: 'TRAITORS' DISAPPEARING FROM OUR LIVES ON THEIR OWN

NATO: Germany's Scholz: 'NATO Will Not Intervene Militarily In Ukraine War'

Speaking alongside NATO Sec-Gen Jens Stoltenberg, German Chancellor Olaf Scholz delivers press comments on the war in Ukraine.

• Scholz: 'I want to be very clear, NATO will not intervene militarily in this war'
• Stoltenberg: 'NATO has a responsibility to stop this war escalating further'.
• Scholz and the German gov't facing some criticism this morning for actions in the Bundestag. Following address from Ukrainian President Volodymyr Zelensky the Bundestag leadership swiftly moved onto other business rather than debating Zelensky's address, sparking vocal outrage from opposition CDU Bundestag members.
• Livestream to presser: https://twitter.com/i/broadcasts/1OdKrBgpXPlKX

BANK OF ENGLAND: Summary of Analyst Views

• Of the 22 analyst analyst previews that we have read, 19 look for a 25bp hike this week (the exception being Berenberg who expect the next hike in May).
• Out of those 19 remaining analysts, 18 specify that they expect a further hike in May (Lloyds have not explicitly laid out their view after this meeting).
• Views on the vote breakdown are more nuanced. More seem to expect either a unanimous 9-0 vote or 1-3 members still voting for a 50bp hike. However, Tenreyro voting for an on hold decision is the base case of JP Morgan and discussed by others as a risk.
• There are split views on whether the forward guidance will be tweaked: language on “modest tightening” is expected to remain but whether this will be time contingent on “coming months” has split analysts.
• As we noted earlier, there is a dislocation between economists views and market pricing. For more see here.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXM2 160/158ps 1x1.5, sold at 22 and 21.5 in 2k
RXM2 160/157ps 1x1.5, sold at 54.5 in 1k

OEM2 131.50/130.50/129.50/128.50 p condor sold at 32 in 1k
OEM2 131.50/130.50/128.50/127.50p condor sold at 43 in 2k

DUJ2 111.20/111.00/110.80p fly, sold at 3.5 in 2k
DUJ2 111.30/111.10ps, sold at 7 in 18k (suggest closing)

ERZ2 100.37/100.50/100.625c fly, bought for 1.25 in 2k

US:
TYJ2 123/122ps,, bought for 4 in 5.5k (ref 124.13)

EUROPE ISSUANCE UPDATE

France sells MT OATs:

• E2.93bln 0.50% May-26 OAT, Avg yield 0.20% (Prev. -0.38%), Bid-to-cover 2.20x (Prev. 3.86x)
• E3.897bln 0% Feb-27 OAT, Avg yield 0.32% (Prev. 0.23%), Bid-to-cover 2.44x (Prev. 2.00x)
• E3.17bln 0.50% May-29 OAT, Avg yield 0.50% (Prev. -0.10%), Bid-to-cover 1.85x (Prev. 2.31x)

FOREX: Greenback Follows 2y Yield Off Yesterday's Highs

• The greenback is extending post-Fed decision losses, with the USD Index slipping to the lowest levels since Mar10 in overnight trade. The main beneficiaries so far have been the AUD and GBP, which top the pile in G10 so far. The greenback remains highly correlated with front-end US yields, with the USD Index following the US 2yr yield off yesterday's highs at 1.9956% - which has moderated further through the European morning.
• AUD/USD has managed to recover above the 200-dma at 0.7304, allowing the bearish corrective leg lower at the end of last week. This signals a possible resumption of the uptrend that started Jan 28. Moving averages remain in a bull mode and highlight an uptrend. An extension would open 0.7368, Mar 10 high and 0.7441, the Mar 7 high and bull trigger.
• Following the solid close on Wall Street, European equities have had a more sanguine start, with focus remaining on the Ukraine conflict, as markets attempt to gauge the progression made in peace talks across the week.
• Focus turns to the Bank of England rate decision, at which the MPC are seen raising rates by 25bps to 0.75% - with attention paid to the vote split among the rate-setting committee. Weekly US jobless claims data is also due, along with the February US Industrial Production read.

FX OPTIONS: Expiries for Mar17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800(E735mln), $1.0980-00(E1.2bln), $1.1080-00(E931mln)
• USD/JPY: Y116.30-50($1.1bln)
• EUR/JPY: Y132.00-10(E762mln)
• AUD/USD: $0.7155(A$2.1bln), $0.7200(A$526mln)
• USD/CAD: C$1.2560($745mln)
• USD/CNY: Cny6.3500($629mln), Cny6.3700($546mln)

Price Signal Summary - Yen Weakness Extends, USDJPY Clears A Key Resistance

• A firmer week so far in the equity space. S&P E-Minis traded higher Wednesday and in the process, breached the 20-day EMA. This suggests scope for a stronger short-term recovery and attention turns to the 50-day EMA at 4397.83. This average marks a key resistance and a clear break of it is required to further strengthen short-term bullish conditions. EUROSTOXX 50 futures traded higher yesterday and this has also resulted in a break of the 20-day EMA. The move higher has exposed the 50-day EMA, at 3964.00 and a key resistance.
• In FX, EURUSD is holding onto the bulk of this week’s gains. The pair however remains below its key short-term resistance of 1.1121, the Jan 28 low. Conditions remain bearish while this resistance remains intact. The bear trigger is unchanged at 1.0806, the Mar 7 low. GBPUSD remains in a downtrend and short-term gains are considered corrective. A resumption of weakness would open; 1.2954, the 1.764 projection of the Jan 13 - 27 - Feb 10 price swing and 1.2933, the Nov 5 2020 low. Resistance is seen at 1.3195, the Mar 10 high and 1.3250, 20-day EMA. USDJPY has cleared key resistance at 118.60/66, the Jan 3 ‘17 and Dec 15 ‘16 highs. This strengthens bullish conditions and opens 119.18 next - the 3.236 projection of the Feb 24 - Mar 3 - 4 price swing. Further out, 120.00 beckons. EURJPY has cleared all key retracements of the recent Feb - Mar downleg. This opens 131.91, the Feb 16 high and key resistance at 133.15, Feb 10 high.
• On the commodity front, Gold is off its recent lows. Short-term conditions remain bearish following the recent pullback from $2070.4, Mar 8 high. The 20-day EMA has been breached and this opens $1889.2 next, the 50-day EMA. The broader trend condition is bullish though and the recent pullback is considered corrective. Initial resistance is at $1954.7, the Mar 15 high. Oil markets remain in a short-term corrective bear cycle. The 20-day EMA has been breached and this exposes the 50-day EMA, currently at $93.52. This EMA highlights a key area of support. Initial firm resistance is at $110.29, the Mar 11 high.
• In the FI space, Bund futures maintain a bearish tone and have this week breached key support at 161.50, the Feb 10 low and a medium-term bear trigger. The break confirms a resumption of this year’s downtrend and opens the 160.00 handle. Gilts yesterday probed the key support at 121.10, Feb 16 low. A clear break would open 120.00 and confirm a resumption of the broader downtrend.