MNI US MARKETS ANALYSIS - USD/JPY Touches New Cycle High

US TSYS SUMMARY: Treasuries Firm On The Day As Biden Heads To Brussels

• Cash Tsys have rallied on the day as Biden heads to Brussels with plans for more sanctions on Russia. A modest trimming in rate hike expectations from very high levels has helped drive a bull steepening.
• 2YY -2.8bps at 2.136%, 5YY -3.4bps at 2.366%, 10YY -1.8bps at 2.364% and 30YY -0.6bps at 2.595%.
• TYM2 has nudged higher on the day, up 3 ticks at 122-26+ after a brief sell-off shortly after open on slightly above average volumes. Initial support is now seen at the earlier low of 122-12 whilst resistance remains at 124-25+ (Mar 18 high).
• Fedspeak: Powell at 0800ET at BIS panel on innovation with possibly limited mon pol implications after a similar appearance from Williams yesterday. Daly (2024 voter) and Bullard (2022) both speak for the second day running.
• Bond issuance: US Tsy $16B 20Y Bond auction re-open (1300ET)

STIR FUTURES: Slight Pullback In Fed Hikes

• FOMC-dated Fed Funds futures have 42bps priced for the May meeting, 80bps for June (two meetings), 142bps for Sep (four meetings) and 185bps for Dec (six meetings).
• Mester (2022 voter) yesterday indicated she was in a similar camp to Waller: she doesn’t think 50bp hikes should be off the table, further implied by suggesting she was one of the three dots pencilling in a target range of 2.25-2.5% by year-end (i.e. 200bps of additional hikes).
• Powell speaks at 0800ET at the BIS Panel on Innovation but might not add much after his hawkish acceleration on Monday - Williams’ BIS participation yesterday had little mon pol implication.
• Doubling up after yesterday, Daly (2024 voter) is at 1145ET before double Bullard (2022) at 1500ET and 2105ET. Daly indicated she supports “marching up to neutral and looking at whether we need to go over neutral” but without a timeline, whilst Bullard has already revealed himself as the dot calling for a further 275bps of tightening this year.

Cumulative hikes implied for FOMC meetings by Fed Funds futuresSource: Bloomberg

EUROPE ISSUANCE UPDATE

EGB SYNDICATION: Austria 10y

• Final Spread: MS-15bp
• Guidance MS-13 area
• Books >E20.8bln (incl JLM interest)

EUROPE OPTION FLOW SUMMARY

Eurozone:
DUK2 111.00/110.90/110.80/110.70 put condor bought for 1.75 in 10k

US:
FVK2 115.75p was sold from 115.5 to 108 in 15k
FVK2 114.25p, bought for 29.5 up to 30.5 in 20k

UK: House Of Commons Timeline, Spring Statement In Focus

Political and market focus in the UK today trained on the House of Commons, where Chancellor of the Exchequer Rishi Sunak will deliver the 'spring statement' (a mini-budget) later today. Below we outline the approximate timings.

• Prime Ministers' Questions - 1200GMT (0800ET, 1300CET, 2100JST) - Boris Johnson - PMQs before major fiscal statements are usually a fairly formulaic affair, with little in the way of concrete announcements, MPs focus on the main event.
• Spring Statement - 1230GMT (0830ET, 1330CET, 2130JST) - Rishi Sunak - Chancellor delivers the spring statement directly after PMQs, could be delayed by a few mins if PMQs is allowed to drag on. MNI will have live coverage of major political announcements and market-relevant information from Sunak's statement on the bullet feed.
• Opposition Response - 1330GMT (approx.) (0930ET, 1430CET, 2230JST) - Rachel Reeves - Shadow Chancellor delivers opposition response to the spring statement. Time approx as response depends on how long Sunak's address lasts.

FOREX: USD/JPY Consolidates After Hitting New Cycle High

• Risk sentiment is generally slightly firmer, with European equities following the Wall Street lead after Tuesday's positive close. JPY was initially offered further in Asia-Pac trade, putting USD/JPY at a new multi-year high of 121.41 - before consolidating a profit-taking brought the pair slightly lower into the NY crossover.
• GBP is the poorest performer so far Wednesday, despite headline CPI data coming in ahead of expectations - mimicking the higher-than-forecast inflation releases across Europe and the US. The 0.2ppt increase marked the 5th consecutive upside surprise. GBP/USD has ebbed off the overnight high of 1.3298, erasing a small part of the sizeable Tuesday rally.
• SEK has firmed, with EUR/SEK returning back toward the 100-dma support at 10.3666 following a somewhat hawkish speech from Riksbank deputy governor Breman, who noted that policy rates may need to be hiked earlier, shrugging off the February rate path which is "now a thing of the past".
• Focus turns to US new home sales data for February, the Spring Statement from the UK Chancellor and the BIS Innovation Summit, at which Fed's Powell, BOE's Bailey and ECB's Nagel are due to speak. Monetary policy may not be discussed, but markets will keep a close eye regardless. ECB's Visco, Fed's Daly & Bullard are also due.

FX OPTIONS: Expiries for Mar23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0850(E621mln), $1.1065-80(E1.1bln)
• EUR/JPY: Y130.50(E815mln)
• USD/CAD: C$1.2630-50($1.3bln)

Price Signal Summary - FI Space Remains Vulnerable

• In the equity space, S&P E-Minis are trading near recent highs. The contract remains above the 50-day EMA that intersects at 4406.25 today - the break of this EMA has improved bullish conditions. Scope is seen for a climb towards 4578.50, the Feb 9 high. Initial support is seen at 4352.15, the 20-day EMA. EUROSTOXX 50 futures traded higher earlier today and moved out of its recent range. This reinforces current bullish conditions and the contract is closing in on the 50-day EMA at 3873.40. This average represents an important resistance and if cleared, would further strengthen a bullish short-term theme.
• In FX, EURUSD remains below last week’s high of 1.1137 (Mar 17). Trend signals continue to highlight a downtrend and the recent pullback signals a possible resumption of the bear cycle . An extension lower would open 1.0890, the Mar 9 low and 1.0806, the Mar 7 low and bear trigger. GBPUSD traded higher yesterday and through the 20-day EMA. Key short-term resistance is now seen at the 50-day EMA that intersects at 1.3349. A break of the average is required to suggest potential for a stronger recovery. Watch support at 1.3120, yesterday’s low. USDJPY maintains a bullish tone and has traded above 121.00. This week’s breach of the top of the bull channel, drawn from the Jun 1 2021 high and the psychological 120.00 handle, confirms a resumption of the uptrend. The focus is on 121.69, the Jan 29 2016 high.
• On the commodity front, Gold continues to consolidate. Short-term conditions remain bearish following the recent pullback from $2070.4, Mar 8 high. Attention is on $1895.3, the 50-day EMA. The broader trend condition is bullish though and the recent pullback is considered corrective. Initial resistance to watch is at $1954.7, the Mar 15 high. A break of the 50-day EMA would be bearish and instead suggest scope for a deeper pullback. Oil markets have recovered from recent lows and traded higher this week, extending last week’s bounce. WTI sights are on $118.34, 76.4% of the Mar 7 - 15 downleg.
• In the FI space, yields look set to continue rising. Bund futures have cleared the 160.00 handle this week, confirming a resumption of the downtrend. This opens 158.84 next, the Oct 22 2018 low (cont). Gilts have breached key support at 121.10, Feb 16 low. This opens 120.00 next and confirms a resumption of the broader downtrend. The bearish theme in Treasuries remains intact. The focus is on the 122-00 handle.

EQUITIES: European Stocks Higher, Led By Energy

• Asian markets closed sharply higher: Japan's NIKKEI closed up 816.05 pts or +3% at 28040.16 and the TOPIX ended 44.96 pts higher or +2.33% at 1978.7. China's SHANGHAI closed up 11.17 pts or +0.34% at 3271.032 and the HANG SENG ended 264.8 pts higher or +1.21% at 22154.08
• European equities are gaining, with the German Dax up 54.8 pts or +0.38% at 14528.09, FTSE 100 up 39.33 pts or +0.53% at 7515.4, CAC 40 up 20.17 pts or +0.3% at 6681.59 and Euro Stoxx 50 up 8.95 pts or +0.23% at 3935.57.
• U.S. futures are a little lower, with the Dow Jones mini down 38 pts or -0.11% at 34671, S&P 500 mini down 4.5 pts or -0.1% at 4500.5, NASDAQ mini down 13.75 pts or -0.09% at 14640.

COMMODITIES: Oil, Precious Metals Tick Higher From Overnight Lows

• WTI Crude up $1.07 or +0.98% at $110.29
• Natural Gas down $0.06 or -1.06% at $5.132
• Gold spot up $1.9 or +0.1% at $1923.63
• Copper up $4.1 or +0.87% at $474.1
• Silver up $0.2 or +0.8% at $24.9842
• Platinum down $3.98 or -0.39% at $1021.68