MNI US MARKETS ANALYSIS - Greenback Crests at New High Pre-Fed

US TSYS: Front End Shrugs Off Russia Partial Mobilisation Ahead Of FOMC

• Cash Tsys have rallied from yesterday’s new cycle highs across the curve, with yields helped lower by Putin announcing ‘partial’ military mobilisation before retracing the move to differing degrees, more so at the front end as yields remain close to 4% ahead of today’s FOMC decision.
• 2YY -0.8bps at 3.959%, 5YY -2.1bps at 3.725%, 10YY -2.5bps at 3.538% and 30YY -2.7bps at 3.543%.
• TYZ2 trades 6 ticks higher at 114-01 on above average volumes. The trend needle still points south despite pulling off yesterday’s low of 113-20+, which now forms initial support just above 113-19 (Jun 19, 2009 low cont.).
• FOMC policy announcement including Summary of Economic Projections at 1400ET before Powell's Press Conference at 1430ET
• Data: Existing home sales for Aug and weekly MBA mortgage applications
• Bill issuance: US Tsy $30B 119D Bill CMB auction (912796ZL6) – 1130ET

STIR FUTURES: Fed Hike Expectations Within Week's Range Pre-FOMC

• Fed Funds implied hikes sit within the week’s range ahead of today’s FOMC decision, with 79bps priced.
• Later meetings are off yesterday’s highs but still see 4.21% for Dec’22, a terminal 4.49% Mar’23 and 44bps of cuts to 4.05% come Dec’23, broadly preserving the ~50bp parallel shift higher in terminal and Dec’23 points since the US CPI beat.

FOMC-dated Fed Funds implied hike for Sep FOMC (white) and rates at specific meetings thereafterSource: Bloomberg

RUSSIA: Putin Mobilisation Call Suggests Ukraine War to Drag Through Winter

• Putin confirmed speculation this morning that partial mobilization is now underway in Russia. This is confirmation that the war in Ukraine is likely to continue to drag through the winter.
• Defence Minister Shoigu has stated that Russia is to mobilise 300,000 reservists, noting that this is only a fraction of Russia's troops available to be called up. The International Institute for Strategic Studies estimate that there are at least 2 million reserve personnel and 20 million former military personnel, 10% of whom have seen active service within the last five years.
• Kommersant confirm that territories of Ukraine outside Kyiv’s control will hold referendums on whether to join Russia from 23-27 Sep. The US and Europe have already stated that they do not recognise "fictitious referendums". Lawyers note that if these territories are included in the Russian Federation, Moscow will be able to interpret attacks on them as aggression and take a whole range of response measures - from full or partial mobilization to a theoretical nuclear strike.

EU-RUSSIA: EU Spox-Russia's Decision Will Result In Consequences On Our Part

Comments hitting wires from EU Commission spokesman Eric Mamer regarding Russian President Vladimir Putin's announcement of a 'partial mobilisation' of reserves. Lead Spokesperson of the European Commission for Foreign Affairs Peter Stano also speaking.

• Mamer: 'Russia's mobilisation shows Putin is desperate...His moves show he seeks to escalate the war.'
• Mamer: 'Mobilisation shows Putin is only interested in advancing his destructive war'.
• Mamer: 'Russia's decision will result in consequences on our part'. Unclear what these consequences will be at present, with EU potentially taking a wait-and-see approach with how the partial mobilisation is implemented.
• Livestream: https://audiovisual.ec.europa.eu/en/ebs/live/1
• Stano states Commission will continue to support a change to qualified majority voting on areas of foreign policy and security. Remains a v. controversial subject. EU says would allow faster reaction internationally, but concerns about loss of sovereignty among member states.

FOREX: USD Touches Fresh Cycle Best as Putin Rounds Up Troops

• Risk appetite took an early knock in European hours as President Putin began his delayed address to the nation, confirming that a partial mobilisation is effective today across Russia. The decree sees reservists called up to the armed forces, with the Kremlin looking to use imminent referendums as justification to send in more troops to defend what they see as newly-earned Russian soil.
• As a result, haven currencies are the outperformers, with the greenback on top and putting USD Index at a new cycle high of 110.869. Putin's call suggests the Ukraine war will likely persist through the winter, and could elicit a response from Western powers, who have put down planned votes as illegitimate.
• EUR/USD plumbed a new intraday low of $0.9885 in response, narrowing the gap with key support at the cycle and multi-decade low of $0.9864. This level comes into particular focus ahead of what's expected to be a hawkish FOMC meeting.
• Elsewhere, SEK is spiraling, extending the weakness seen following the Riksbank rate decision yesterday, with the accompanying rate path strongly suggesting the tightening bias will ease going forward.
• Focus understandably turns to the FOMC rate decision after the London close Wednesday, with the Fed expected to keep pace with a 75bps rate hike. Attention will be paid to the voting split made among the committee and any suggestions of the terminal rate at the Fed.

Price Signal Summary - Path Of Least Resistance in FI Futures Remains Down

• In the equity space, S&P E-Minis remain soft and continue to trade closer to recent lows. Last week’s breach of 3900.00, the Sep 7 low, strengthened bearish conditions and signals scope for a move towards 3819.54 next, 76.4% retracement of the Jun 17 - Aug 16 bull leg. A break would open 3741.75, the Jul 14 low. EUROSTOXX 50 futures maintain a bearish tone following the reversal on Sep 13 and the subsequent move lower. A key support at 3423.00, the Sep 5 low, has been pierced. A clear break would expose 3360.00, the Jul 16 low.
• In FX, the EURUSD outlook remains bearish and the pair is trading lower. Price remains inside the bear channel, drawn from the Feb 10 high and attention is on the bear trigger at 0.9864, Sep 6 low. The channel top intersects at 1.0087 and marks a key resistance. A channel breakout is required to signal a short-term reversal. GBPUSD trend conditions remain bearish and the downtrend has again resumed. The recent break of support at 1.1406, Sep 7 low, confirmed a continuation of the downtrend. The focus is on 1.1248, 1.618 projection of the Jun 16 - Jul 14 - Aug 1 price swing. USDJPY is consolidating and this pause in the uptrend appears to be a bullish pennant formation. This pattern reinforces the broader bullish theme and attention is on the bull trigger at 144.99, Sep 7 high. A break would resume the uptrend and open 145.28 and 146.03, the 2.618 and 2.764 projection of the Aug 2 - 8 - 11 price swing. Initial firm support is at 141.51, Sep 9 low. A strong support also lies at the 20-day EMA, at 141.43.
• On the commodity front, Gold remains in a clear downtrend and last Thursday’s bearish extension reinforces this theme - price has cleared support at $1681.0, the Jul 21 low and this confirms a resumption of the downtrend that started early March. Attention is on $1640.9 next, the Aug 8 2020 low. Initial resistance is at $1688.9, the Sep 1 low. In the Oil space, the WTI futures outlook is bearish and today’s gains are considered corrective. The recent break of support at $85.37, Aug 16 low, confirmed a resumption of the downtrend that started Jun 8. A resumption of weakness would open $79.83 next, the Feb 18 low. Firm resistance is at $89.86, the 50-day EMA.
• In the FI space, Bund futures remain in a clear downtrend and Tuesday’s extension lower confirmed a resumption of the bear leg that started early August. 140.67, the Jun 16 low (cont), has been pierced. A clear break would open the psychological 140.00 handle. Gilts remain vulnerable and futures touched a fresh trend low of 103.60 on Tuesday. Attention is on 103.31 the Jun 2008 low.