MNI ASIA OPEN: Tsys React to Dueling ECB Guidance Opinions

US TSYS Inside Range Into Early Holiday Close

• Still weaker, Tsy futures back near midmorning highs at the early close" TYH4 at 112-13.5 (-5.5) last, compares to session low of 112-07 -- well inside technical levels: initial resistance above at 112-26+ (High Jan 12), initial support at 111-06+ (Low Jan 05)
• Volumes remain very light, TYH4 just over 250k, with most markets closed in observance of the Martin Luther King Holiday. Monday Globex re-open at 1800ET precedes normal session hours Tuesday.
• As noted earlier, Tsys appeared to follow EGBs lead after ECB Holzmann's hawkish opinion of no rate cut in 2024. On the flipside, former ECB economist Riccardo Trezzi told MNI he expects the ECB to reduce its benchmark deposit rate by around 150 basis points this year.
• Cross assets: CME S&P Eminis see-saw off lows: ESH4 -3.0 at 4813.5 (DJIA and Nasdaq closed for MLK holiday), Crude weaker (WTI -.23 at 72.45), Gold firmer: +5.79 at 2054.85.

NEWS

POLITICAL RISK (MNI): Big Trump Win Predicted In Iowa
Former President Donald Trump goes into today’s Iowa caucuses, the first voting of the 2024 Republican presidential nomination process, with a huge polling lead. With the broad assumption that Trump will win comfortably today, most focus will be on whether former South Carolina Governor Nikki Haley or Florida Governor Ron DeSantis (R-FL) can deliver results which point to a competitive primary.

US POLITICAL RISK (MNI): Continuing Resolution
House Speaker Mike Johnson (R-LA) and Senate Majority Leader Chuck Schumer (D-NY) yesterday unveiled a Continuing Resolution which extends government funding into March, keeps in place Johnson’s two-tiered funding strategy, and honours the FY2024 topline spending numbers announced by Congressional leaders last week.

BOC (MNI): Most Firms Still See CPI Above BOC Target Band For 2 Yrs
Canadian firms continue to see inflation remaining above the central bank's target range over the next two years according to a BOC survey published Monday, and households also see wage gains staying around record highs.

ECB (MNI): Holzmann Retains Position as Arch-Hawk at ECB
Comments from ECB's Nagel and ECB's Holzmann crossing ahead of the World Economic Forum in Davos: ECB's Nagel states that it is too early to talk about rate cuts, and inflation is still too high. This leaves markets as over-optimistic, and "maybe we can wait for Summer break" before mulling rate cuts.

INTERVIEW (MNI): ECB Heading For Spring Cuts-Ex ECB Economist
The eurozone economy is likely to avoid recession, but inflation should slow sufficiently for the European Central Bank to reduce its benchmark deposit rate by around 150 basis points this year, former ECB economist Riccardo Trezzi told MNI.

SECURITY (MNI): Zelenskyy: We Want China Involved In Our "Peace Formula"
Reuters carrying comments from Ukrainian President Volodymyr Zelenskyy and Swiss President Viola Amherd, speaking at a press conference in Bern ahead of the World Economic Forum in Davos, stating that Zelenskyy, "has asked Switzerland to organise a high-level peace conference.

SECURITY (MNI): UKMTO Reports Missile Strike On Vessel In Red Sea
The United Kingdom Maritime Trade Operations (UKMTO) has reportedon X that a vessel, "has been hit from above by a missile," in the Red Sea, southeast of Aden.

ISRAEL (MNI): Israeli Cabinet Passes Amended War Budget
The Israeli cabinet has passed an amended state 'war' budget which includes a sharp increase in spending to finance its operations against Hamas.

NORTH KOREA (MNI): Kremlin-We Aim To Develop Ties w/North Korea In All Areas
Kremlin spox Dmitri Peskov spoke up relations between Russia and North Korea earlier, claiming that "... we are developing and intend to further develop partnerships in all areas."

OVERNIGHT DATA

US: No scheduled data Monday, Martin Luther King national holiday (cash FI markets closed, but Globex open until 1300ET).

CANADA (MNI): Home Sales Bounce But Prices Continue To Roll Over In December
Existing home sales increased a strong 8.7% M/M in December after five consecutive monthly declines worth a cumulative -12.3%.

• There a tightening of relative supply after months of easing, with sales to new listings increasing from 50.5% to 57.8% for its highest since July whilst months of supply fell 0.4mths to 3.8 in a sharper than usual correction for the time of year – see chart.
• The benchmark house price index meanwhile saw a further -0.8% M/M decline in December, its fourth consecutive decline. It’s seen prices fall 3% since August, pushing them to 13% below the post-pandemic peak despite the trend easing in relative supply over the second half of 2023.

BOC (MNI): Inflation Expectations Remain Elevated for Businesses And Consumers
BoC business survey says over half of businesses expect inflation to be above +3% over the next two years, around the same as last quarter at +54%.

• While consumer perceptions of current inflation have moved down to +5.9% from +6.6% one year ahead inflation expectations remain elevated and show little downward movement.
• Firm hiring plans are the lowest since 2016 and expected wage increases are lower, although still around a percentage point greater than the historical average.
• Consumer wage growth expectations continue to be near record highs with +2.7% gains over the next year.

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• S&P E-Mini Future down 3 points (-0.06%) at 4813.5
• US 10-Yr yield is unchanged 0 bps at 3.939%
• US Mar 10-Yr futures are down 5.5/32 at 112-13.5
• EURUSD down 0.0002 (-0.02%) at 1.0949
• USDJPY up 0.91 (0.63%) at 145.79
• WTI Crude Oil (front-month) down $0.24 (-0.33%) at $72.45
• Gold is up $5.94 (0.29%) at $2055.00
• European bourses closing levels:
• EuroStoxx 50 down 25.34 points (-0.57%) at 4454.68
• FTSE 100 down 30.02 points (-0.39%) at 7594.91
• German DAX down 82.34 points (-0.49%) at 16622.22
• French CAC 40 down 53.46 points (-0.72%) at 7411.68

US TSY FUTURES CLOSE

• 3M10Y +0, -144.027 (L: -144.027 / H: -144.027)
• 2Y10Y +0, -20.722 (L: -20.722 / H: -20.722)
• 2Y30Y -0.086, 2.892 (L: 2.892 / H: 2.892)
• 5Y30Y -0.086, 34.161 (L: 34.161 / H: 34.161)
• Current futures levels:
• Mar 2-Yr futures down 2.75/32 at 103-1 (L: 102-31.62 / H: 103-02.75)
• Mar 5-Yr futures down 4.75/32 at 108-20 (L: 108-16.25 / H: 108-23.25)
• Mar 10-Yr futures down 5.5/32 at 112-13.5 (L: 112-07 / H: 112-18.5)
• Mar 30-Yr futures down 7/32 at 122-21 (L: 122-09 / H: 123-03)
• Mar Ultra futures down 13/32 at 129-5 (L: 128-21 / H: 129-30)

US 10Y FUTURE TECHS: (H4) Trading Above Support

• RES 4: 114-06+ 2.00 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 3: 114-00 Round number resistance
• RES 2: 113-12 High Dec 27 and the bull trigger
• RES 1: 112-26+ High Jan 12
• PRICE: 112-12+ @ 11:14 GMT Jan 15
• SUP 1: 111-06+ Low Jan 05
• SUP 2: 111-01+ 50-day EMA
• SUP 3: 110-16 Low Dec 13
• SUP 4: 109-31+ Low Dec 11 and a key short-term support

Treasuries are holding on to the bulk of their recent gains and price remains above 111-06+, the Jan 5 low. The latest recovery suggests that the recent correction lower, between Dec 27 - Jan 5, may be over. If correct, this signals scope for a climb towards the key resistance and bull trigger at 113-12, the Dec 27 high. Clearance of this level would resume the uptrend and open the 114-00 handle. Key pivot support lies at 111-01+, the 50-day EMA.

SOFR FUTURES CLOSE

• Mar 24 -0.030 at 94.980
• Jun 24 -0.050 at 95.525
• Sep 24 -0.055 at 95.970
• Dec 24 -0.060 at 96.315
• Red Pack (Mar 25-Dec 25) -0.05 to -0.035
• Green Pack (Mar 26-Dec 26) -0.025 to -0.015
• Blue Pack (Mar 27-Dec 27) -0.025 to -0.02
• Gold Pack (Mar 28-Dec 28) -0.02 to -0.015

FIXES AND PRIOR SESSION REFERENCE RATES

No settles for Monday due to Martin Luther King holiday, below are Friday's fixes for reference:

SOFR Benchmark Settlements:

• 1M +0.00482 to 5.33798 (-0.00126/wk)
• 3M +0.00254 to 5.31653 (-0.01273/wk)
• 6M -0.00218 to 5.15347 (-0.03937/wk)
• 12M -0.01317 to 4.78978 (-0.06472/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.648T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $681B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $668B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $96B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $255B

EGBs-GILTS CASH CLOSE: German Short End Retreats On ECB Cut Pushback

Bunds underperformed Gilts Monday in a quieter session amid a US bond market holiday.

• The German curve bear flattened, with short-end underperformance reflecting 2024 rate cut pushback from across the ECB hawk-dove spectrum: this included Nagel, Holzmann, Herodotou, and (on Saturday) Lane.
• By comparison to Bunds, Gilt yields were steady across the curve, ahead of labour market and inflation data out Tuesday and Wednesday.
• Periphery spreads widened slightly, with GGBs underperforming.
• Data included soft (as expected) Eurozone industrial production data and an in-line German 2023 GDP growth estimate that underlined weakness in domestic demand.
• On Tuesday, in addition to the UK labour market data, we get final German/Italian inflation and the ZEW survey, with ECB inflation expectations featuring. Additionally we have appearances by ECB's Villeroy and BoE's Bailey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is up 8.1bps at 2.598%, 5-Yr is up 6.4bps at 2.142%, 10-Yr is up 4.9bps at 2.233%, and 30-Yr is up 4bps at 2.435%.
• UK: The 2-Yr yield is up 0.1bps at 4.161%, 5-Yr is up 0.9bps at 3.67%, 10-Yr is up 0.4bps at 3.797%, and 30-Yr is up 2.7bps at 4.451%.
• Italian BTP spread up 2.3bps at 157.3bps / Greek up 2.4bps at 108.2bps

FOREX Early Yen Weakness Consolidates, NZD Underperforms

• Despite a US session that was void of any meaningful moves across the currency space, early weakness for the likes of the Japanese Yen and New Zealand dollar have been consolidated as we approach Tuesday’s APAC crossover.
• USD/JPY's spot strength (+0.62%) on Monday puts the pair within range of the more sizeable option expiries rolling later this week, with over $4bln notional set to roll-off between Y145.70-00 across the Tues-Friday NY cuts. Close proximity of the more notable strikes likely aiding the pullback in 1w vols today, which is nearing the lowest levels of the year so far. However, subdued front-end vols unlikely to persist, with the BoJ decision next week (Jan23) likely to become a focal point for markets.
• Spot moves today further undermining a recent bearish theme for USDJPY and instead highlights potential scope for a continuation of the bull cycle, opening 147.32, the Dec 7 high.
• NZD (-0.61%) screens as the worst performer in G10, alongside JPY, and maintains the downward bias seen in 2024. NZDUSD fell just short of immediate support seen at 0.6181.
• The tilt towards greenback strength was potentially aided by the ongoing tensions surrounding the red sea. There has been a very tight range for the likes of EURUSD with earlier lows intact at 1.0934, with the Jan11 low just below at 1.0930. USD/CAD has maintained an upward bias also, adding to recent strength and briefly putting the pair above last week's peak at 1.3443 - the YTD high.
• UK employment data and German ZEW sentiment figures cross tomorrow morning. That will be followed by Canadian CPI for December, alongside US Empire State Manufacturing data. Bank of England Governor Bailey is due to testify on the UK economy before the Lords Economic Affairs Committee.

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
16/01/2024	0700/0800	***		DE	HICP (f)
16/01/2024	0700/0800	**		NO	Norway GDP
16/01/2024	0700/0700	***		UK	Labour Market Survey
16/01/2024	0900/1000	**		IT	Italy Final HICP
16/01/2024	0900/1000	**		EU	ECB Consumer Expectations Survey
16/01/2024	0900/1000			EU	ECB's De Guindos in ECOFIN meeting
16/01/2024	1000/1100	***		DE	ZEW Current Conditions Index
16/01/2024	1000/1100	***		DE	ZEW Current Expectations Index
16/01/2024	1000/1000	*		UK	Index Linked Gilt Outright Auction Result
16/01/2024	1315/0815	**		CA	CMHC Housing Starts
16/01/2024	1330/0830	***		CA	CPI
16/01/2024	1330/0830	**		US	Empire State Manufacturing Survey
16/01/2024	1500/1500			UK	BOE's Bailey Lords Economic Affairs Committee
16/01/2024	1600/1100			US	Fed Governor Christopher Waller
16/01/2024	1630/1130	*		US	US Treasury Auction Result for 13 Week Bill
16/01/2024	1630/1130	*		US	US Treasury Auction Result for 26 Week Bill
16/01/2024	1800/1300	*		US	US Treasury Auction Result for Cash Management Bill