US 10YR FUTURE TECHS: (M6) Bear Cycle Extension

• The Japanese yen has strengthened after Finance Minister Katayama calmed markets on the timing and financing of the sales tax cut for food. Downside momentum for USDJPY has picked up pace, extending the reversal from yesterday’s post-election high to around 1.6%, and printing a pullback low of 155.09.
• Price action increasingly blurs the technical picture for USDJPY as spot is cleanly below through the 50-day EMA which may bolster the short-term bearish outlook. The 100-day MA intersects at 154.52.
• The January acceleration in Norwegian CPI-ATE looks broad-based, with start-of-year price resets in the likes of rents and insurance highlighted. Any scope for payback in February won't be enough to ease Norges Bank concerns around inflation persistence, which leads EURNOK 0.35% lower with initial support at the Jan 29 low of 11.3610.
• Last week’s stabilisation and then subsequent recovery for risk have spurred an impressive 2.9% AUDUSD rebound from Friday’s low. This culminated in AUDUSD printing a fresh cycle high late Thursday, at 0.7099, the highest level since February 2023. While the 0.71 handle has capped the price action overnight, the session range has remained narrow, allowing the pair to consolidate the solid bounce.
• GBP consolidates its recovery seen yesterday afternoon following PM Starmer securing the public support of every cabinet minister after his future came under threat for his involvement with former ambassador Mandelson. Any market caution around Starmer's future has two legs as the fiscal angle adds to political instability. 1.37 has been capping short-term gains for GBPUSD.
• Separately, downside momentum for EURCHF has extended on Tuesday, resulting in fresh lows at 0.9120 today, the lowest level since the removal of the peg in 2015.
• US retail sales, ECI, import and export prices, redbook retail sales, and business inventories are on the calendar ahead of US payrolls (Wed) and CPI (Fri).

Gilts have firmed, initially benefitting from the bid in wider core global FI markets (with focus on U.S. NEC Chair Hassett’s warning re: the upcoming labour market report and a bid in JGBs amid ongoing digestion of the fiscal situation in post-election Japan).

• Swelling global issuance has capped the rally to some degree.
• Gilts & swap spreads have recovered after Monday’s ministerial support for PM Starmer (albeit with questions over how long such support will ultimately last), trimming UK political & fiscal risk premia established in recent sessions. 10-Year swap spreads are less than 1bp off year-to-date highs.
• Gilt futures +32 at 90.83 vs. highs of 90.96, closing Monday’s opening gap lower.
• The contract has broken through downtrend resistance drawn off the January 15 high. Still, the 20-day EMA (91.09 today) remains unchallenged and presents initial resistance. That leaves bears in technical control, with yesterday’s cycle low (89.76) providing initial support.
• Yields 0.5-3.0bp lower, curve flatter. 2s10s sub-90bp after the first close above since ’18. Next upside level of note at the ’18 closing high (94.63bp).
• Gilt/Bunds traded as wide as ~175bp during yesterday’s gilt sell off but has narrowed to ~166bp at typing.
• The DMO’s GBP3.75bln sale of the 4.125% Mar-31 gilt generated decent demand.
• There is focus on U.S. tech giant Alphabet’s debut GBP deal (across 3-, long 6-, long 15-, 32- & 100-Year maturities). Watch for activity around pricing.
• Front end pricing steady on the day, showing 17bp of easing for March, 23bp for April, 32bp through June and 45bp through November.
• Little of note on the UK economic calendar today.