MNI EUROPEAN MARKETS ANALYSIS: USD Follows Broader Risk Trend

Feb-06 06:04By: Jonathan Cavenagh

Europe

Risk sentiment started the session off very poorly. Carry over negative sentiment in the equity space weighed on US futures (amid on-going AI capex concerns), while silver and bitcoin fell sharply. Sentiment improved though, albeit without an obvious catalyst. Silver is +15% above earlier lows, but still off around 12.5% for the week.
The USD BBDXY index rose to 1197 in early dealings but sits back under 1194 now. Regional equity market sentiment is mostly under pressure, particularly in the tech space.
With no NFP later, focus will be on Canadian employment data, as well as preliminary reads of UMich sentiment and inflation expectations.

MARKETS

US TSYS: Futures Move Suggest PF Rebalancing, Equity Vol Key to Next Move

An unsurprisingly modest day for USTs today following the dramatic moves overnight. Moves in Asia today appeared more positioning related rather than any follow on from the fall in yields. Bond markets are sensitive to data misses for now as the 'Warsh Premium' moderates for now, with non farm payrolls next in the queue on the 11th.

Bond futures are up across maturities with the 10-Yr higher by +06 at 112-09+, now by +0-15 for the week. Volumes were high today yet given the relative minor moves in price, back up the idea that most activity was attributed to rebalancing.

Cash was mostly higher in yield with yields up between +0.2bps and +1.0bps, with the front end underperforming.

The 2-Yr is up +1.2bps at 3.467%
The 5-Yr is up +0.7bps at 3.727%
The 10-Yr is up +0.8bps at 4.19%
The 30-Yr is up +0.7bps at 4.85%

University of Michigan Sentiment indexes are in focus tonight alongside US$89bn 13-week and US$77bn 26-week auction.

Vice Chair Jefferson is scheduled to participate in a discussion hosted by the Brookings Institution in Washington focusing on "Supply-Side Factors and Inflation"

STIR: AUS Is A Hawkish Outlier In The $-Bloc

Interest-rate expectations across the $-bloc over the past three weeks, looking out to June 2026, have softened slightly, with the notable exception of Australia, where expectations firmed by 27bps. Elsewhere, US and Canada pricing moved 7bps and 3bp lower, respectively, while New Zealand nudged 2bps higher.

The key event of the past week was the RBA’s decision to hike interest rates by 25bps to 3.85% on Tuesday.
The RBA raised the cash rate to 3.85%, as expected by the sell-side consensus and which was largely priced by the market (around 75% priced in per OIS markets prior to the decision). The decision was unanimous by the board. The risks appear skewed towards further action to ensure that inflation moves sustainably back into the target band of 2-3%. (see MNI RBA Review here).
RBA Governor Bullock was before the Australian Parliament this morning and stated that the RBA is watching inflation risks, particularly in terms of how much of the recent uptick is temporary versus persistent, and in turn capacity constraints, which will be the key watch points around further tightening.
The next major regional policy event is the RBNZ meetings on 18 February. No tightening is priced for February, while December 2026 assigns 43bps.
Looking ahead to June 2026, current market-implied policy rates expected are as follows: US (FOMC): 3.36%, -26bps; Canada (BOC): 2.21%,-4bp; Australia (RBA): 4.08%, +23bps; and New Zealand (RBNZ): 2.33%, +8bps.

Figure 1: $-Bloc STIR (%)

Source: Bloomberg Finance LP / MNI

JAPAN: MNI Publishes Election Preview

Access Full Report Here

Japan holds a snap general election for the lower chamber of the National Diet, the House of Representatives, on Sunday, 8 February. The contest comes as part of an effort by Prime Minister Sanae Takaichi to reinforce her position as president of the governing Liberal Democratic Party (LDP) and take advantage of strong personal approval ratings to secure a majority in the lower House. Since winning the LDP presidency and taking over from Shigeru Ishiba, becoming Japan’s first female prime minister in October 2025, Takaichi has pursued a more robust stance in regional foreign policy and advocated for a “responsible proactive fiscal policy”. Markets will be watching the election closely for signs of whether Takaichi emerges emboldened or chastened from taking such a political gamble.

In this Election Preview, we outline the electoral system for the House of Representatives and the main parties contesting the vote, put together a chartpack of relevant opinion polling and predictions market odds, provide analysis of potential post-election scenarios with assigned probabilities, an outlook for the election from a financial market and macro perspective, and a round-up of analyst views on the vote.

JGBS: Early Gains Pared As Risk Assets Rebound

JGB futures are little changed, -2 compared to settlement levels, after giving strong early gains as market partially unwound yesterday’s risk-off sentiment.

MNI: Bank of Japan board member Kazuyuki Masu said on Friday that the BOJ needs to raise the policy rate in a timely manner to ensure underlying inflation remains below 2%, but he did not give a timeline. “Although the underlying inflation rate remains below 2%, it is drawing very close to the 2% target,” Masu told business leaders in Matsuyama City. He added that Japan has entered an inflationary phase as deflationary behaviour gradually unwinds.
Cash US tsys are little changed in today's Asia-Pac session after yesterday’s risk-off induced bull-steepener.
Cash JGBs 1-2bps richer across benchmarks. The benchmark 30-year yield is 1.2bps lower at 3.558% after being 3.517% earlier.
Swap rates are flat to 2bps higher, with a steeper curve.
On Monday, the local calendar will see Cash Earnings, Current Account and Trade Balance, and Bank Lending data.

Source: Bloomberg Finance LP

JAPAN DATA: Household Spending Slumps Back Into Negative Territory

Japan Dec real household spending was much weaker than consensus forecasts. We printed at -2.6%y/y, versus the -0.3% forecast and +2.9% prior outcome. In m/m terms, real spending fell by 2.9%. Income was flat y/y, after a -2.2% fall in Nov. The chart below plots real household spending y/y against real labour earnings (also y/y). The fall in spending moves it back more into line with real wage trends, which remain in negative territory (last print for the wages series is Nov, we get the Dec print next Monday). Sustained positive real wages gains remains a key focus point for the government and BoJ (around sustainably achieving its inflation target). Today's outcome is unlikely to add anything to near term BoJ hike expectations. It still suggests a near term wait and see approach.

Fig 1: Real Household Spending Falls, Wages Data Remains Negative

Source: Bloomberg Finance L.P./MNI

AUSSIE BONDS: Richer But AU-US 10Y Diff Back At Cycle High

ACGBs (YM +3.5 & XM +3.0) are stronger but off session bests as risk assets rebounded from yesterday’s carnage. Silver and Gold are 1% and 3% stronger, NDX and SPX futures have pared early losses while Bitcoin is up ~2%.

In her testimony before the Australian Parliament this morning, RBA Governor Bullock stated the RBA is watching inflation risks, particularly in terms of how much of the recent uptick is temporary versus persistent, and in turn capacity constraints, which will be the key watch points around further tightening.
While the cash ACGBs are 3bps richer today, the AU-US 10-year yield differential has returned to its cycle high of +65bps.
Since early December, price action has effectively consolidated the differential’s 50-65bps trading range following the breakout above the ±30bps range that had prevailed since November 2022. This widening has coincided with a steady lift in market-implied expectations for the RBA cash rate.
The bills strip has bull-flattened, with pricing +1 to +6 across contracts.
RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 15% for March to 94% by June and 149% by December 2026.
On Monday, the local calendar will see Household Spending data.

Bloomberg Finance LP

CRYPTO: Bitcoin - Collapses Through $68-$70 As De-Leveraging Intensifies

Bitcoin had a range overnight of $62,266.70 - $71,830.50, Asia is currently trading around $62700, -0.70%. Bitcoin has collapsed back through the $68k-$70k support and extended lower as de-leveraging picks up across the board, playing catch up to the moves in Metals. The price action looks appalling and reeks of people capitulating. So much for dipping your feet in the pool around $70k, this break now opens up a test of $50k-$55k next ahead of what many are calling the target for this move toward the $35k-$40k area. For now the bear trend is firmly back in place and rallies will likely be sold into, the first sell-zone is toward $70k-$74k and then the $80k-$85K area.

Andy Constan on X on what he would be asking on MicroStrategy's earnings call: “ask them how they will pay the dividends and what yield are they willing to pay for the Strc. What happens to the company at a negative MNAV and unacceptable dividend yields required for issuance.”
Niko Ludwig on X: “MSTR’s unrealized BTC profit of ~$33B has swung into a ~$4B loss. Per BTC pricing: October 6th: $126,210, Today: $67,251 (-47%)”
The Market Ear on X: “This isn’t extreme yet — Bitcoin’s “normal” drawdown math still points to $38k.”
Jim Bianco on X: “The $BTC carnage is accelerating. Now down 12+% today. Now the 4th worst day this decade. The other 3 were days around something "breaking." So, what is "breaking" now? Nov 9, 2022, FTX failure, Jun 13, 2022, Terra Luna Collapse, Mar 12, 2020, worst of COVID Shutdown.” See Fig Fig.1
Bitcoin’s Average True Range(ATR) for the last 10 Trading days: $4,007

Fig 1: Bitcoin Daily Change