IRAN: UAE Interior Ministry Also Says Responding To Missile Threat

There’s been a broad reversal in cross asset markets over the past hour, with oil and gas benchmarks pulling away from earlier highs. 

• Bund futures have rebounded from session lows, and are attempting to close the opening gap. RXM6 is currently -13 ticks at 126.80, up from an overnight low of 125.94. Volumes are once again extremely heavy, with almost 700k lots having traded so far today. Key support in Bund futures at 125.90 (Dec 22 low) remains unchallenged for now. A break of this level would strengthen a bearish theme and pave the way for a continuation lower, despite the short-term trend being in an extreme oversold position.
• The German curve has bear flattened, with Schatz yields up 8bps to 2.39%. Yields reached a high of 2.47% this morning, with ECB implied rates seeing a sharp hawkish repricing earlier.
• Flattening in the swap spread/ASW curve seemingly represents a continued unwind of crowded exposure related to the Dutch pension fund transition. Spreads and outright yield levels are off intraday extremes.
• BTPs and GGBs once again underperform in the EGB space, with 10-year spreads to Bunds each around 4-5bps wider on the session. Spread widening remains a function of weak risk sentiment, hawkish front-end repricing  and higher EUR rates vol.
• Data has taken the backseat, but German factory order and industrial production readings for January did come in on the weak side.

• FX markets continue to mostly trade as a function of energy prices, with the crude surge to well near $120/bbl translating to an extension of USD strength. This prompted the DXY to briefly reach a fresh recovery high of 99.70 overnight. The subsequent pullback for crude has seen the DXY retreat by around 30 pips, keeping us around 0.45% higher as we approach the NY crossover.
• Losses have been concentrated around the major, with the likes of EUR, JPY and GBP all down around 0.5%, while the oil impulse has supported CAD’s resilient tone. This has led EURCAD to extend its recent breakout to the downside, now 2.5% below the key 1.6066 support that gave way last week. Price action has picked up momentum on a break of the July 2025 lows and will now look to 1.5492 as the next objective.
• USDJPY reached a 158.90 overnight, narrowing the gap to the Jan 14 high and bull trigger which stands at 159.45. Market participants will be monitoring spot closely as we have re-entered levels where prior rate checks from both the BOJ and Fed were reported to have taken place in January.
• Notably, EURCHF moved below 0.9000 for the first time since 2015 with domestic sight deposit data suggesting the SNB has not attempted to curb franc strength last week. 0.8981 has been the printed low so far, and should downside in the cross persist, 0.8913 would be a target based on a Fibonacci projection.
• NY Fed 1-Yr Inflation Expectations for February will be outdated when released today, ECB's Elderson is the sole speaker on the calendar as the Fed remains in blackout. US CPI is the key data point this week on Wednesday.

Gilts are off early lows, but the bulk of the aggressive bear flattening move seen at the open is intact.

• Crude has extended its multi-session move higher, with WTI & Brent both holding above $100 after a pullback from Asia-Pac highs. Crude production cuts in the Middle East and source reports signalling the potential for U.S.-Israel special forces action in Iran underpin the latest rally in oil.
• Attempts to fade the hawkish moves seen over the last week or so have been quickly countered by extensions higher in crude & hawkish geopolitical news flow.
• Appetite to engage in fresh longs has clearly diminished at this stage, with the longevity of the Iran conflict and any potential further escalation now eyed.
• Futures as low as 88.80 before a bounce to 89.40 last. Bears deepen technical control with the break of key support at 89.79.
• Yields 4-24bp higher.
• 2s trade above 4.10%, hitting the highest level seen since April. Next upside area of interest at 4.20%, psychological resistance, and the nearby April ’25 top (4.201%). Benchmark on track for largest rise since the Truss mini-Budget.
• 10s ~4.75%, September ‘25 top located at 4.845%.
• GBP STIRs flip to pricing hikes on the move in oil. 14bp of tightening priced through year-end vs.  just under 10bp of easing being priced through the Summer late on Friday. SONIA futures flat to -25.0, off lows alongside gilts.
• The situation in the Middle East will continue to dominate local matters.
• Source reports have suggested that G7 finance ministers will discuss a joint release of oil from emergency reserves coordinated by the IEA (phone call reportedly set to start at 12:30 London/08:30 NY).