ELECTRICITY: Elias Secures Funding to Advance Grid

Gilts extend higher, with core global FI markets supported by the move lower in e-minis (tech earnings and trade war worry drive e-minis lower).

• Decent demand metrics at the latest 1.50% Jul-53 green gilt auction may have factored in during recent trade.
• The auction cover topped the average across all re-openings since February ’23 (3.20x vs. average 2.94 & high of 3.26x), while the tail was narrow at 0.3bp and the low price cleared above pre-auction mids.
• Futures as high as 93.47, +70 on the day, as the bullish short-term corrective phase remains intact.
• Contract nears resistance at the Feb 3 high (93.54).
• A break there would expose Fibonacci resistance (93.64) which protects round-number resistance (94.00).
• Yields 3.5-7.0bp lower as the curve flattens, year-to-date lows intact across all benchmarks.
• BoE-dated OIS to fresh cycle dovish extremes of ~85.6bp.
• SONIA futures flat to +7.0. Dec high in SFIZ5 (96.190) untested.
• Cross-market and macro cues are set to dominate ahead of tomorrow’s BoE decision.
• Our full preview of the BoE decision can be found here.

• JPY strength stands out into the Wednesday crossover, with USD/JPY breaking to new pullback lows and taking out both the 200- and 100-dmas in the process. This marks a major technical break lower and expands the downside range, with markets looking to 151.06 as the next significant support. Late January lows at 153.72 were twice tested, a level that coincided with the 50% retracement for the upleg posted off the December low, raising the significance of this morning's price action.
• Japanese wages numbers have proved key here. Nominal wages rose at the fastest pace in over 25 years for the December Y/Y reading - removing another hurdle to the next tightening phase from the Bank of Japan. The next 25bps hike isn't well priced until the September meeting - leaving the front-end of the OIS curve with plenty of room to tighten further should this trend be sustained.
• The greenback is the worst performer in G10, as markets pick up on the prevailing theme from the late Tuesday session. The scale of the short-term USD Index pullback is noteworthy, but is yet to challenge to the underlying uptrend. It's when the index drops through 106.969 that markets will become more concerned - particularly if tied with a convicingly dovish turn in Fed pricing for 2025.
• ISM services data crosses later today after the final PMIs for January. The employment subcomponent should take particular focus given the proximity to Friday's payrolls print, for which today's ADP Employment Change should also feature. Markets expect services to remain the stronger driver of US growth, while ADP is seen ticking higher to +150k from +122k.
• Central bank speak picks up today after a quieter start to the week. Lane speaks from the ECB, while Barkin, Goolsbee and Bowman represent the FOMC.

• There has been a substantial pullback for the USD index since Monday, highlighted by EURUSD rising back above 1.0400 and USDJPY extending below 153.00 overnight, on the back of stronger-than-expected Japanese wage data. Amid the renewed greenback pessimism, both Société Générale and ING appear cautious on how much further this short-term trend can extend.
• SocGen questions if USDJPY can fall much further "if the US economy remains robust, the Fed doesn’t ease much further and Treasury yields remain, essentially, rangebound". They, instead, see a "short-term solution [of] selling EURJPY [...] where the deterioration in Eurozone growth expectations relative to Japan is striking". SG have been arguing in recent weeks that relative growth expectations matter more than relative rates.
• ING meanwhile think markets are "under-pricing the risk of a more prolonged trade spat" between the US and China as AUDUSD has "erased its short-term risk premium", concluding "the new layer of uncertainty generated by this tariff scare argues against a sustained dollar decline".