MNI ASIA MARKETS ANALYSIS - USTs Fail To Recover Day's Losses

US TSYS SUMMARY: Ending The Week On A Soft Note

USTs have gradually sold off through the session with yields holding near the weaker end of the day's range.

• Cash yields are 1-4bp higher with the curve 2bp steeper. Last yields: 2-year 0.1489%, 5-year 0.7484%, 10-year 1.4603%, 30-year 2.1496%.
• TYU1 trades at 132-27+, near the lows of the day (132-25).
• President Joe Biden's call for continued economic stimulus has been warmly received by other national leaders at the G7 summit.
• The University of Michigan survey update for June came in better than expected (86.4 vs 84.2) with the expectations component reading 83.8 vs 78.7 expected.
• The Fed takes centre stage next week, with this week's strong inflation report upping the ante on policymakers.

GILT SUMMARY: Sideways Trading

Following a strong start, gilts subsequently traded sideways for much of the session with yields starting to drift higher shortly after 1500GMT.

• Cash yields are now broadly 1-3bp lower on the day with the curve 2-3bp flatter. Last yields: 2-year 0.0557%, 5-year 0.2943%, 10-year 0.7149%, 30-year 1.2486%.
• The Sep 21 gilt future trades at 128.10, 5 ticks off the day's low.
• After US President Joe Biden expressed concern over UK-EU wrangling over Northern Ireland border checks, leaders of the G7 are expected to raise the pressure on UK PM Boris Johnson to resolve the NI protocol issue.
• Data published this morning showed UK economic growth picking up in April with real GDP expanding 2.3% M/M vs 2.1% the previous month.

EGB SUMMARY: Holding onto gains going into the weekend

• EGBs have held onto gains, albeit off their best levels, despite some long cover in US Treasuries.
• Contract is also underpinned post the US Michigan inflation 1 year miss.
• Some highlights of the UMich report:
• An all-time record number of consumers anticipating a net decline in unemployment.
• The expected year-ahead inflation rate declined to 4.0% in early June, although down from 4.6% in May, it was still higher than any other time in the past decade.
• Peripheral spread are trading tighter against the German 10yr, with Greece leading by 4.5bps.
• Looking ahead, after market ratings:
• Fitch on Spain (current rating: A-; Outlook Stable)
• Moody's on Austria (current rating: Aa1; Outlook Stable) & the Netherlands (current rating: Aaa; Outlook Stable)
• S&P on Slovenia (current rating: AA-; Outlook Stable)
• DBRS Morningstar on Slovenia (current rating: A (high), Stable Trend)

EUROPE SUMMARY: Large Bund Put Structure; Massive Stg Call Fly

• RXQ1 172/170ps vs 174/175cs bought in 25k and sells 25k RXN1 171 P (vs 172.86) paying 10.5/11/11.5
• RXN1 172/173.5cs, sold at 88 in 2.7k
• DUQ1 112.30/112.20/112.00 broken p fly, bought for 2.5 in 5k
• 2RH2 10025/10037^^ bought for 13.5/13.75 in 4k
• 0LZ1 99.75/87/00c fly 1x3x2 call fly for 1.5 (37.5k x112k x 75k)

FOREX: Greenback Eyes Monthly High as Yields Find Bottom

• The greenback was solidly the best performer Friday, with the USD Index narrowing in on a one-month high and the 50-dma resistance at 90.7538. Dollar strength wasn't consistent throughout the session, however, with the dollar starting poorly as US yields plumbed new multi-month lows of 1.4266%. This reversed during NY hours, however, giving FX markets the greenlight to buy into recent dollar weakness and stage a bounce.
• Dollar strength worked against the NZD most notably, which extended underperformance from the Asia-Pac session well into the NY close. This resulted in new multi-month lows of $0.7116.
• GBP rose alongside the USD, while NOK and SEK traded poorly into the Friday close.
• Focus in the coming week rests on the Fed. Markets will eye Powell's press conference for any clues on the future of the Fed's asset purchase program - with many sell-side analysts forecasting a full taper by the end of 2021. Rate decisions are also due from the Norwegian, Swiss, Brazilian, Turkish, Indonesian and Japanese central banks.

FX OPTIONS: Expiries for Jun14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2150(E1.0bln). $1.2200(E1.3bln-EUR puts)
• AUD/USD: $0.7750-65(A$943mln), $0.7940(A$1.3bln-AUD puts)

EQUITIES: Stocks Give Up Strong Start, Ebb Lower Into Friday Close

• US equity futures traded well ahead of the NY open, with the e-mini S&P following Europe higher and testing the all-time highs posted Thursday at 4249. This clip failed to be maintained into the Friday close, however, with the quiet data and speaker calendar leaving little to distract, profit-taking pushed the e-mini S&P back through unchanged and into mild negative territory ahead of the closing bell.
• Across the S&P 500, healthcare and real estate were the poorest performers, while the bounce in financials and tech names failed to support the headline index price.
• The fade in stocks back to unchanged ahead of the close worked further against the VIX, which remains less than half a point above post-pandemic lows of 15.15 printed earlier this week.

COMMODITIES: Crude at New Highs as Iran Optimism Fades

• WTI and Brent crude futures topped out at new cycle highs Friday, reversing all the losses posted late Thursday as markets head into the final round of Iran negotiations with a dash of pessimism.
• Hopes of steady progress earlier in the week have now succumbed to political pressure as diplomats look to tie up any accords ahead of the Iranian Presidential elections due on June 18th. The negotiators will be looking to make quick progress before priorities could change under a new administration.
• As a result, oil erred bullishly Friday despite the stronger greenback, bumping near-term resistance levels higher to $72.70, the Oct 15, 2018 high, and $72.06, the 3.00 proj of Mar 23 - 30 - Apr 5 price swing.