MNI ASIA MARKETS ANALYSIS - Dollar Pushes Higher

US TSYS SUMMARY: UST Curve Bull Flattens, Dollar Index Marches Higher

USTs have rallied through the day and the curve has bull flattened with most of the early gains retained. This came on the back of a weak session for European equities and broad gains for the dollar.

• Yields are 1-3bp lower with the curve 2-3bp flatter on the day. Last yields: 2-year 0.2447%, 5-year 0.8702%, 10-year 1.4376%, 30-year 2.0566%.
• TYU1 has traded up to 132-17, just off the 132-18 high for the day.
• The MNI Chicago PMI dropped to 66.1 in June, below the 70.0 consensus poll and marking the weakest print since February.
• The Fed's reverse repo facility saw record usage of USD992bn tying in with quarter-end.
• Looking ahead, tomorrow sees the release of jobless claims data and the latest ISM manufacturing update for June.

EGBs-GILTS CASH CLOSE: A Slightly Risk-Off Month End

Month-end flow likely helped boost the European FI space Wednesday, with Bunds bull flattening and periphery spreads tightening.

• Bonds were helped with a bit of risk-off early with reports of Russian cyber hacking of the German banking system, as well as continued concerns over the Delta COVID variant.
• Data was mostly in line with expectations, including Eurozone/French/Italian inflation, and final UK quarterly GDP. Supply was BTPs (E6.0bln) and Latvia 7Y syndication (E0.5bln).
• On Thursday, we get final PMIs as well as significant supply, with Spain selling up to E5.75bln in bonds/linkers, France up to E11bln in OAT, UK GBP3.5bln of Gilt.
• Also, BoE's Bailey speaking Thurs morning.

Closing yields/10Y Periphery Spreads To Germany:

• Germany: The 2-Yr yield is down 1bps at -0.662%, 5-Yr is down 2.6bps at -0.588%, 10-Yr is down 3.8bps at -0.208%, and 30-Yr is down 4.6bps at 0.289%.
• UK: The 2-Yr yield is unchanged at 0.063%, 5-Yr is down 1.6bps at 0.332%, 10-Yr is down 2.2bps at 0.716%, and 30-Yr is down 1.7bps at 1.234%.
• Italian BTP spread down 2.3bps at 102.7bps / Spanish down 0.6bps at 62.1bps

EUROPE SUMMARY: Put Selling

Wednesday's options flow included:

• RXQ1 171/170ps, bought for 13 in 1k
• RXQ1 172.00/172.50^^, sold at 104 in 1k
• RXQ1 170.5p, bought for 15 in 2k
• DUU1 112.30/112.20/112.10/112.00 put condor 1x1x2x2 bought for 3.5 in 3k
• 2LU1 99.25p, sold at 4.25 and 4 16.5k
• 2LZ1 99.00/98.75 ps with 2LX1 99.25/99.12ps 1x2, sold the strip at flat in 5k
• 2LU1 99.375 call vs 0LU1 99.625 call, sells the green at 3.25 in 10k

FOREX: Dollar Index Firms To 12-Week Highs

• The US dollar was consistently supported On Wednesday with the dollar index printing fresh 12-week highs, back above 92.30, up 0.42% on the day.
• A solid ADP Employment headline of 692k and above expectation pending home sales continued to bolster the greenback as markets dealt with month-, quarter, half-end flows approaching the London WMR fix. Despite most month-end models signalling USD sales into June month-end, the price action suggested otherwise with some strong dollar buying.
• USDJPY extended gains in the lead up to the WMR, briefly showing above the Monday high of 110.98. The move coincided with best volumes of the day for JPY futures, with just shy of 5,000 contracts changing hands inside the five minutes preceding the fix.
• USDJPY went on to match 111.12 highs from last week. A breach would see the pair at its highest level since March 2020. Around $1.8b of 111.00 strikes are set to roll off July 2; volumes on DTCC show interest in July 2 111.40 strikes incorporating non-farm payrolls.
• Elsewhere, EURUSD slipped to the worst levels of the week below 1.19 and was unable to recover amid the strong bid for the dollar, hitting fresh lows at 1.1845. Attention is on 1.1837, a Fibonacci retracement where a break would open 1.1704, Mar 31 low and a key support.
• Bank of England Governor Bailey speaks tomorrow at 9am London. The US docket is headlined by weekly jobless claims and ISM Manufacturing PMI, however markets may patiently await the June Employment report due Friday.

FX OPTIONS: Expiries for Jul1 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1930-50(E803mln)
• EUR/JPY: Y131.25(E1.2bln)
• NZD/USD: $0.6900(N$552mln)

Price Signal Summary - EUROSTOXX 50 Bearish Engulfing Still In Play

• In the equity space, S&P E-minis maintain a bullish theme and sights are on the 4300.00 handle. EUROSTOXX 50 futures have traded sharply lower today and this has exposed the key short-term support at 4015.00, Jun 21 low. A key technical pattern on Jun 18 - bearish engulfing candle - continues to warn of a short-term top in the trend. A break of 4015.00 would reinforce the importance of the engulfing line and signal scope for a deeper pullback potentially below 4000.00 towards 3914.00, May 20 low. Note too that the 50-day EMA intersects at 4014.40 and also represents a key short-term chart point.
• In FX, the USD remains on a bullish path despite the recent corrective pullback. The EURUSD focus is on 1.1837 next, 76.4% of the Mar 31 - May 25 rally. GBPUSD remains vulnerable. Attention is on 1.3717 next, Apr 16 low. The bear trigger is 1.3787, Jun 21 low. USDJPY needle still points north. Attention is on 111.30/64, Mar 26, 2020 high and 1.0% 10-dma envelope.
• On the commodity front, the yellow metal broke lower yesterday and cleared support at $1761.1, Jun 18 low. The break confirms a resumption of the downtrend that started Jun 1 and note the move lower also confirmed a bear flag that developed during the most recent consolidation phase. The focus is on $1733.5, 76.4% retracement of the Mar 8 - Jun 1 rally. The Oil market trend condition remains bullish and pullbacks are considered corrective. Brent (Q1) focus is $76.97, 1.23 projection of Mar 23 - May 18 - May 21 price swing. Support lies at $73.37, the 20-day EMA. WTI (Q1) sights are set on $75.01, 1.382 projection of Mar 23 - May 18 - May 21 price swing. Watch support at $71.12, the 20-day EMA.
• Within FI,Bund futures are consolidating. The contract last week probed support at 171.80, Jun 17 low. A stronger sell-off would expose 171.37, Jun 3 low and 170.99, Mar 31 low and a key short-term support. Key support to watch in Gilt futures is at 126.70, Jun 3 low and marks an important pivot level. The key resistance is at 128.39, Jun 11 high.

EQUITIES: US Stocks Shake Off Soft Start

• Equity markets started the session poorly, with cash indices opening modestly lower at the Wall Street opening bell. This weakness was erased as the session progressed, helping the S&P 500 inch back into positive territory.
• Energy names were the main prop, as a WTI oil price nudging the recent cycle highs helped support explorers and refiners. Industrials and financials also lent support while communication services were the largest decliner.
• The VIX initially saw some support on early equity weakness, buit the VIX retreated as the session progressed, keeping the index within range of the post-pandemic lows of 14.1 points printed yesterday.

COMMODITIES: WTI, Brent Inch Higher Ahead of Key OPEC+ Meet

• Both WTI and Brent crude futures found some support ahead of the Wednesday close, with both benchmarks higher by 0.5% or so. The full July OPEC+ videoconference kicks off Thursday, at which the country representatives are due to discuss the possibility of an output hike of circa 550,000bpd.
• Reports circulated suggesting there remains some acrimony between certain OPEC members, with Saudi Arabia reportedly preferring a gradual approach to easing output curbs, whereas Russia are pressing for a swifter response.
• Gold has broken lower and cleared support at $1761.1, Jun 18 low. The break lower confirms a resumption of the downtrend that started Jun 1 and note the move lower has confirmed the bear flag that developed during the most recent consolidation phase.