MNI ASIA MARKETS ANALYSIS - Bear Steepening Into Friday Close

US TSYS SUMMARY: Bear Steepening

TSY futures have pushed lower through the session and the curve has bear steepened alongside a weak session for stocks.

• UST cash yields are 1-4bp higher across much of the curve with the 2s20s spread 4bp wider on the day.
• TYZ1 trades at 133-05, near the bottom of the day's range (L: 133-02 / H: 133-16).
• The Fed's Mester indicated a preference for tapering this year, stressing "I don't think the August employment report has changed my view that we've made substantial further progress".
• Headline PPI data for August was a touch better than expected.
• Next week sees the release of CPI and retail sales data for August, as well as the preliminary September update of the University of Michigan Consumer Confidence report.

EGBs-GILTS CASH CLOSE: Weak Weekly Close

After trading sideways for most of the session, Gilts and Bunds weakened into Friday's cash close on a broader global move that appeared US Treasury-led.

• No apparent headline catalysts, but potentially positions being unwound in a combination of post-ECB profit-taking and a huge supply schedule next week.
• Periphery spreads unwound a promising start; 10Y BTP spreads rose from a 3-week low of 101.7bp to end unchanged at 103.1bp. Greece outperformed.
• Next week sees E36B of gross nominal issuance (vs E12.4bln this week), including Italy, Germany, Spain, France, and the Netherlands.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.7bps at -0.704%, 5-Yr is up 2.3bps at -0.638%, 10-Yr is up 3.1bps at -0.33%, and 30-Yr is up 3bps at 0.158%.
• UK: The 2-Yr yield is up 0.9bps at 0.233%, 5-Yr is up 0.9bps at 0.42%, 10-Yr is up 2.2bps at 0.758%, and 30-Yr is up 1.5bps at 1.078%.
• Italian BTP spread unchanged at 103.1bps /Spanish down 0.1bps at 66.3bps

EUROPEAN OPTIONS: Interest In German Oct And Nov Puts

Friday's European bond / futures options flow included:

• Buying: RXX1 170/169 ps for 14 in 3.75k and RXV1 173/174 cs for 14 in 3.75k, Selling: RXX1 173.50/174.50 cs at 6 in 3.75k. Net paid 22 to own the Nov put spread
• RXX1 172.00/171.00 put spread sold at 39 in 1.5k
• RXX1 172.50 call sold at 67 in 2k
• OEX1 135.50/135.25/135.00 put ladder bought for flat in 2k
• OEX1 135.75/50/135.00 put ladder bought for 2.5 in 3.5k
• OEV1 135.50/135.75 1x1.5 call spread sold at 8 in 5k
• OEX1 135.75/136.25 1x2 call spread bought for 9 in 2k
• 0LZ1 99.625/99.75 call spread sold at 1.25 in 10k
• 2LV1 99.125/98.875 1 x 1.5 put spread sold at 1.5 in 20k

US OPTIONS: Green ED Midcurve Risk Reversal Buying Continues

Friday's US options flow included:

Treasuries:

• FVV1 123.50/123.00 put spread (covered 123-19, 28%) bought for 8 in 8k

Eurodollar:

• 0EM2 99.00/98.75 put spread bought for 3.75 on legs in 10k (ref 33.5)
• 2EZ1 98.75/98.625 put spread (covered 99.005, 10%) bought for 2 in 15k
• 2EZ1 98.75/99.125 r/r (covered 99.00 d.54) bought for 0 in another 5k today- desk notes, now long 50k+ on the week

FOREX: USD Finishes Week On Front Foot, CAD Reverses Post Strong Jobs Data

• G10 currencies were subdued on Friday, with little news or event risk to garner significant market interest. Despite the narrow ranges, the greenback trades in marginally firmer territory capping off a positive week for the dollar index, rising around 0.6%.
• Headlines surrounding the Biden administration weighing a new investigation into Chinese subsidies and their damage to the U.S. economy as a way to pressure Beijing on trade prompted a small spike in USDCNH. The pair rose from around 6.43 to 6.44 before consolidating thereafter.
• The Canadian dollar traded well in the lead up to Canadian employment data. The figures surprised to the upside, posting a 90k increase in the net change for August and a lower unemployment rate of 7.1%. Similar price action to the bank of Canada where initial CAD optimism dissipated almost immediately, causing a path of least resistance short squeeze in USDCAD. Equity weakness exacerbated this bounce with USDCAD reversing the entirety of the days move from 1.2583 lows back to 1.2660, broadly unchanged on the day.
• Little in the way of meaningful price action elsewhere, however, EURUSD has traded with a heavy tone, slipping to the lowest levels of the day, just 10 pips shy of the weeks lows and what has been defined as a key short-term support and bear trigger at 1.1802.
• For Friday, NZD (+0.28%) and NOK (+0.21) topped the G10 pile while the Japanese Yen (-0.2%) actually underperformed despite the softer US indices.
• A quiet Monday data docket before the market focus turns to the week's key US CPI data scheduled on Tuesday.

FX OPTIONS: Expiries for Sep13 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1975-85(E1.1bln)
• AUD/USD: $0.7350-60(A$629mln)
• NZD/USD: $0.6990-10(N$697mln), $0.7088(N$705mln)
• USD/CNY: Cny6.4500($580mln)

EQUITIES: China Probe, Apple Court Loss Lead Equities Lower

• Despite a solid start to the session, US equity indices dipped sharply after the cash open as risk sentiment soured into the weekend.
• The e-mini S&P was already trading shakily before Bloomberg reported that the Biden administration were looking to open a new probe into Chinese trade practices in a move seen adding pressure to Beijing over their use of subsidies.
• The e-mini S&P showed below support which had held up price action earlier in the week at the 20-day EMA, suggesting scope for further downside.
• In single stock news, Apple trades poorly (off as much as 2%), with the shares slipping to new daily lows as judges ruled in favour of Epic Games in their antitrust lawsuit over App Store usage and fee payments.
• European shares were mixed-to-lower, with France's CAC-40 off 0.5% while the UK's FTSE-100 held onto gains of 0.1%.

COMMODITIES: Oil Markets Supported as Libyan Output Under Pressure

• Despite souring equity market sentiment, oil markets traded positively throughout the Friday session, recovering well off Thursday's lows as focus shifted from the China reserve release news yesterday onto production concerns in Libya and the US.
• Protests in and around Libya's export terminals unsettled markets, particularly after the extended spell of stability for Libyan oil exports.
• This compounds production concerns with much of output in the Gulf still yet to return to full capacity following Hurricane Ida. This impact was well detailed in this week's DoE crude oil inventories data, which showed a sharp decline in US refinery utilization.
• Gold and silver trade lower having given up early gains. Both metals failed to find any safe haven bid alongside the equity decline, with the levelling off of USD weakness weighing on prices.