MNI ASIA MARKETS ANALYSIS - US 10YY Closes At Lowest Since March

US TSYS SUMMARY: Curves Flatten, 10YY On Track For Lowest Close Since March

• The US curve traded flatter, with the belly of the curve outperforming and pressing 10y yields lower by over 4bps. Both the 2y10y and 2y30y curves flattened by 4bps apiece.
• The initial catalyst for Treasury strength came as a number of the world's largest websites including Amazon and the New York Times were knocked offline by a failure at the CDN provider Fastly.
• Equities saw some shaky prints following the opening bell, with a late recovery failing to mount any serious test on the all time highs printed in early May.
• Markets also eye the upcoming US CPI print, with Thursday's Y/Y print seen heating up to 4.7% from 4.2%.
• The 3y auction came and went with little consequence. The auction saw decent enough demand, with the bid/cover inline with the 5-auction average and the lowest stop in over three months. Dealer take slipped, with the primary dealer take-up the lowest in over a year at 27.55% of the issue.
• Focus Wednesday turns to wholesale inventories and trade sales data as well as the 10y auction.

EGBs-GILTS CASH CLOSE: Core Rallies, Greece Underperforms

Tuesday brought a strong, bull flattening session for Bunds and Gilts. Global safe havens spiked late morning UK time amid outages for multiple popular websites, reversing shortly thereafter as the situation was seen under control. But then the rally resumed throughout the afternoon, following US Tsy, with no particular catalyst.

• Periphery spreads tightened with the notable exception of Greece, which announced a tap of its 10-Yr bond.
• Busy session for supply: Netherlands 2031, German 7yr, Austria 2025 and 2031, UK 2026 & 2071, and syndication of new 10Y BTP (for E10bln).
• On Wednesday, Germany sells E1.5bln of Bund, UK sells GBP1bln of Gilt linker, Portugal sells up to E0.75-1bln of OT. German Apr trade data out as well but little data really, and no speakers.
• Thursday's ECB meeting (pre-positioning of which may have contributed to today's rally) remains the focus.

Closing German/UK Yields And 10-Yr Spreads To Germany

• Germany: The 2-Yr yield is down 0.5bps at -0.669%, 5-Yr is down 1.8bps at -0.6%, 10-Yr is down 2.6bps at -0.224%, and 30-Yr is down 3bps at 0.327%.
• UK: The 2-Yr yield is down 1.8bps at 0.067%, 5-Yr is down 2.9bps at 0.329%, 10-Yr is down 3.6bps at 0.77%, and 30-Yr is down 3.7bps at 1.309%.
• Italian BTP spread down 2.7bps at 108.5bps / Greek spread up 5.7bps at 108.8bps

EUROPE OPTIONS SUMMARY: Mostly Put Structure Buying

Tuesday's options flow included:

• RXN1 170.50/169.50/168.50/167.50 put condor bought for 10 in 2k
• RXU1 170.00/168.50/167.00 put fly bought for 13.5 in 3k
• 2RU1 100.37/25ps 1x2 bought for 1.25 in 10k
• 3RU1 100/99.87/99.62p fly 1x1.5x0.5, bought for 0.75 in 5k
• 0LZ1 99.75/62/50p fly, bought for 2.75 in 2k

FOREX: Marginal USD Gains, G10 FX Broadly Unchanged For Week

• The greenback edged higher throughout early trade on Tuesday, holding on to gains throughout the US session. The dollar index is roughly 0.2% higher, erasing a similar magnitude of losses from Monday.
• Albeit marginal, dollar gains come against the backdrop of lower US yields, with potential squaring of positions in treasuries ahead of the important US inflation data due Thursday.
• NZD was the worst performer, retreating half a percent. The Kiwi was aided lower by a quick dip in Equities and despite major indices recovering swiftly, currencies appeared largely unphased, trading in narrow ranges. In a particularly light day for tier one data, EMFX was also quiet with EM currency indices broadly unchanged on the day.
• A 30 point daily range in EURUSD is evidence of the lack of activity ahead of the ECB. EURUSD has shown potential signs of a technical correction and attention is on the 50-day EMA at 1.2102 that also represents a key area of support. On the upside, primary resistance has been defined at 1.2266, May 25 high.
• Top of Wednesday's agenda is the Bank of Canada rate decision and accompanying statement, although this is largely expected to be a placeholder for a live July meeting. Markets will eagerly anticipate the release of US CPI on Thursday as well as the ECB policy statement and accompanying press conference.

FX OPTIONS: Expiries for Jun09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2070-85(E990mln), $1.2135(E686mln), $1.2145-55(E1.3bln-EUR puts), $1.2165-75(E1.2bln-EUR puts), $1.2195-1.2200(E1.2bln-EUR puts), $1.2235-40(E514mln), $1.2250(E1.7bln-EUR puts)
• USD/JPY: Y108.45-55($1.2bln), Y109.00-10($1.4bln-USD puts)
• USD/CHF: Chf0.8975($1.2bln-USD puts)
• EUR/CHF: Chf1.1040(E1.1bln-EUR puts)
• AUD/USD: $0.7750(A$779mln)
• USD/CNY: Cny6.38($595mln), Cny6.40($770mln)

EQUITIES: Stocks Flat Into the Close, CPI Awaited

• Equity markets saw some intraday volatility Tuesday, before closing broadly flat as markets await the key US CPI update and ECB rate decision due in two days' time.
• The e-mini S&P came under pressure ahead of the open as sizeable outage for a number of the world's largest websites (including Amazon and the New York Times) were knocked offline after an outage at global CDN provider Fastly. These losses were reversed ahead of the open, but those looking for all time highs were left wanting.
• Losses across utilities and consumer staples were countered by firmer consumer discretionary and energy names - the latter being flattered by further strength in WTI and Brent crude futures prices.

COMMODITIES: Oil Retains Upside Pressure, Hits Cycle Highs

• Energy markets traded well Tuesday, with WTI and Brent crude futures topping the Monday highs ahead of the close and improving the near-term outlook. Both benchmarks finished at their best levels since 2018, shrugging off marginal USD strength across US hours.
• Macro drivers were few and far between Tuesday, with focus remaining on the prospect of a return of Iranian supply in the near-term. Reports following the Iranian presidential election speculated that Tehran's next President will take a similar stance on nuclear talks.
• Following a series of attempts to build gains above $1900/oz throughout the session, gold failed to break higher Tuesday, keeping the outlook neutral-to-lower for now. The RSI's overbought condition has now eased, leaving markets open to a re-test of the early June highs, but this case will deteriorate on any show below the $1841.1 200-dma.