MNI US MARKETS ANALYSIS

US TSYS SUMMARY: Eyeing Stimulus, Both Fiscal And Monetary

Very subdued trading in Tsys overnight, running about half normal volumes in TYs (~130k) and in a 4.5 tick range. Some modest downward pressure prevailing as equities rise from the lows.

• Mar 10-Yr futures (TY) down 1.5/32 at 138-01 (L: 137-31.5 / H: 138-04). The 2-Yr yield is up 0.2bps at 0.117%, 5-Yr is up 0.5bps at 0.3623%, 10-Yr is up 0.5bps at 0.8981%, and 30-Yr is up 0.4bps at 1.6329%.
• Sideways trade befits uncertainty over stimulus, both fiscal and monetary. Current status on the $908bn COVID relief bill: there's bipartisan support for $748bn of it, but the remaining portions focus on the most contentious issues, namely state/local gov't aid and liability protection.
• Negotiations ongoing to get it all together later this week. Meanwhile, text of $1.4bn omnibus spending package due today.
• 2-Day FOMC begins this morning - our preview went out Monday (let us know if you haven't seen).
• Data includes Empire State Manuf (0830ET) and Industrial Production (0915ET).
• In supply, $60bn of 42-/119-day bills sold at 1130ET. NY Fed holds two purchase operations today: ~$8.825bn of 2.25-4.5Y Tsy, followed by ~$3.6265bn of 7-20Y Tsy.

EGB/GILT SUMMARY: Mixed Start

European sovereign bonds are broadly firmer alongside mixed trading in equities.

• The gilt curve has bull flattened with the 2s30s spread 2bp narrower. The Mar 21 gilt future trades at 135.33, 5 ticks off the day's high.
• Bunds trade close to unch on the day. Last yields: 2-year -0.7731%, 5-year -0.8023%, 10-year -0.6266%, 30-year -0.2217%.
• OAT trades in line with bunds and little changed on the day.
• BTPs have trade marginally firmer with yields 1bp lower.
• Supply this morning came from Spain (Letras, EUR1.227bn).
• UK employment change data for October was better than expected (-143k 3m/3m vs -250k survey) while the claimant count rate ticked up to 7.4% in November from 7.3% the previous month.

EUROPE OPTION FLOW SUMMARY

Eurozone:

Risk reversal

2RM1 100.62/100.37 RR, sold the call at 2 in 4k (ref 100.55)

UK:

Bullish trade

LM1 100.12/100.25/100.37c fly, bought for1.25 in 10k

Large Combo

0LU1 100.12/99.62 RR, bought the call for 4.75 in 10k

Upside Call Fly

0LK1 99.87/100/100.25 broken c fly, bought for 1.75 in 2k

FOREX: Mixed Trading

USD trades mixed, despite the better early bid in Equities, with Auto leading gains in Stoxx600.

• With investors and market participants waiting on Brexit US stimulus and the Fed tomorrow, most pairs have traded within ranges this morning.
• GBP saw some early selling, combined with short term long bailing out as we broke below 1.3300 in Cable.
• Brexit is at the forefront, and although extensions from the weekend talks is seen as positive, mood is fragile.
• Cable has faded the early weakness to trade back above 1.3300 at the time of typing.
• EURGBP tested resistance at 0.9230/45 High Dec 11 / 2.0% 10-dma envelope, printing a 0.91489 high.
• AUD has recovered some of its overnight weakness, that was driven by US lockdown fears, helped by the better Equity bid during our European morning session.
• Nonetheless AUD still trade in the red against all G10s, besides the kiwi, up 0.08%.
• Looking ahead, some focus on US IP, and on the speaker front, ECB Lane and BoC Macklem are scheduled to speak.
• All eyes are squarely on Brexit, US stimulus progress and the Fed tomorrow.

FX Option Expiries

FX EXPIRY: Updated, closest ones

OF NOTE: EURUSD 3.497bn between 1.2100-1.2175

• EURUSD: 1.2100 (1.09bn), 1.2125 (491mln), 1.2135 (548mln), 1.2150 (318mln), 1.2175 (1.05bn).
• GBPUSD: 1.3300 (259mln)
• USDJPY: 104.00 (559mln), 104.50 (428mln)104.55 (520mln)
• 0.7555 (246mln)

EQUITIES: Higher On European Open

Stocks began climbing at the European open, following a weak Asian session.

• Asian markets closed weaker, with Japan's NIKKEI down 44.6 pts or -0.17% at 26687.84 and the TOPIX down 8.47 pts or -0.47% at 1782.05. China's SHANGHAI closed down 1.887 pts or -0.06% at 3367.233 and the HANG SENG ended 182.23 pts lower or -0.69% at 26207.29
• European equities are higher, with the German Dax up 90.88 pts or +0.69% at 13291.32, FTSE 100 up 10.22 pts or +0.16% at 6528.02, CAC 40 up 34.7 pts or +0.63% at 5552.9 and Euro Stoxx 50 up 17.45 pts or +0.5% at 3520.88.
• U.S. futures are also higher, with the Dow Jones mini up 159 pts or +0.53% at 30024, S&P 500 mini up 21.5 pts or +0.59% at 3668, NASDAQ mini up 52.25 pts or +0.42% at 12508.75.

COMMODITIES: Precious Metals Rebound With US Stimulus Eyed

• WTI Crude up $0.08 or +0.17% at $47.08
• Natural Gas down $0.04 or -1.49% at $2.66
• Gold spot up $18.15 or +0.99% at $1846.13
• Copper up $0.35 or +0.1% at $353
• Silver up $0.37 or +1.55% at $24.2009
• Platinum up $10.1 or +1% at $1021.39