MNI US MARKETS ANALYSIS - Growth & Covid Concerns Linger

US TSYS SUMMARY: Edging Higher, Mirroring Equities

A narrow range for Tsys overnight Friday (TYU1 futures within a 5.5 tick range and well within Thursday's high-low), with modest gains as equities edged lower (S&P eminis -0.4%).

• Dollar continues to hit fresh 2021 highs. Similar risk-off themes to recent days: growth slowdown and COVID concerns, and China regulatory crackdown.
• A quiet U.S. schedule Friday, with no supply and no data.
• The 2-Yr yield is down 0.4bps at 0.216%, 5-Yr is down 0.6bps at 0.7607%, 10-Yr is down 1.2bps at 1.2316%, and 30-Yr is down 0.8bps at 1.8628%.
• Sep 10-Yr futures (TY) up 1.5/32 at 134-12 (L: 134-08.5 / H: 134-14), volumes subdued (~200k).
• Dallas Fed Pres Kaplan speaks at 1100ET.
• Pres Biden gives the 2nd set of remarks this week on Afghanistan at 1300ET.
• NY Fed buys ~$2.025B of 22.5-30Y Tsys.

EGB/GILT SUMMARY: Risk-Off Theme Continues To Support EGBs

Stocks have continued to edge lower this morning alongside further broad gains for European sovereign bonds.

• A new data privacy law in China underpinned the sell-off in Asian stocks and further compounded wider concerns over global growth and rising Covid infections, which has driven demand for EGBs.
• Gilts have marginally outperformed EGBs, particularly at the shorter end of the curve, which has bull steepened.
• UK retail sale came in weaker than expected in July (ex Auto 1.8% Y/Y vs 5.8% survey).
• Bunds have firmed with cash yields broadly 1bp lower on the day.
• OATs trade in line with bunds. Yields have inched down 1bp with the curve close to flat overall.
• BTPs initially had a strong start before selling off back towards closing levels.
• Supply this morning came from the UK (UKTBs, GBP3bn),

EUROPEAN ISSUANCE UPDATE

UK T-BILL RESULTS: DMO sells GBP3bln of 1/3/6-month UKTBs

USD extend gains on Safe Haven flow

• Story in FX in early trading has been the upside continuation in USD, as investors look for safer haven Bond and USD, after Equities plummeted this week.
• USDCAD pushed higher to highest levels since December.
• USDCAD has gained 2.56% from Wednesday low, and next resistance comes at 1.2957 High Dec 21, 2020.
• The Canadian Dollar is the worst performer versus the USD in G10, down 0.84% on the session.
• Cable fell to the lowest level since the 21st of July, but 1.3600 has so far held, after the pair printed a 1.3609 low.
• Main downside target remains at the July low at 1.3572, which is also the lowest print seen since February.
• Only the Swiss Franc, Japanese Yen and Singapore Dollar are holding onto small gains against the Greenback
• Looking ahead, we have no tier 1 data of note.
• Some focus on the Canadian Retail Sales release.
• Fed's Kaplan speaks at Texas tech college of business, where he will take questions from the audience.

FX OPTION EXPIRY

FX OPTION EXPIRY (Updated, closest ones)

• EURUSD: 1.1675 (638mln), 1.1700 (909mln).
• USDCNY: 6.47 (1.42bn)

Price Signal Summary - S&P E-Minis Pivot Support At 50-day EMA

• In the FX space, the USD remains firm and the uptrend has accelerated with DXY extending gains following this week's break of 93.44, the Mar 31 high. EURUSD has cleared 1.1704 this week, Mar 31 low. This signals scope for a move to 1.1621 next, 1.00 projection of the Jan 6 - Mar 31 - May 25 price swing. GBPUSD is lower too and approaching the key support at 1.3572, Jul 20 low and the bear trigger. AUDUSD has cleared the 0.7200 handle and continues to slide. Scope is seen for a move towards 0.7053, 38.2% retracement of the Mar '20 - Feb uptrend. USDCAD has resumed the uptrend that started Jun 1. The pair is approaching 1.2976, 1.00 projection of the Jun 23 - Jul 19 - 30 price swing.
• On the commodity front, Gold remains firm with the focus on the next important resistance at $1797.1, the 50-day EMA. A break would strengthen bullish conditions. WTI futures support at $64.49, Jul 20 low has been cleared. This strengthens the bearish theme and opens $60.81, 1.236 projection of the Jul 6 - 20 - 30 swing.
• On the equity front, a short-term corrective cycle remains in play following this week's move lower. S&P E-minis attention is on the key support area highlighted by the 50-day EMA. The average intersects at 4341.81. EUROSTOXX 50 has probed its 50-day EMA. A deeper pullback would expose 4047.50, the Jul 27 low.
• In FI, support to watch in Bunds is unchanged at 176.21, the Aug 11 low. Trend conditions remain bullish. The bull trigger is 177.61, Aug 05 high . Gilt futures outlook is bullish too and attention is on 130.72, Aug 4 high and the bull trigger. The support to watch is unchanged at 129.07, the 50-day EMA.

EQUITIES: Industrials Underperforming As Hang Seng Enters Bear Market

The standout move overnight was a sharp decline in the Hang Seng which brought the index into bear market (-20% from Feb 2021 peak) territory, on continued concerns over the regulatory environment.

• Meanwhile European markets are broadly lower, with industrials and consumer staples dragging down the major indices.
• Tech is outperforming, both in Europe and the U.S. (NASDAQ off slightly less than the DJ/S&P).
• Note Deere earnings beat estimates and they boosted its net income forecast for 2021.
• Japan's NIKKEI closed down 267.92 pts or -0.98% at 27013.25 and the TOPIX down 16.51 pts or -0.87% at 1880.68. China's SHANGHAI closed down 38.221 pts or -1.1% at 3427.334 and the HANG SENG ended 466.61 pts lower or -1.84% at 24849.72.
• European stocks are weaker, with the German Dax down 68.3 pts or -0.43% at 15765.81, FTSE 100 down 14.72 pts or -0.21% at 7058.86, CAC 40 down 25.62 pts or -0.39% at 6605.89 and Euro Stoxx 50 down 6.49 pts or -0.16% at 4124.71.
• U.S. futures are lower, with the Dow Jones mini down 138 pts or -0.4% at 34680, S&P 500 mini down 17 pts or -0.39% at 4384.5, NASDAQ mini down 31.5 pts or -0.21% at 14896.5.

COMMODITIES: LEVELS UPDATE

• WTI Crude down $0.46 or -0.72% at $63.23
• Natural Gas up $0.08 or +2.04% at $3.908
• Gold spot up $1.91 or +0.11% at $1782.22
• Copper up $2.35 or +0.58% at $406.65
• Silver down $0.12 or -0.5% at $23.1316
• Platinum up $2.06 or +0.21% at $978.75