MNI US MARKETS ANALYSIS -  UMichigan In Focus

US TSYS: Looking For A Bounce In Michigan

Treasuries have traded fairly flat overnight Friday, with the short-end/belly modestly weaker.

• The only thing on the schedule that's potentially market-moving is the latest University of Michigan survey reading, though quadruple witching day for equities potentially adds some volatility into the mix.
• The 2-Yr yield is up 0.4bps at 0.2237%, 5-Yr is up 0.3bps at 0.8437%, 10-Yr is down 0.3bps at 1.3345%, and 30-Yr is down 0.4bps at 1.8793%.
• Dec 10-Yr futures (TY) down 2/32 at 133-1 (L: 133-00 / H: 133-04.5).
• September UMichigan sentiment is the only data point today - a modest bounce from August's huge drop (which boosted Tsys upon release) is expected.
• No Fed speakers (of course) and no supply.
• NY Fed buys ~$2.025B of 1-7.5Y TIPS.

EGB/Gilts - Under pressure

• Another decent session volumes wise for EGBs.
• Bund has extended lower to test the 171.00 figure, printed a 170.98 low.
• Targets remains at the -0.246% yield level which equate to the 170.50
• We keep our eyes on couple of spread, he BTP/Bund spread trending below the 100bps (tighter) level and the Gilt/Bund which targets the March high at 113.4868, also the widest level since 11th November 2019.
• But decent selling clips in BTP translated in a wider BTP/Bund spread, moving back above 101bps, after investors were seen fading moves below 100bps this morning.
• Gilts are outperforming somewhat fading some the Gilt/Bund spread widening, and the spread sits 1.8bp tighter at the time of typing.
• Looking ahead, we have Quadruple Witching in Equities, BoE Bailey speaks on IMF Panel, and US Michigan is the only notable data.
• Dec Bund futures (RX) down 33 ticks at 171.1 (L: 170.98 / H: 171.32)
• Dec Gilt futures (G) down 8 ticks at 127.3 (L: 127.15 / H: 127.34)
• Dec BTP futures (IK) down 48 ticks at 153.59 (L: 153.41 / H: 154)
• Dec OAT futures (OA) down 34 ticks at 167.51 (L: 167.36 / H: 167.74
• )Italian BTP spread up 1.7bps at 101.3bps

EUROPEAN SOVEREIGN ISSUANCE UPDATE

UK AUCTION RESULTS DMO sells GBP3.5bln 1/3/6-month UKTBs

Decent cut to next week's auction size.

FOREX: USD Is Mostly Weaker This Morning

• The Dollar has been better offered this morning, a continuation of the overnight session, but still worth noting that we trade within past session's ranges.
• Best performer against the USD in G10, is still the AUD, up 0.33%.
• The Aussie is in the green, after we tested lowest level in AUDUSD since the 27th August yesterday.
• This is a continuation of the overnight session with some hope on the Covid, front as the country trials home quarantine for fully vaccinated people coming from abroad.
• The early risk on tone in Europe is also providing a bid.
• The Aussie is up against all majors, and also note very large option expiry with: 2.52bn at 0.7325 which could act as a magnet.
• EURUSD is small up today, on the broader USD weakness, and we have 3.14bn worth of option expiry between 1.1745/1.1800.
• Looking ahead, ECB Makhlouf, BoE Bailey are the notable speakers.
• ECB release 1st voluntary TLTRO repayments, where the Banks can pay back money drawn under TLTRO (11.05BST)

FX OPTION EXPIRY: Big expiry in AUDUSD could act as a magnet

Of note:

EURUSD: 3.14bn between 1.1745/1.1800

• EURUSD: 1.1745 (1.23bn), 1.1750 (505mln), 1.1760 (211mln), 1.1800 (1.2bn)
• AUDUSD; 0.7325 (2.52bn)
• USDCAD: 1.2635 (232mln), 1.2700 (938mln)
• USDCNY; 6.43 (652mln), 6.48 (308mln)

Price Signal Summary - Bunds Head South

• In the equity space, S&P E-minis recovered yesterday but it remains too early to determine whether a move higher is a correction or the start of a recovery that resumes the uptrend. Attention remains on the key 50-day EMA at 4412.43. This average is an important support. Key resistance is unchanged at 4539.50, Sep 3 high. EUROSTOXX 50 futures remains above 4132.50, Sep 9 low. A break of this support would expose 4078.00, Aug 19 low. The bull trigger is unchanged at 4252.00, Sep 6 high.
• In FX, EURUSD's sell-off yesterday confirmed a resumption of bearish pressure. The pair has cleared Monday's low of 1.1770 resulting in a print below 1.1758, 61.8% of the Aug 20 - Sep 3 rally. Further weakness would open 1.1735, Aug 27 low. Recent activity in GBPUSD has defined short-term directional parameters at; 1.3913 as resistance, Sep 14 high and support at 1.3727, Sep 8 low. A clear breach of either level would provide a clearer directional signal. {US} The USD Index (DXY) has established a short-term support at 92.32, Sep 14 low. Technical conditions suggest scope for gains near-term.
• On the commodity front, Gold sold off sharply yesterday and the near-term outlook remains bearish. The focus is on $1724.5, 76.4% retracement of the Aug 9 - Sep 3 rally. WTI futures maintain a bullish outlook. The contract has this week cleared $71.30, the bear channel top drawn from the Jul 6 high. This reinforces current bullish conditions and opens the primary resistance and bull trigger at $74.77, Jul 7 high.
• In FI, Bund futures continue to weaken. This has opened 170.82 next, 2.764 projection of the Aug 5 - 11 - 17 price swing. Gilt futures are softer too and signal scope for an extension of the current bear cycle. The focus is on 127.09 1.764 projection of the Aug 20 - 26 - 31 price swing and 127.00 appears exposed.

EQUITIES: Retreating From Session Highs On Quadruple Witching Day

Equities performed well in the Asia-Pac session, but have retreated from early highs in European trading. Quadruple Witching expiries eyed.

• Asian stocks closed higher, with Japan's NIKKEI up 176.71 pts or +0.58% at 30500.05 and the TOPIX up 10.01 pts or +0.48% at 2100.17. China's SHANGHAI closed up 6.874 pts or +0.19% at 3613.966 and the HANG SENG ended 252.91 pts higher or +1.03% at 24920.76
• European stocks are weaker, with the German Dax down 44.85 pts or -0.29% at 15651.75, FTSE 100 up 0.31 pts or +0% at 7027.48, CAC 40 down 1.49 pts or -0.02% at 6622.59 and Euro Stoxx 50 down 13.72 pts or -0.33% at 4169.87.
• U.S. futures are lower, with the Dow Jones mini down 70 pts or -0.2% at 34679, S&P 500 mini down 13.75 pts or -0.31% at 4460.5, NASDAQ mini down 41.25 pts or -0.27% at 15476.5.

COMMODITIES: Metals Outperforming Energy

• WTI Crude down $0.61 or -0.84% at $72
• Natural Gas down $0 or -0.02% at $5.335
• Gold spot up $10.54 or +0.6% at $1763.6
• Copper up $4.7 or +1.1% at $432.75
• Silver up $0.13 or +0.57% at $23.0399
• Platinum up $15.95 or +1.7% at $952.74