MNI US MARKETS ANALYSIS - Bonds Higher on Volumeless Bounce

US TSYS SUMMARY: Tentative Rally After Yesterday's Sell-Off

• Cash Tsys have seen a limited rally after yesterday’s bear steepening was extended by the weak 7 auction.
• This sees the short-end back near yesterday lows (but still close to ytd highs) whilst the longer-end remains towards the top end of yesterday’s range.
• 2Y yields are -1.2bps at 0.734%, 5Y -2.1bps at 1.276%, 10Y -2.1bps at 1.529% and 30Y -1.7bps at 1.944%.
• TYH2 has drifted higher this morning +0-04+ to 130-11+ from yesterday’s late low of 130-03, on still modest but at least higher volumes than earlier in the week. 130-03 forms a new initial support level before a firmer 129-31 (Dec 8 low). Initial resistance is 130-23+ (Dec 29 high).
• Last US data of the year with weekly jobless claims before the MNI Chicago PMI for Dec (62.0 expected after 61.8) at 0945ET.
• Bill issuance: US Tsy $50B 4W and $40B 8Y bill auctions (1130ET).

BOND SUMMARY: Bonds Bouncing, But Recovery Shallow

• Bond futures across the continent as well as the US are slightly higher Thursday, recouping a small part of the losses suffered yesterday. Mar-22 Treasury futures are higher by just over 6 ticks, trading at broadly the midpoint of the Wednesday range.
• Improving equity prices are also being reflected in Italian bond markets, with BTP futures over 70 ticks off the weekly lows. This has pressured the Italian 10y yield back to 1.10%, dropping near 5bps on the session.
• Yield curves are generally trading flatter, with the longer-end outperforming across both German and US curves. News and macro catalysts are few and far between, keeping focus on end-of-year trading and the upcoming call between Presidents Biden and Putin.
• Data of note Thursday includes MNI Chicago PMI, with markets expecting the data to improve marginally to 62.0 from 61.8 previously. Weekly jobless claims also cross, with consensus looking for a 206k IJC - in line with the prior reading.

FOREX: Focus Turns to Biden-Putin Call, MNI Chicago PMI

• The USD is clawing back a decent part of the Wednesday losses, with the USD Index rising back above the 96 handle and nearing the week's highs of 96.395. Equities are resuming the recent incline, helping nudge the e-mini S&P back toward the recent alltime highs printed at 4798.00.
• The dollar's recovery has dragged EUR/USD off the week's highs printed yesterday at 1.1369, with the pair now finding some support at the 1.13 handle ahead of the NY crossover.
• The poorest performer among G10 is the NOK, which is working against decent strength posted in the currency across the past two weeks. USD/NOK trades just below next resistance of 8.9058.
• Presidents Biden and Putin hold a call today to discuss the ongoing tensions in eastern Ukraine, with a spokesman yesterday stating Biden will offer Russia a diplomatic solution to avoid further unrest and de-escalate tensions. The call follows the US presenting intelligence to European partners that suggested Putin was building troops on the border and could launch an invasion as soon as early January. The call is scheduled for 1530ET/2030GMT.
• Focus for today rests on the MNI Chicago PMI due at 1445GMT - with markets expecting the data to improve marginally to 62.0 from 61.8 previously. Weekly jobless claims also cross, with consensus looking for a 206k IJC - in line with the prior reading

FX OPTIONS: Expiries for Dec30 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1284-90(E589mln), $1.1330-40(E771mln)
• EUR/GBP: Gbp0.8375(E541mln), Gbp0.8635(E583mln)

Price Signal Summary – Bonds Near Cycle Lows at Year-End

• In the equity space, S&P E-minis hold the entirety of the rally triggered on Dec 20, as prices recovered off the 100-dma at 4537.57. The resulting alltime high at 4798.00 sits just below psychological resistance of 4800. EUROSTOXX 50 futures hold the bulk of the pre-Christmas rally, and have nicely narrowed the gap with the November highs posted at 4409.50. This marks a further improvement in the short-term bullish condition.
• In FX, EURUSD is holding onto the bulk of recent gains. Price remains in a range though and is holding above initial support at 1.1222, the Dec 15 low. Key resistance at 1.1383 is also intact, Nov 30 high. A break of this hurdle is required to signal potential for a stronger recovery towards 1.1404 the 50-day EMA. USDJPY trades higher again early Thursday, extending the strength triggered by the breach of resistance at 114.26, Dec 15 high as well as 114.38, the 61.8% Fibonacci retracement of the Nov 24 - 30 downleg.
• On the commodity front, Gold maintains a bullish focus and is approaching recent highs. The yellow metal is still showing signs of base building following the recent false break of the channel base drawn from the Aug 9 low. WTI futures are holding the sizeable Dec27 rally, putting prices at the best level since late November. The rally has so far stalled at the 76.4% retracement of the Oct-Dec downleg at $77.44, which becomes the next key upside level.
• In the FI space, Bund futures trade lower into year-end, extending weakness through the 172.00 handle to touch new December lows headed into the new year. Support at the Nov26 and Nov24 lows has given way, putting prices at 171.31 - the lowest level since Nov04. On the resumption of trade, Gilt futures returned lower, printing new December lows at 124.35 as global bond markets sold off.

EQUITIES: Stocks Broadly Flat in Muted Year-End Trade

• Japan's NIKKEI closed down 115.17 pts or -0.4% at 28791.71 and the TOPIX down 6.66 pts or -0.33% at 1992.33. China's SHANGHAI COMP closed up 22.189 pts or +0.62% at 3619.189 and the HANG SENG ended 25.47 pts higher or +0.11% at 23112.01.
• The German Dax down 7.46 pts or -0.05% at 15847.89, FTSE 100 down 1.04 pts or -0.01% at 7420.96, CAC 40 up 13.06 pts or +0.18% at 7174.62 and Euro Stoxx 50 up 13.74 pts or +0.32% at 4297.77.
• Dow Jones mini up 8 pts or +0.02% at 36389, S&P 500 mini up 3.75 pts or +0.08% at 4787.75, NASDAQ mini up 33.5 pts or +0.2% at 16527.25.

COMMODITIES: Oil Markets Edge Off Week's Highs