MNI US MARKETS ANALYSIS - CNH on Backfoot as PBoC Cuts RRR

US TSYS: Treasuries Bear Steepen On Omicron Developments

• Cash Tsys have seen a mild bear steepening this morning in response to some encouraging news regarding Omicron hospital patients requiring less medical intervention.
• 2Y yields are +3bps at 0.617% (back near ytd highs), 5Y +3.5bps at 1.167%, 10Y +4.4bps at 1.387% and 30Y +4.2bps at 1.714% (close to ytd lows).
• TYH2 futures have traded in a tight range today, currently 131-00 as they somewhat consolidate Friday’s late rally.
• No substantive data today and Fed in blackout ahead of Dec 15 meeting.
• NY Fed buy-op: TIPS 1Y-7.5Y, appr $1.775B (1030ET)
• Issuance kept to bills today, with US Tsy $57B 13W and $51B 26W Bill auctions (1130ET), before 3s, 10s and 30s from tomorrow onwards.

EGB/Gilt: Focus On Broadbent Later Today

European government bonds got off to a weak start before clawing back earlier losses during the latter part of the morning session. Equities are broadly higher while trading in FX has been mixed.

• Gilts now trade close to flat on the day.
• Bunds have recovered some lost ground, while still trading below the Friday close. Cash yields are now 1-2bp higher on the day.
• OAT yields are ~1bp higher across much of the curve.
• BTPs have outperformed with yields pushing down 1-2bp.
• Supply this morning came from Germany (Bubills, EUR4.96bn allotted) and the Netherlands (DTCs, EUR1.50bn).
• The UK construction PMI for November came in above expectations (55.5 vs 54.2 survey), while the German print remained in contraction territory (47.9).
• The slate of European central bank speakers is light today with the BoE's Broadbent being the only contributor of note.

CFTC: 10y Positioning Deteriorated Further Last Week

Fixed Income: Markets continue to build short 10y

• The 10y future position drifted further in the week ending Nov 30, with the net short rising to 8.2% of open interest and a new multi-year high.
• Short-end positioning improved, with 2yr flipping back to neutral, while markets maintained a short position in the long-end via Ultras.

Foreign Exchange: Commodity FX exposure slashed

• Markets slashed exposure to commodity-tied FX in the week ending Nov 30, with AUD, CAD and NZD all seeing their net positions deteriorate.
• This leaves markets most short AUD, JPY and MXN, while NZD maintains an increasingly fragile net long.

FOREX: CNH Fades as PBoC Cut RRR

• Haven currencies are modestly offered early Monday, with JPY and CHF underperforming as equities make modest progress from the off. Scandi currencies are at the other end of the table, with NOK and SEK higher against most others in G10.
• The greenback is mid-table, erasing early modest strength at the NY crossover, prompting the USD Index to fade off an attempt on last Friday's high.
• China's PBoC cut the reserve requirement ratio for banks by 0.5 percentage points to 11.50% from 12.00%, with the change effective from December 15th and releasing around CNY 1.2trl in liquidity. While the moves weren't a complete surprise, the timing was slightly more aggressive than expected, putting the CNH under pressure and providing some support for equity futures.
• Data releases are few and far between Monday, with the speaker slate more muted given the typical Fed media blackout pre-policy decision. Market focus turns to a speech from BoE's Broadbent, who addresses the outlook for growth and monetary policy.

FX OPTIONS: Expiries for Dec06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1200(E720mln), $1.1250(E609mln) $1.1550-60(E1.5bln)
• USD/JPY: Y113.70-80($707mln), Y113.95-05($683mln), Y115.00-10($1.4bln)
• GBP/USD: $1.3490-00(Gbp536mln)
• AUD/USD: $0.7400-10(A$1.3bln)
• USD/CAD: C$1.2765-75($510mln)

Price Signal Summary - S&P E-Minis Bearish Risk Remains Present

• In the equity space, S&P E-minis remain vulnerable and the contract is again facing selling pressure. Last week’s sell-off and break of the 50-day EMA reinforces the current bearish threat. A move through last week's low of 4492.00 on Friday, would confirm a resumption of the downtrend and open 4443.55, 61.8% of the Oct 1 - Nov 22 rally. Initial firm resistance is at 4612.76, the 20-day EMA. EUROSTOXX 50 futures have recently traded in a choppy manner. A bearish risk remains in place though with the focus on 3949.50, Oct 6 low and a key support. Initial resistance is at 4186.00, Dec 1 high.
• In FX, EURUSD trend conditions remain bearish although for now, a bullish corrective cycle is potentially still in play. 1.1383, the Nov 30 high is the key resistance to watch where a break would suggest potential for a stronger recovery and open 1.1514, Nov 5 low. The bear trigger is 1.1186/85, Nov 24 and Jul 1, 2020 low. GBPUSD trend signals remain bearish and a break of 1.3195, Dec 1 low, would confirm a resumption of the downtrend and open 1.3165, 38.2% retracement of the Mar ‘20 - Jun ‘21 upleg. 1.3391 is resistance, the 20-day EMA. The USDJPY is firmer this morning but despite this, a short-term bearish threat remains present following the sharp sell-off on Nov 26. The pair has recently probed support at 112.73, Nov 9 low. A clear break would strengthen the bearish case opening 112.08, Sep 30 high.
• On the commodity front, Gold remains vulnerable. Attention is on the base of the bull channel at $1762.1, drawn from the Aug 9 low. Thursday’s rebound in WTI futures has defined $62.43 as a key short-term support. The bounce highlights potential for a recovery that would allow a recent oversold condition to unwind. The next firm resistance is at $71.22, Nov 30 high. For bears, a break of $62.43 would resume the downtrend.
• In the FI space, Bund futures traded to a fresh trend high again on Friday. The focus shifts to 175.02 1.382 projection of the Nov 11 - 22 - 24 price swing. Gilts are unchanged and maintain a bullish tone. The 127.00 handle has been breached and this opens 127.36 Sep 7 high. Initial support is at 125.44, Nov 26 low and a gap high on the daily chart.

EQUITIES: Stocks Post Stronger Start to Week

• Equity futures across the US and Europe trade firmer early Monday, with the e-mini S&P adding just shy of 10 points, although most indices trade off the overnight recovery highs.
• This puts markets on a relatively neutral standing ahead of the Monday bell, with Friday's highs of 4606.75 still out of reach for now.
• European trade has been wholly positive, with Spain's IBEX-35 and the UK's FTSE-100 adding 0.8-1.0% to sit at the top of the pile. Europe's energy and utilities sector lead gains, with tech and consumer discretionary stocks adding some weight.
• S&P E-minis cleared the key 50-day EMA on Dec 1 and Friday attempted a resumption of the current downtrend. An ability to remain below the 50-day EMA would strengthen bearish conditions and looking ahead, a bearish cross of the 20-day EMA below the 50-day EMA (still a long way off) would reinforce bearish conditions.

COMMODITIES: Oil Remains Volatile Inside a Range

• WTI and Brent crude futures both trade higher, posting gains of around 2.5% apiece, as benchmark oil contracts remain volatile inside the recent range. Friday's highs for both contracts remain out of reach for now at $69.22/bbl for WTI and $72.61/bbl for Brent.
• Markets are taking the lead from the setting of Saudi Arabian OSPs for crude headed to Asia and the US, which have been boosted to levels not seen since the turn of 2000 for the sour, high sulphur content grades.
• Gold remains above last week's lows. Short-term conditions though remain bearish, having recently pulled back from $1877.2, the Nov 16 high. Price has breached both the 20- and the 50-day EMAs and attention remains on the base of a bull channel at $1762.1.