MNI US MARKETS ANALYSIS - Equities Struggling Ahead of ATH

US TSYS SUMMARY: Focus on today's 10y UST auction with an eye on CPI tomorrow

• Treasuries have been on the front foot this morning, briefly breaking through the key short-term resistance level of 132-20+ (May 7 high). Our technical analyst notes that a clear breach would open 132-28+, a Fibo projection.
• There has been a decent move in the 5s30s curve too, which has now reversed all the steepening after the May 7 payrolls print and has moved from a peak of 157.5bp to 143.5bp at the time of writing.
• The main focus of the day will be the 10-year UST auction with USD38bln on offer. Results will be available just after the close at 13:00ET. Also, the NY Fed is to buy Tsy 22.5Y-30Y, appr $2.025B
• Elsewhere on the calendar this morning we have MBA Mortgage Applications, the final print of wholesale inventories and trade.
• With data today not top tier, markets are looking ahead to tomorrow's CPI print (and to a lesser extent tomorrow's ECB meeting).
• TY1 futures are up 0-5+ today at 132-20 with 10y UST yields down -3.1bp at 1.505% and 2y yields down -0.4bp at 0.150%.
• 5y yields down -2.2bp today at 0.751%
• 30y yields down -3.2bp today at 2.186%
• 2s10s down -2.7bp today at 135.5bp
• 10s30s down -0.1bp today at 68.1bp

EGB/GILT SUMMARY: BTPs Outperform

European sovereign bonds have rallied this morning with the EGB periphery slightly outperforming.

• The gilt curve has bull flattened with the 2s30s spread 1bp narrower.
• German bond yields are 1-2bp lower on the day with the curve similarly 1bp flatter.
• OATs have slightly outperformed bunds on the day with cash yields 1-3bp lower.
• BTPs have outperformed core EGBs with the belly of the curve leading. The 10-year benchmark yield has pushed down 5bp.
• Supply this morning came from Germany (Bund, EUR1.26bn allotted), Italy (BOTs, EUR7.5bn), Portugal (OTs, EUR1.0bn) and Greece (GTBs, EUR0.625bn & 10YR issue via syndication)

EUROPE ISSUANCE UPDATE: German, UK, Portuguese Auctions, Greek Syndication

Germany allots E1.26bln 0% Aug-50 Bund, Avg yield 0.31% (Prev. 0.21%), Bid-to-cover 1.12x (Prev. 0.94x), Buba cover 1.33x (Prev. 1.16x)

Given the recent weakness in German auctions, today's 30-year Bund result is encouraging. The bid-to-cover is 1.12x, up from the technically uncovered 0.94x in March. (Bid-to-offer of 1.33x vs 1.16x).

UK DMO sells GBP1.0bln nominal of the 0.125% Aug-31 linker, Avg yield -2.687% (Prev. -2.537%), Bid-to-cover 2.77x (Prev. 2.82x)

Portugal sells:

E300mln 0.70% Oct-27 OT, Avg yield -0.162% (Previous -0.086%), Bid-to-cover 4.33x (Previous 2.57x)
E700mln 0.30% Oct-31 OT Avg yield 0.397% (Previous 0.505%), Bid-to-cover 1.53x (Previous 2.47x)

GREEK SYNDICATION: 10y GGB tap final spread
0.75% Jun-31 GGB
Final spread set at MS+82bps (original guidance MS+90bps area, revised toMS+85bps (+/-3bps)
Bond Tap Sized at EUR2.5B, Books Closed in Excess of EUR29B - DJ
A bit smaller than the E3.0bln expected by MNI.

FOREX: Greenback Following Yields Lower

• The greenback trades modestly weaker early Wednesday, but the USD Index still holds above the Tuesday lows. Markets are in consolidation mode, with most major pairs trading inside the week's range. Greenback weakness continues to follow the US yield curve, after Tuesday saw the 10yr yield close at its lowest level since March. Losses persist this morning, with yields nearing the 1.50% level.
• CAD is the strongest currency in G10, with USD/CAD reversing Tuesday's gains as oil prices continue to grind higher. Both Brent and WTI crude futures broke above the 2021 highs ahead of yesterday's close, and are hitting new cycle best levels this morning.
• The Bank of Canada decision takes focus going forward. This meeting sees no new Monetary Policy Report, meaning the Bank won't release any fresh growth or inflation projections. As such, markets expect little in terms of policy action, with the BoC seen favouring July's decision as the next opportunity for the Bank to further taper their asset purchase programme.
• Outside of the BoC, US wholesale trade sales and inventories numbers are released, but markets remain focused on US CPI released later in the week.

CHINA FX: CNH Firm, Re-Test of Cycle Highs on the Cards

• Chinese currencies remain firm this morning, with USD/CNH pressuring the day's lows of 6.3881 at typing. Move remains primarily USD-led at this stage, with the greenback following yields lower so far Wednesday. A break through the week's lows of 6.3849 would bring the recent cycle lows back into play at 6.3525 (markets have steered clear of here since the PBoC acted on the FX RRR last week).
• Options bias this morning appears to be favouring USD/CNY downside also, with some of the larger trades crossing including structures consistent with a 6.30/6.40 put spread expiring in early September (partially funded by selling a 6.5159 call)
• Markets continue to watch recent activities by the Chinese authorities to temper domestic inflationary pressures, with reports overnight suggesting coal prices could be capped ahead of peak demand season this summer. Follows overnight PPI data hitting 9% - the highest rate since 2008.

FX OPTIONS: Expiries for Jun09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2080-1.2100(E1.25bln-EUR puts), $1.2135(E686mln-EUR puts), $1.2145-55(E1.4bln-EUR puts), $1.2165-75(E1.3bln-EUR puts), $1.2195-1.2200(E1.3bln-EUR puts), $1.2235-40(E514mln-EUR puts), $1.2250(E1.7bln-EUR puts), $1.2265(E532mln-EUR puts), $1.2400(E919mln-EUR puts)
• USD/JPY: Y108.45-55($1.2bln), Y109.00-10($1.46bln-USD puts)
• USD/CHF: Chf0.8975($1.2bln-USD puts)
• EUR/CHF: Chf1.0980(E601mln-EUR puts), Chf1.1040(E1.1bln-EUR puts), Chf1.1100(E595mln-EUR puts)
• AUD/USD: $0.7750(A$779mln-AUD puts), $0.7900-10(A$892mln-AUD puts), $0.8010(A$724mln-AUD puts)
• USD/CNY: Cny6.38($595mln-USD puts), Cny6.40($770mln-USD puts)

Price Signal Summary - Bunds Clear The 50-Day EMA

• In the equity space, S&P E-minis are unchanged and still trading close to the all-time high of 4238.25 May 10 high. This remains the key resistance and the trigger for a resumption of the uptrend. Initial support is at 4165.25, Jun 3 low.
• In the FX space, EURUSD appears vulnerable following last week's price action. The focus is on 1.2105, the 50-day EMA. GBPUSD is consolidating and remains below 1.4248, Jun 1 high. A deeper pullback would expose 1.4006, May 13 low. Note the 50-day EMA intersects at 1.4024 and also represents a key support level. Recent USDJPY weakness has resulted in a probe of support at 109.33, Jun 1 low. A clear break lower would threaten the recent uptrend and expose 108.56, May 25 low.
• On the commodity front, Gold key short-term directional triggers are at; $1916.6, the Jun 1 and bull trigger and $1856.2, the Jun 4 low. Trend conditions in oil remain bullish and price has traded higher today. Recent Brent (Q1) gains have opened $73.00 next, a round number resistance. WTI (N1) similarly cleared resistance to hit new cycle highs, clearing the $70.00 psychological level in the process. The focus is on $70.92, 2.764 projection of Mar 23 - 30 - Apr 5 price swing
• Within FI, Bunds (U1) have topped the 50-day EMA at 172.00 and looks to have made a clear break. This counters the bearish outlook, with support still holding at 170.99. May 31 low. The break higher opens 172.64, 61.8% retracement of the Mar 25 - May 19 sell-off. Gilts (U1) challenged resistance at 127.74/82 this morning - marking the highs between Apr 20 and May 26. A bearish risk remains present. A breach of this resistance zone is required to highlight a base.

EQUITIES: Stock Markets Drift, But Losses Muted Ahead of NY

• Continental equities are generally slightly lower in cash space, with the UK's FTSE-100 leading losses having dropped 0.5%. Spain's IBEX-35, meanwhile, outperforms slightly, holding 0.1% above water at pixel time.
• Europe's financials sector is leading the decline in the Stoxx600, with materials and energy names similarly weak. Gains in healthcare and real estate names have slowed the decline somewhat.
• This has left US futures in consolidation mode, with the e-mini S&P holding just below the alltime highs printed back in May at 4238.25.
• VIX futures continue to trade heavy, sitting just above yesterday's contract low of 17.50.

COMMODITIES: WTI, Brent Grinds Higher Despite Iran Olive Branch

• Having closed at the best level since 2018 on Tuesday, WTI and Brent crude futures are adding further to recent gains this morning, with WTI touching new cycle highs of $70.62/bbl and Brent hitting $72.83/bbl in overnight trade.
• The upside in oil has extended this morning despite some signs of tangible progress and timelines for the possible return of Iran to the global oil market.
• Reports this morning that ahead of the sixth round of IAEA negotiations with Iran, US diplomats are have appealed to Iran to accept a 'mutual return' to the nuclear agreement, according to Bloomberg.
• In precious metals markets, both gold and silver are in minor negative territory, although both have traded inside the recent range so far Wednesday. This keeps technical parameters unchanged for now.