MNI US MARKETS ANALYSIS - EUR/GBP Weakness Persists, New 18M Lows

US TSYS SUMMARY: Yields Touch Fresh August Highs

Treasury yields have retraced slightly from highs in the European morning, with some very modest steepening turning into flattening.

• Yields across the curve briefly took out August highs, with 10Y rising to 1.3338% before subsiding. The 2-Yr yield is up 0.2bps at 0.2224%, 5-Yr is down 0.3bps at 0.792%, 10-Yr is down 0.9bps at 1.3152%, and 30-Yr is down 1.5bps at 1.9552%.
• Sep 10-Yr futures (TY) down 1/32 at 133-24 (L: 133-19 / H: 133-27.5).
• Another fairly light calendar today: NFIB small biz optimism waned more than expected in July (99.7 vs 102.0 expected), while Nonfarm Productivity / ULCs at 0830ET is the remaining data.
• Cleveland Fed's Mester speaks at 1000ET on inflation risks - will be of note following hawkish tones on a 2021 taper from fellow FOMC members in recent days.
• WSJ cited sources saying Powell's re-nomination as Chair faces increasing Democratic opposition.
• Coupon supply returns with 3Y Note auction at 1300ET (we also get $54B in 52-week and 42-day bills at 1130ET). NY Fed buys ~$6.025B of 4.5-7Y Tsys.
• Senate set to vote on the infra bill at 1100ET, then turn attention immediately to $3.5T spending plan.

EGB/GILT SUMMARY: Further Bull Flattening

European government bonds continue to push higher, having started the week on a firm footing yesterday.

• Gilt yields are 1-4bp lower on the day with the curve 2bp flatter.
• Bund yields are 1bp lower across the curve, which trades close to flat overall.
• OATs have marginally outperformed bunds, particularly at the longer end where cash yields have edged down 2bp.
• The BTP curve has bull flattened with the 2s30 spread 2bp narrower
• Supply this morning came from the UK (Gilt, GBP2.75bn), Spain (Letras, EUR5.135bn), Belgium (TCs, EUR2.0bn) and the ESM (Bills, EUR1.1bn).
• The latest German ZEW survey update came in far weaker than expected with teh expectations component dropping to 40.4 in August from 63.3 the previous month and below the 55.0 consensus estimate.

EUROPE ISSUANCE UPDATE

UK DMO sells GBP2.75bln of the 0.25% Jul-31 Gilt, Avg yield 0.664% (Prev. 0.819%), Bid-to-cover 2.72x (Prev. 2.68x), Tail 0.1bps (Prev. 0.1bps)

OPTION FLOW SUMMARY

Eurozone:
OEU1 135.25/135.00/134.75/134.50 put condor, bought for 7 in 2k

UK:
0LV1 99.62/99.50/99.25 put fly, bought for 2 in 1k
0LX1 99.37p vs 3LX199.12p, bought the 3yr mid for 2.75 in 5k

FOREX: Single Currency Weakness Puts EUR/GBP at 18 Month Low

• Trading has been generally thin on the ground, with most currency markets respecting recent ranges amid a lack of macro catalysts. Germany's ZEW survey came in well below forecast, at 40.4 vs. Exp. 55.0 for the expectations component. This put the single currency under minor pressure, with the EUR/USD rate edging further through yesterday's lows.
• JPY is the weakest currency in G10, helping USD/JPY rise closer to 110.50, although this hasn't filtered into stock markets which remain in a range.
• GBP is the firmest DM currency so far, with the strength most evident in EUR/GBP which crosses at the lowest level since late February last year.
• Once again, the data schedule is light, with US Nonfarm Productivity data and Unit Labor Costs the sole releases. Fed's Mester is scheduled to speak on inflation risks.

FX OPTIONS: Expiries for Aug10 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1690-00(E684mln), $1.1800-05(E859mln), $1.1825-40(E1.7bln)
• AUD/USD: $0.7300(A$949mln), $0.7350(A$539mln), $0.7385-00(A$1.1bln)
• USD/CAD: C$1.2530-50($647mln)
• USD/CNY: Cny6.4730($1bln)

Price Signal Summary - Gold Remains Fragile

• Gold prices remain fragile after Monday's spiral lower, with markets taking out all nearby support levels to print multi-month lows of $1690.6. The pull lower found some support at the 61.8% retracement of the 2020 range, but the recovery off the low will have emboldened bulls. To reinforce any upside argument, bulls need to regain $1834.1, Jul 15 high, ahead of $1853.3, a Fibonacci retracement.
• S&P E-minis outlook is bullish as evidence of dip buying remains solid on intraday pullbacks. Recent gains have confirmed a resumption of the uptrend and signal scope for a continuation near-term. EUROSTOXX 50 futures continue to press onwards, extending the winning streak to five consecutive sessions of higher highs. The breach of this level places on hold the previously bearish outlook and instead signals scope for a stronger move higher.
• In FX, EURUSD printed a lower low Monday, extending the downtick from Monday's sell-off. This puts the pair below the July 21 low of 1.1752, opening scope for losses toward levels not seen since April/March. GBPUSD traded lower into the Friday close, fading off key resistance. This puts the pair further below the 50-day EMA at 1.3890 which represents the key upside level. USDJPY initially extended lower mid-last week, but has rallied since, rising back above the 110.00 handle. This works against the previously bearish theme, with markets now focusing on the Jul23 high at 110.59 initially ahead of 110.70.
• Within FI, the winning streak in Bund futures concluded Friday, with bond markets globally edging lower. This ends the winning streak of 8 consecutive sessions of higher highs, although the outlook holds bullish. Any return higher targets 177.69, a Fibonacci extension.

EQUITIES: Stocks Mixed, Largely Non-Directional

• Equity markets across Europe are mixed, with little uniform direction as traders await further macro cues. Newsflow, and therefore volumes, have been thin, keeping markets close to recent highs, but making no convincing move in either direction.
• Europe's tech sector outperforms, propping the Stoxx600 into positive territory, but continued weakness is observed in the energy sector - which remains under pressure from this week's downtick in oil prices.
• Futures reflect the drift in Europe, with the e-mini S&P flat, while the NASDAQ sits in very minor positive territory.

COMMODITIES: Oil Up 4.3% From Monday's Lows

• WTI Crude up $1.35 or +2.03% at $67.83
• Natural Gas down $0.01 or -0.3% at $4.048
• Gold spot up $1.01 or +0.06% at $1737
• Copper up $2.75 or +0.64% at $431.7
• Silver up $0.05 or +0.2% at $23.4957
• Platinum up $7.69 or +0.78% at $989.67