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MNI US MARKETS ANALYSIS - Eyes on Payrolls

HIGHLIGHTS:

  • Markets mixed, with E-mini S&P tied to 100-dma
  • US curve trades bear steeper
  • Light Monday schedule, with focus on Friday's payrolls release

US TSYS: Bear Steepening As Payrolls Week Begins

Treasuries have traded lower to start the week in a bear steepening move, with 10Y Yields bouncing from 5-session lows (1.4512%) set on the Asian cash open.

  • While Evergrande concerns made headlines overnight and weighed on equities, there was little discernable reaction in the Treasury space, which is seeing some giveback from the richening of the previous 3 sessions.
  • The 2-Yr yield is up 0.4bps at 0.2678%, 5-Yr is up 1.9bps at 0.9473%, 10-Yr is up 3.1bps at 1.4927%, and 30-Yr is up 3.9bps at 2.0675%.
  • Dec 10-Yr futures (TY) down 6/32 at 131-31.5 (L: 131-31 / H: 132-08.5)
  • More attention is on Friday's potentially pivotal payrolls data, and continued congressional wrangling over the infra / reconciliation package / debt limit legislation.
  • The data slate consists of August Factory / Durable / Cap Goods orders (the latter two are finals) at 1000ET.
  • StL Fed's Bullard appears on a panel at 1000ET.
  • In supply, $84B combined of 13-/26-week bills at 1130ET. NY Fed buys ~$2.025B of 22.5-30Y Tsys.

EGB/GILT SUMMARY: Bear Steepening

European sovereign bonds have traded weaker this morning alongside mixed trading in equities and currency markets.

  • Gilts have underperformed with cash yields 2-3bp higher across the curve.
  • Bunds have similarly traded weaker with the curve bear steepening. The 2s30s spread has widened 2bp.
  • OATs trade broadly in line with bunds.
  • The BTP curve has similarly steepened around 2bp.
  • The ECB's Guindos earlier stressed that while there were no signs of notable wage increases yet, the ECB will remain vigilant to second-round effects from recent price gains.
  • The ECB's Makhlouf and the BoE's Dave Ramsden are due to speak later today.
  • Supply this morning came from Germany (Bubills, EUR5.914bn allotted) and the Netherlands (DTCs, EUR3.9bn). Later today, France will offer EUR5.6-6.8bn of BTFs. The ESM has also tapped the 0% Dec-24 bond via syndication with books in excess of EUR18bn and size set at EUR2bn.
  • The European data calendar was light this morning.

EUROPE ISSUANCE UPDATE

ESM Syndication:
  • Books closed on 0% Dec-24 syndicated tap
    Spread set earlier at MS-13 bps (original guidance MS-11bp)
  • Spread set earlier at MS-13 bps (original guidance MS-11bp)
  • Books in excess of EUR 18bn (excl. JLM)
  • Size set earlier at E2bln WNG

EUROPE OPTION FLOW SUMMARY

UK
LU2 99.00p, traded paper to paper and look sold at 7.75 in 6k

SFIH2 99.85/99.80ps vs 99.95c, sold the ps 3.5 in 8k

FOREX: JPY Working Against Last Week's Price Action, Weakest in G10

  • JPY is working against the price action seen late last week, with USD/JPY recovering off the overnight lows of 110.87 headed into the NY crossover. Nonetheless, the outlook remains bearish following the engulfing candle pattern last week, with the outlook unlikely to improve until prices recover above 112.08.
  • Commodity-tied currencies are faring more favourably, with NOK and CAD among the best performers in G10. Price action follows further sources reports arguing against ideas raised last week for OPEC+ to front-load their planned output hikes by boosting production by 800,000bpd in November. Latest reports suggest, however, that the group will opt for no change to policy. Meetings continue throughout the Monday session and further headlines are likely.
  • Equity markets are more mixed, with futures indicating a minor negative open on Wall Street later today. This keeps the e-mini S&P either side of the 100-dma at 4344.3, which is fast becoming a key anchor for prices evidenced in last week's price action.
  • August factory orders and final durable goods data make up a typically quiet US calendar Monday, keeping focus instead on appearances from BoE's Ramsden and Fed's Bullard.

FX OPTIONS: Expiries for Oct04 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1500(E854mln), $1.1530-40(E801mln), $1.1560-75(E687mln), $1.1600(E884mln), $1.1650(E807mln), $1.1700-15(E2.2bln), $1.1740-55(E1.4bln)
  • USD/JPY: Y111.25-30($710mln)
  • AUD/USD: $0.7250(A$742mln)

Price Signal Summary - USD Uptrend Intact

  • In the equity space, S&P E-minis weakened once again Friday and cleared key support at 4293.75, Sep 20 low, before finding support. The break strengthens a bearish case and confirms a resumption of the bear cycle that started Sep 3. This opens 4214.50, Jul 19 low. Gains are considered corrective. EUROSTOXX 50 futures remain weak and Friday registered a print below 3974.00, Sep 20 low - Friday's low was 3961.00. Further downside is likely towards 3951.50, 1.00 projection of the Sep 6 - Sep 20 - Sep 24 price swing.
  • In FX, EURUSD remains in a downtrend. The pair last week cleared key support at 1.1664, Aug 20 low to confirm a resumption of its downtrend. The focus is on 1.1493 next, 50.0% of the Mar '20 - Jan '21 bull phase. GBPUSD remains vulnerable following last week's sell-off. Attention is on 1.3354 next, Dec 23, 2020 low. Gains are considered corrective. USDJPY last week traded through key resistance at 111.66, Jul 2 high and the bull trigger. The clear break strengthens a bull case and opens 112.23, Feb 20, 2020 high. Near-term however, attention is on Thursday's price pattern - a bearish engulfing candle - that highlights the risk of a deeper corrective pullback, potentially towards 110.16, the 50-day EMA.
  • On the commodity front, Gold remains in a downtrend. The focus is on $1690.6, Aug 9 low and the bear trigger. Note though that Thursday's price pattern is a bullish engulfing candle and highlights the potential for a stronger corrective bounce. A climb would open $1787.4, Sep 22 high. WTI futures remain below the Sep 28 high of $76.67. The trend direction remains up and firm support is seen at $73.14, the Sep 30 low.
  • In the FI space, short-term gains are considered corrective. Bund futures remain in a clear downtrend with the focus on 169.46, 1.50 projection of the Sep 9 - 17 - 21 price swing. Resistance is seen at 170.81, Sep 17 and a recent breakout level. Gilt futures remain heavy too. The focus is on 124.64, 1.382 projection of the Aug 31 - Sep 17 - 21 price swing.

EQUITIES: E-mini S&P Anchored at 100-dma

  • Stocks trade mixed ahead of the Monday open, with continental indices trading either side of unchanged. Spain's IBEX-35 very modestly outperforms, although countered by similar weakness in Italy's FTSE-MIB.
  • On the sector breakdown, defensive trade is evident in the strength across healthcare names, while consumer discretionary and financials are the poorest performers.
  • The e-mini S&P remains anchored by the 100-dma, which has proved a definitive level over the past few sessions. The index maintains a bearish theme and Friday cleared key support 4293.75, Sep 20 low. The break strengthens a bearish case and confirms a resumption of the bear cycle that started Sep 3. The move also establishes a price sequence of lower lows and lower highs and this reinforces bearish conditions, opening 4214.50, Jul 19 low.

COMMODITIES: Oil Buoyed as OPEC+ Eye No Change in Policy

  • WTI and Brent crude futures sit just above unchanged, keeping pressure on the better levels printed in the latter half of last week.
  • Following uninspiring trade during holiday-thinned Asia-Pacific hours, oil prices picked up on Reuters reports suggesting OPEC+ will opt for an unchanged output policy this month, running against rumours that circulated last week that the group could front-load their output hike plans to November, boosting production by 800,000bpd. Meetings are due to continue through the Monday session, with further headlines likely.
  • Gold trades lower, edging off the rally seen off the Thursday lower, possibly reinforcing the sell-on-rallies theme. From a trend perspective, the outlook is bearish following last week's move lower and extension of the bear phase that has been in place since Sep 3. A break of $1721.7, Sep 29 low would confirm a resumption of weakness and open key support at $1690.6, Aug 9 low.

MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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