MNI US MARKETS ANALYSIS - GBP Anchored by Further Brexit Ire

US TSY SUMMARY: Futures Bounce Off Support, Cash Closed

A bit of weakness overnight in futures, though off early European session lows, with stock futures now touching session highs.

• Decent volume (TYZ0 ~270k) esp considering the US Veterans Day holiday w cash trade closed. Note a bit of a volume spike came in Asia-Pac hours around 2140ET as TYs broke to new lows below 137-13+ but otherwise unremarkable.
• TYs tested 137-08 support but it held - a level our tech analyst has identified as a Fibonacci projection (see our techs).
• The calendar is bare: no data, no speakers, no Tsy supply.

Current futures levels:

• Dec 2-Yr futures (TU) down 0.375/32 at 110-10.75 (L: 110-10.6 / H: 110-11.25)
• Dec 5-Yr futures (FV) down 1/32 at 125-5.75 (L: 125-04.75 / H: 125-08)
• Dec 10-Yr futures (TY) down 2/32 at 137-12 (L: 137-08 / H: 137-17.5)
• Dec 30-Yr futures (US) down 1/32 at 169-31 (L: 169-16 / H: 170-13)
• Dec Ultra futures (WN) up 1/32 at 210-15 (L: 209-18 / H: 211-10)

EGB/GILT SUMMARY: Gilts Underperform

EGBs have traded firmer this morning alongside further downside for gilts and modest equity gains.

• Gilts have underperformed with the 30-year yield hitting 1% for the first time since March. Yields at the longer end are now 2bp higher on the day.
• There is some speculation that the prospect of a UK-EU trade deal may have marginally improved after incoming US President Joe Biden urged UK PM Boris Johnson not to undermine the Good Friday Agreement in reference to Downing Street's controversial Internal Markets Bill. Biden had previously indicated that passing the bill would limit prospects for a UK-US trade.
• Bunds have traded firmer with the curve close to flat. Last yields: 2-year -0.724%, 5-year -0.7074%, 10-year -0.4959%, 30-year -0.0601%.
• OATs have marginally outperformed bunds on the day with yields edging down 1-2bp across the curve.
• The BTP curve has marginally bull flattened with the 2s30s spread 1bp narrower.
• Supply this morning came from the UK (linker, GBP0.80bn), Germany (bund, EUR0.849bn) and Italy (BOTs, EUR5.5bn).
• The UK government earlier announced new powers to intervene in foreign takeovers of British companies that could pose a threat to national security.

GERMAN AUCTION RESULTS: Germany Allots E0.849bn of the 0% Aug-50 Bund

• Average yield -0.06% (-0.16%), Buba cover 1.6x (2.38x), bid-to-cover 1.3x (2.13x), pre-auction pre-price: 101.47

GILT AUCTION RESULTS: DMO sells GBP800mln nominal of the 0.125% Nov-32 linker

• Avg real yield -2.381% (-2.550%), bid-to-cover 1.74x (2.52x), price 149.250 (155.079)
• An additional GBP200mln nominal will be available through the PAOF to successful bidders until 13:00GMT.
• The weakest linker auction for a while - market participants possibly weary ahead of the RPI review that is due to be released on November 25.

OPTIONS RECAP: 

EGB OPTIONS:

• Bund ATM put seller RXZ0 174.50p, sold at 90 in 5k
• RXZ0 174.5 call, sold at 23, 21, and 20 in 3k

EURIBOR OPTIONS:

• 3RM1 100.37/100.25/100.125 p ladder, sold at 0.75 in 2k

SHORT-STERLING OPTIONS: Large downside

• 0LH1 100.12/100.00/99.87p fly 1x3x2, bought for -1 in 17.5
• * Note last night circa 17.00GMT: 0LH1 100.125/100.00/99.875p fly 1x3x2 bought for -0.75 in 22
• LH1 100 calls, sold at 2.75 in 3.75k (ref 99.97, 40 del)
• L M1 100.125/100.25cs, bought for 1.75 in 5k

FOREX SUMMARY: GBP Sapped as Markets Prime for Further Brexit Delays

After outperforming throughout the Tuesday session, GBP now sits at the bottom of the G10 pile after Reuters cited sources in saying that EU/UK negotiators will likely miss their self-imposed mid-November deadline for reaching a free trade agreement. GBP/USD was sold in size from highs of above the 1.33 to new session lows down at 1.3241.

The greenback trades modestly stronger, but well within recent ranges. Volumes and price action could prove muted Wednesday given the partial close in the US for Veterans Day.

NZD outperforms after the RBNZ rate decision overnight. As expected, the central bank left the OCR & LSAP settings unchanged and said it will deploy a Funding for Lending Programme in December. The Bank took note of the relative resilience of domestic economy, but continued to flag downside risks and poured cold water on vaccine enthusiasm.

With no tier one data due, focus rests on the central bank speakers slate, with ECB's Lagarde speaking at the ECB's central bank forum.

CHF TECHS: Swissie Under Pressure

The Swiss Franc has been under pressure this week and some key reversal patterns and price breakouts suggest more of the same is likely near-term.

• USDCHF: Bullish engulfing candle on Nov. 9.
  • Key resistance to watch: 0.9208, Nov 2 high.
• EURCHF: Strong rally Monday extends bounce off the Nov 4 low.
  • Key resistance is at 1.0878, Sep 1 high to 1.0916, Jun 5 high.
• GBPCHF has rallied sharply high with Sterling also firmer this week.
  • Watch key resistance is at 1.2223/60, Sep 1 and Jun 5 highs.
• AUDCHF is approaching key resistance at 0.6713 to 0.6743, Sep 2 and Jun 5 high respectively.
• NZDCHF has cleared 0.6298, Jun 9 high confirming a resumption of the broader recovery off the March low. This opens 0.6408, 0.50 Fibonacci projection of the Mar 19 - Jun 9 - Aug 20 price swing.
• CADCHF is through resistance at 0.7009, Sep 8 high. This opens 0.7095, 76.4% retracement of the Jun - Jul sell-off

GBP Volatile, Gilts Bought on Further Brexit Headlines

Both GBP and Gilts volatile as further Brexit headlines cross. Reuters cite sources in reports that the EU and UK are likely to miss the mid-November deadline to seal a new trade deal, with negotiations to extend through the week. On the plus side, however, the report goes on to say that EU diplomats now expect a deal to be presented in the middle of next week, tempering some of the volatility.

- GBP/USD briefly rallied north of the 1.30 mark on the initial release, touching 1.3312 before reversing and taking a leg lower, touching new daily lows of 1.3241. The move looks driven by short term play bailing out, pushing the pair to the low, and order flow related as the pair recovers to 1.3258

FX OPTIONS: Expiries for Nov11 NY cut 1000ET (Source DTCC)

EUR/USD: $1.1650-55(E1.1bln), $1.1770-80(E820mln), $1.1800-10(E982mln), $1.1830-35(E1.1bln)

USD/JPY: Y104.00($550mln), Y105.25-37($668mln)

GBP/USD: $1.3150(Gbp479mln-GBP calls), $1.3275(Gbp428mln-GBP calls)

USD/CNY: Cny6.5877($500mln), Cny6.63($830mln), Cny6.65($965mln-USD puts), Cny6.70($625mln)

EQUITIES: Solid Move Higher From Overnight Lows

A solid start for equities, with European and US futures rising from Asia-Pac session lows. U.S. equity markets remain open for Veterans Day (as opposed to fixed income markets).

• Asian stock markets closed mixed, with Japan's NIKKEI up 444.01 pts or +1.78% at 25349.6 and the TOPIX up 28.27 pts or +1.66% at 1729.07. China's SHANGHAI closed down 17.946 pts or -0.53% at 3342.202 and the HANG SENG ended 74.5 pts lower or -0.28% at 26226.98.
• European equities are higher, with the German Dax up 43.3 pts or +0.33% at 13183.64, FTSE 100 up 34.86 pts or +0.55% at 6324.41, CAC 40 up 19.93 pts or +0.37% at 5453.36 and Euro Stoxx 50 up 6.31 pts or +0.18% at 3439.64.
• U.S. futures are gaining, with the Dow Jones mini up 186 pts or +0.63% at 29505, S&P 500 mini up 23.25 pts or +0.66% at 3564.25, NASDAQ mini up 114 pts or +0.98% at 11732.25.

COMMODITIES: WTI Eyeing Sep 2 High

Oil continues to push higher in impressive fashion - WTI now eyeing resistance at the Sep 2 high of $43.84.

• WTI Crude up $1.34 or +3.24% at $42.71
• Natural Gas up $0 or +0.1% at $2.952
• Gold spot up $2.25 or +0.12% at $1875.93
• Copper up $1.65 or +0.52% at $317.2
• Silver up $0.08 or +0.33% at $24.3189
• Platinum up $0.89 or +0.1% at $888.44