MNI US MARKETS ANALYSIS - Gold Tilted Higher, Narrows Gap With 2021 High

US TSYS SUMMARY: 5-Yr Supply In Focus

A narrow range in overnight trade again for Treasuries, with the cash curve shifting slightly higher. 5-Yr Note auction the main point on the schedule today.

• Jun 10-Yr futures (TY) steady at at 132-31 (L: 132-26.5 / H: 133-00). Roll activity remains responsible for most of the action: ~680k volume for Jun21 vs ~530k for the Sep contract.
• The 2-Yr yield is up 0.5bps at 0.1466%, 5-Yr is up 0.5bps at 0.7759%, 10-Yr is up 0.7bps at 1.5655%, and 30-Yr is up 0.6bps at 2.2533%.
• Tsys weakened a bit in Asia-Pac trade largely on a surprisingly hawkish RBNZ meeting outcome, but have bounced back a little in European trade, alongside Bunds on continued ECB speaker dovishness.
• We get two appearances by Fed VC Quarles today: 1000ET (on insurance regulations) and 1500ET (on the economic outlook), and he's the last scheduled Fed speaker until Jun 2.
• In supply, we get $26B 2Y FRN auction and $35B in 119-day bills at 1130ET, with $61B 5Y auction at 1300ET. NY Fed buys ~$8.425B of 2.25-4.5Y Tsys.
• In Washington, some attention on first of 2 days of Congressional hearings with the heads of the 6 largest US banks on their pandemic response (starts 1000ET).

EGB/GILT SUMMARY: Bull Flattening

European sovereign bonds have rallied this morning and curve have bull flattened alongside broad weakness in equities.

• Gilt yields are 1-3bp lower on the day with the curve 2bp flattter.
• German bonds have marginally outperformed with long end yields 4bp lower.
• The OAT curve has bull flattened with the 2s30s spread 2bp flatter.
• BTPs have been grinding higher through the morning with cash yields now 2-4bp lower.
• Supply this morning came from Germany (Bund, EUR1.73bn allotted), Italy (BTP/BTPei, EUR4.75bn).
• The French business confidence series produced by INSEE jumped to 108 for May from 95 the previous month and above the 98 consensus.
• UK PM Boris Johnson's controversial former advisor Dominic Cummings has heavily criticised the government over its handling of the coronavirus crisis in a parliamentary hearing today.

EUROPE ISSUANCE UPDATE: Very Weak 15y Bund Auction

German 15y Bund auction - Very weak - technically uncovered with only E1.730bln of bids for a sales target of E2.5bln.
Allots E1.730bln 0% May-36 Bund Avg yield 0.11% (Prev. 0.06%), Bid-to-cover 0.73x (Prev. 1.08x)

Italy sells:
E3.500bln 0% Nov-22 BTP Short Term, Avg yield -0.330% (Prev -0.300%), Bid-to-cover 1.45x (Prev 1.37x)
E1.250bln 0.40% May-30 BTPei Avg yield -0.450% (Prev. -0.600%), Bid-to-cover 1.40x (Prev 1.31x)

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXN1 167.5/166.5 ps, bought for 2 in 33.5k total now
This is a short cover from the RXN1 169.5/168.5/167.5/166.5p condor, when it was bought for 24 in 35k

UK:
0LZ1 99.87/99.75/99.50p fly, bought for 0.25 in 1k
0LZ1 99.62/99.75/100.00 broken call fly bought for 2.75 in 7k. (Was bought for 2.5 yesterday in 20k)

Decent option clips going through today in Equities:
SX7E (Bank stocks) Dec2022, 100c, bought for 8.15 and 8.25 in 13.4k total
SX7E August 2021 92.5p bought for 3.35 in 32k and 3.40 in 8k (40k total)
SX7E June 100c, traded 1.00 in 36k
SX7E (18/06) 90p, look to have been sold at .65 in 20k
SX7E 18/06 92.5p sold at 1.15 in 13k

US:
US 1 Week (expiry next Friday) TY 131p, bought for 04 in 10k

FOREX: NZD At New Highs as RBNZ Hint Hikes to Come

• NZD trades on solid footing, with many sell-side analysts pointing to a hawkish tilt to the RBNZ's policy statement overnight. The new OCR policy path projections now imply rate hikes from Q3 2022, with inflation communications also tweaked. As a result, NZD/USD rallied well, topping the $0.73 level in short order and hitting the best levels since late February in the process.
• At the other end of the table, JPY trades poorly for a second session, although USD/JPY has so far been unable to mount a challenge on the Tuesday high and 50-dma at 109.10.
• AUD is seeing some spillover buying from the NZD rally, while SEK and NOK are retracing slightly lower.
• There are no material economic releases Wednesday, keeping focus on central bank policy for now. ECB's Villeroy, Fed's Quarles and BoC's Lane make up the speaker slate.

FX OPTIONS: Expiries for May26 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2000(E628mln), $1.2075-90(E1.4bln-EUR puts), $1.2195-10(E1.0bln), $1.2215-30(E746mln-EUR puts)
• USD/JPY: Y108.00($1.0bln), Y108.25-35($534mln), Y108.50-60($558mln), Y108.80($604mln), Y109.25($725mln), Y109.50($879mln), Y110.50($717mln)
• GBP/USD: $1.4220(Gbp422mln-GBP puts)
• EUR/GBP: Gbp0.8600-15(E1.1bln)
• EUR/CHF: Chf1.1000(E741mln-EUR puts)
• USD/SEK: Sek8.2650($642mln-USD puts)
• AUD/USD: $0.7600-10(A$648mln), $0.7740-50(A$1.2bln-AUD puts), $0.7770-85(A$1.1bln-AUD puts)
• NZD/USD: $0.7215-17(N$599mln)
• USD/CNY: Cny6.35($650mln), Cny6.4445($500mln-USD puts)

Price Signal Summary - Gold Cracks $1,900

• In the equity space, S&P E-minis maintain a firmer tone having cleared resistance at 4185.00, May 21 high. The focus is on 4238.25, May 10 high. Key trend support lies at 4029.25, May 13 low. EUROSTOXX 50 futures have traded higher too this week and have breached 4036.00, May 10 high. The climb confirms a resumption of the uptrend and opens 4099.00,1.00 projection of the Mar - Jul - Oct 2020 price swing.
• In the FX space, EURUSD maintains a bullish tone. The pair has cleared 1.2245 with sights set on 1.2285 next, Jan 8 high. GBPUSD is trading closer to recent highs and remains bullish. The focus is on 1.4237, Feb 24 high and this year's high print. A break would confirm a resumption of the broader uptrend. USDJPY support is unchanged at 108.34, May 7 low. A bullish theme holds while this support remains intact and attention is on 109.79, May 13 high. A break of 108.34 however would highlight a trendline break drawn off the Jan 6 low and risk a deeper pullback.
• On the commodity front, Gold has broken higher, cementing the bullish theme. The yellow metal has topped $1,900 this morning and is narrowing in on next resistance at the Jan 8 high of $1917.6. There are some signs that markets could be overbought, however, with the 14-day RSI now at its highest level since August last year. Oil contracts have recovered from recent lows and are holding onto this week's highs. Brent (N1) key resistance is at $70.24, May 18 high and this marks the bull trigger. WTI (N1) bulls are eyeing $67.02, May 18 high.
• Within FI, Bunds (M1) continue to climb and are through the 20-day EMA. The next resistance is the 170.49, 50-day EMA. Gilts (M1) are firmer too as the correction higher extends. Key resistance is 128.80, May 7 high.

EQUITIES: Europe Mixed; US Futures Edge Higher

• Asian markets closed higher, with Japan's NIKKEI up 88.21 pts or +0.31% at 28642.19 and the TOPIX up 1.15 pts or +0.06% at 1920.67. China's SHANGHAI closed up 12.015 pts or +0.34% at 3593.357 and the HANG SENG ended 255.15 pts higher or +0.88% at 29166.01
• European stocks are mixed/flat, with the German Dax up 16.44 pts or +0.11% at 15494.39, FTSE 100 down 6.38 pts or -0.09% at 7043.59, CAC 40 up 6.89 pts or +0.11% at 6411.57 and Euro Stoxx 50 up 5.14 pts or +0.13% at 4044.09.
• U.S. futures are edging higher, with the Dow Jones mini up 92 pts or +0.27% at 34363, S&P 500 mini up 12.5 pts or +0.3% at 4198, NASDAQ mini up 34 pts or +0.25% at 13690.25.

COMMODITIES: Metals Lead Gains; Oil Lagging

• WTI Crude down $0.03 or -0.05% at $66.23
• Natural Gas up $0.03 or +1.17% at $2.953
• Gold spot up $6.13 or +0.32% at $1904.94
• Copper up $2 or +0.44% at $452.7
• Silver up $0.05 or +0.18% at $28.1141
• Platinum up $7.6 or +0.64% at $1204.84