MNI US MARKETS ANALYSIS - Gold Volatility Unsettles Metal Bulls

US TSYS SUMMARY: Edging Higher, With D.C. Negotiations In Focus

Treasuries are a little stronger to start the week, though holidays in Asia meant a late cash open and thin trading in Asia-Pac hours.

• Futures jumped a few ticks as London came in for the cash open, but that move retraced quickly and gains have been only gradual.
• The 2-Yr yield is down 0.4bps at 0.2044%, 5-Yr is down 1.4bps at 0.7533%, 10-Yr is down 2bps at 1.2767%, and 30-Yr is down 1.7bps at 1.9283%. Sep 10-Yr futures (TY) up 3/32 at 134-3 (L: 133-27 / H: 134-03.5) (actually decent volumes considering the quiet Asia-Pac session, ~260k).
• Sharp drops in oil and gold stole the headlines overnight though; equities are a little weaker but off overnight lows.
• A thin data slate to start the week, with just June JOLTS at 1000ET. Fed speakers include Atlanta's Bostic (1000ET) and Richmond's Barkin (1200ET).
• More attention on D.C., where the Senate meets again at 1200ET to pick up on the infra bill again. If no deal to speed up proceedings, bill passage could come 0300/0400ET Tuesday.
• Treas Sec Yellen came out in support to a debt limit rise that's part of a bipartisan and NOT a reconciliation bill, i.e. will be more difficult to pass as it would have to be bipartisan.
• In supply, $105B 13-/26-week bill auction at 1130ET. NY Fed buys ~$1.425B of 10Y-22.5Y Tsy,

EGB/GILT SUMMARY: Firm Start To The Week

European sovereign bonds have started the week on a firm footing while equities are broadly weaker.

• Gilts have outperformed EGBs with cash yields 1-3bp lower on the day and the curve bull flattening. There was some media speculation over the weekend of a breakdown in relations between UK PM Boris Johnson and the Chancellor of the Exchequer Rishi Sunak.
• Bunds have edged higher with the curve 1bp flatter.
• OATs trade in line with bunds with yields 1bp lower across much of the curve.
• It is a similar story for OATs, which have mirrored the move in core EGBs.
• Supply this morning came from Germany (Bubills, EUR3.695bn allotted). France will offer EUR4.0-5.2bn of BTFs later today.
• German trade data for June came in stronger than expected with exports up 1.3% M/M vs 0.3% survey and the trade surplus widening to EUR16.3bn from EUR12.3bn the previous month.

EUROPE OPTION FLOW SUMMARY

Eurozone:
2RH2 100/100.25cs sold at 22.25 in 16.5k (ref 100.39, 21 del)
This was sold in 15k at 22.5 on Friday

FOREX: Commodity-Tied Currencies Shake Off Gold Volatility

• Commodity-tied currencies have been in focus with AUD, ZAR and others seeing early weakness after gold suffered an abrupt and sharp intraday sell-off. The bounce off the lows in gold has helped these currencies claw back initial losses, with the picture far more stable headed into the NY crossover.
• Stock markets sit just below recent highs, with markets generally working against the post-payrolls moves seen Friday. JPY is slightly stronger, with USD/JPY edging off last week's highs, but holding comfortably above 110.00.
• NOK is the poorest performer so far, with USD/NOK inching back toward the 9.00 handle as oil benchmarks extend recent losses.
• The data slate is relatively light Monday, with JOLTS job openings numbers the only real highlight. The central bank speaker schedule should be of more interest, with both Fed's Bostic and Barkin both on the docket.

FX OPTION EXPIRY 

• EUR/USD: $1.1750 (E1.0bln), $1.1800 (E1.5bln), $1.1810 (E552mln)
• USDJPY: Y110.50 ($532mln)

PRICE SIGNAL SUMMARY: Gold Slip Unnerves Bulls

• Fragile and illiquid conditions in precious metals markets saw Gold prices spiral lower in early Asia-Pac trade, 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, and 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 trade firmly, edging higher still to touch fresh contract highs. This follows the recent print above a key near-term resistance at 4101.50, Jul 1 high. The breach of this level places on hold the previously bearish outlook.
• In FX, EURUSD finished Friday sharply lower amid broad USD strength. This puts the bear trigger at the July 21 low of 1.1752 under further pressure and will be a focus headed into the new week. GBPUSD traded lower into the Friday close, fading off key resistance again last week. This puts the pair below the 50-day EMA at 1.3890 which represents key resistance. 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.
• 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.

EQUITIES: Stocks Just Below Last Week's Highs

• Stock markets are mixed, but largely non-directional ahead of the Monday NY crossover. Italy's FTSE-MIB outperforms modestly, higher by 0.4% or so while the UK's FTSE-100 is the laggard - off around 0.3% thanks to notable downtick in Hargreaves Lansdown (-12%) and weakness across oil & gas names.
• Gains across Europe's utilities and healthcare sectors is countered by energy, with soft oil prices undermining the latter.
• In futures space, the e-mini S&P sits just below unchanged, with the index around 10 points or so off the alltime high printed Friday. NASDAQ futures outperform, creeping into positive territory.

COMMODITIES: Thin Conditions Exacerbate Gold Volatility

• Fragile and illiquid conditions in precious metals markets saw gold prices spiral lower in early Asia-Pac trade, 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, and 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.